Use these links to rapidly review the documentTABLE OF CONTENTS Item 8. Financial Statements and Supplementary Data DIGITAL LINK II, LLC TABLE OF CONTENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K/A(Amendment No. 1)

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from                toCommission File No. 1-13906


Ballantyne Strong, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or other jurisdiction of
incorporation or organization)

47-0587703(I.R.S. Employer Identification No.)4350 McKinley Street, Omaha, Nebraska(Address of principal executive offices)

68112(Zip Code)


Registrant's telephone number, including area code:(402) 453-4444

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of exchange on which registeredCommon Stock, $0.01 par value

NYSE AMEX


Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports filed pursuant to Section 13
or Section 15(d) of the Act. Yes o    No ý

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

Smaller Reporting Company o


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

The aggregate market value of the Company's voting common stock held by non-affiliates, based
upon the closing price of the stock on the NYSE AMEX (formerly the American Stock Exchange) on June 30, 2009 was approximately $27.6 million. The Company does not have any
non-voting common equity.

As of March 16, 2010, 14,184,724 shares of common stock of Ballantyne Strong, Inc., were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on
May 19, 2010 are incorporated by reference in Part III, Items 10, 11, 12, 13 and 14.



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Explanatory Note

Ballantyne Strong Inc. (the "Company") is filing this Amendment No. 1 to its Annual Report on Form 10-K for
the fiscal year ended December 31, 2009 to reflect the following:



This
Amendment No. 1 did not impact the Company's revenue, net earnings, total assets, stockholders' equity or earnings per share.

Except
as stated above, no other information included in the original Form 10-K is being amended. The remaining items contained within this Amendment No. 1
consist of all other items contained in the original Form 10-K, and are included for the convenience of the reader. This Amendment No. 1 continues to speak as of the date of
the original Form 10-K and the Company has not updated the disclosures in this Amendment No. 1 to speak as of any later date. Accordingly, this Form 10-K/A
should be read in conjunction with Company filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-K.

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Page No.PART IItem 1.

Business


3Item 1A.

Risk Factors


12Item 1B.

Unresolved Staff Comments


18Item 2.

Properties


18Item 3.

Legal Proceedings


18Item 4.

Removed and Reserved


18PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


19Item 6.

Selected Financial Data


20Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


21Item 7A.

Quantitative and Qualitative Disclosures about Market Risk


36Item 8.

Financial Statements and Supplementary Data


37Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


75Item 9A(T).

Controls and Procedures


75Item 9B.

Other Information


75PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


76Item 11.

Executive Compensation


76Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


76Item 13.

Certain Relationships and Related Transactions, and Director Independence


76Item 14.

Principal Accounting Fees and Services


76PART IVItem 15.

Exhibits, Financial Statement Schedules


76Signatures


77


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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains not only historical information, but also forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements that are not historical are forward-looking and reflect
expectations for future Company performance. In addition, forward-looking statements may be made in press releases, orally, at conferences, on the Company's worldwide web site, or otherwise, by or on
behalf of the Company. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking
statements involve a number of risks and uncertainties, including but not limited to those discussed in the "Risk Factors" section contained in Item 1A. Given the
risks and uncertainties, readers should not place undue reliance on any forward-looking statements and should recognize that the statements are predictions of future results which may not occur as
anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well
as others not now anticipated. 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 factors on our
business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in the
forward-looking statements. Except as required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting
such forward-looking statements.

PART I

Item 1.    Business

(a)   General Description of Business

General

We are a Delaware Corporation and maintain our corporate office and primary manufacturing facilities in Omaha, Nebraska. We were
founded in 1932 and went public in 1995. Our shares are traded on the NYSE AMEX (formerly the American Stock Exchange) under the symbol BTN. We primarily operate within two business segments, theatre
and lighting. Approximately 96% of fiscal year 2009 sales were from theatre products and approximately 4% were from lighting products.

We
are a manufacturer, distributor and service provider to the theatre exhibition industry on a worldwide basis. Through our Strong® trademark, we can fully outfit and
automate a theatre projection booth for both film and digital projection. We also design, develop, manufacture and distribute lighting systems to the worldwide entertainment lighting industry through
our Strong Entertainment lighting division.

We
also manufacture cinema screens in Joliette, Canada through our Strong/MDI Screens, Inc. subsidiary. We have a sales and service office in Hong Kong. During fiscal 2008, we
opened a sales and service office in Beijing, China to distribute and service digital projection equipment.

Acquisitions/Investments

During the fourth quarter of 2007, we acquired Marcel Desrochers, Inc. ("MDI"), a Canadian manufacturer of screen systems for
the North American cinema screen market. The addition of MDI expanded the breadth of our product lines for the cinema industry. MDI is based in Joliette, Canada.

During
the first quarter of 2007, we acquired certain assets of a product line in the lighting segment called the Technobeam® from High End Systems, Inc. The
Technobeam® light projects logos, images and textures for the entertainment lighting industry.

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On
March 6, 2007, we entered into an agreement with RealD to form an operating entity, Digital Link II, LLC (the "LLC"). Under the agreement, the LLC was formed with
Ballantyne and RealD as the only two members with membership interests of 44.4% and 55.6%, respectively. The LLC was formed for purposes of commercializing certain 3D technology and to fund the
deployment of digital projector systems and servers to exhibitors.

During
fiscal 2006, we acquired certain assets and assumed certain liabilities of National Cinema Service Corp. ("NCSC"). This business was folded into a wholly-owned subsidiary, Strong
Technical Services, Inc. ("STS"). STS was formed for the purpose of becoming a national provider of cinema services including film and digital projector maintenance, repair, equipment
installations, site surveys and other services.

Divestitures

During the second quarter of 2008, we sold our coater and marinade product line in exchange for $275,000 in cash. The product line was
sold to a former Chief Financial Officer of the Company.

During
the fourth quarter of 2007, we completed the sale of substantially all of the assets and liabilities of Design & Manufacturing, Inc. ("Design"). Design manufactured
our film handling equipment which we sell to the Theatre industry. We continue to distribute the full line of film handling equipment, with the difference being the product is now purchased from the
party who acquired Design at certain third-party agreed-upon pricing.

(b)   Operating Segments

We conduct our operations through two primary business segments: Theatre and Lighting. The presentation of segment information reflects the manner in which
management assesses performance.

Theatre:This segment consists of the manufacture, distribution and service of film and digital projection equipment and accessories for
the movie
exhibition industry.

Lighting:This segment consists of the design, manufacture and distribution of lighting systems to the worldwide entertainment lighting
industry.

Refer
to the Business Segment Section set forth in Note 26 of our consolidated financial statements for further information concerning the amounts of revenues, profits and total
assets attributable to each segment for the last three fiscal years.

(c)   Narrative Description of Business

The following information describes the principal products produced, services rendered, principal markets for, and methods of distribution of each business
segment of the Company.

Theatre Segment

Overview

According to the National Association of Theatre Owners, there are approximately 107,000 screens worldwide that play major movie
releases, with approximately 39,000 screens located in the United States. Although the theatre exhibition industry still remains primarily based on the use of film technology to deliver motion picture
images to the public, the transition to digital images (digital cinema) accelerated in 2009 after several years of research and development and is expected to significantly expand in the coming years.
Factors which have limited the digital cinema implementation in the past have included high digital system costs; product availability, security, control and implementation issues, and a lack of
standards for system quality and interoperability. Though digital cinema offered significant potential savings via reduced film delivery and handling costs to movie

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distributors,
the financial models to justify the expenditures required by the exhibitor had been limited up to now. Digital Cinema Initiatives LLC ("DCI"), a venture created by the major
motion picture studios, has made significant progress in resolving these standards and technology issues. In addition, there have been several business plans created to solve the issue of which party
would pay for the substantial costs of retrofitting theatre locations currently using film-based projection equipment. Many models now provide a method whereby the motion picture studios
or other content providers pay for the digital equipment over time via Virtual Print Fees to third party facilitators each time a projector shows a movie digitally. However, other means of financing
could arise as the digital cinema business models mature.

Products

Digital EquipmentThrough distribution agreements with NEC and its subsidiaries, we distribute Starus DLP Cinema projectors. NEC offers the Starus
NC2500S-A for large screen multiplexes, the NC1600C-A for medium-sized screens and the Starus NC800C for small theatres. All the projectors use the DLP cinema technology from
Texas Instruments. The Starus NC2500S-A is designed for multiplexes with large screens 49 feet wide and larger. The projector delivers 2K (2048 × 1080) resolution, 3D
capabilities and high contrast images (>2000:1). The Starus NC1600C-A projector is designed for medium-sized screens up to 65 feet wide. The projector delivers 2K
(2048 × 1080) resolution, 3D capabilities and high contrast images (>2200:1). The Starus NC800C projector is designed for screens 10 to 25 feet wide to employ DC 2K DMD
technology at 2048 × 1080 pixel native resolution.

NEC
has also announced that three new projectors will be introduced to complement or replace the current line of digital projectors. The NC1200C, with 9,000 lumens of brightness is for
screen sizes of up to 46 feet wide. The NC2000C at 17,600 lumens is for screens up to 65 feet wide, while the ultra-bright NC3200S at 31,000 lumens is for screens up to 105 feet wide. The advanced DLP
Cinema® light engine provides contrast ratios up to 2200:1, which enables better reproduction of detail in dark scenes. All three models are engineered for simplified lamp and parts
replacement and include the new Texas Instruments Series 2 electronics. These new projectors are expected to be available in 2010.

Through
a formal distribution agreement with GDC Technology (USA), LLC, the Company distributes GDC's line of digital cinema servers in North and South America. However, the
Company also distributes servers of certain of GDC's competitors as well.

We
also distribute several accessories for digital cinema projectors including, but not limited to, replacement parts, lens, lamps and automations, among other items.

The
digital equipment we distribute can fully outfit and automate a movie projection booth.

Motion Picture Projection EquipmentWe are a manufacturer and distributor of
commercial motion picture projection equipment worldwide. Our commercial motion picture projection equipment can fully outfit and automate a motion picture projection booth and consists of 35mm and
70mm motion picture projectors, xenon lamphouses and power supplies, a console system combining a lamphouse and power supply into a single cabinet, soundhead reproducers and related products such as
sound systems. The commercial motion picture projection equipment is marketed under the industry-wide recognized trademarks of Strong® and Simplex®. We manufacture
the majority of the motion picture projection systems in-house, except for the audio rack components, lamps and lenses. This equipment may be sold individually or as an integrated system
with other components manufactured by us.

We
also distribute film handling equipment consisting of a three-deck or five-deck platter and a make-up table, which allows the reels of a
full-length motion picture to be spliced together, thereby eliminating the need for an operator to change reels during the showing of the motion picture. Our film transport systems are
sold under the Strong® name.

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Cinema ScreensThrough our screen manufacturing company in Canada, we manufacture and sell screens for both digital and film applications to the
theatre industry. In most instances, a screen can be used interchangeably with either a digital or film projector. However, there are certain digital 3D applications such as the technology by RealD
that require special "silver" screens that we manufacture and were specially designed for digital or 35mm projection. We also manufacture screens for the IMAX Corporation that are used for
large-format applications.

Xenon LampsWe distribute xenon lamps for resale to the theatre (both digital and film) and lighting industries through a distributorship agreement
with Phillips.

Replacement PartsWe have a significant installed base of over 50,000 motion picture projection systems. Although these products have an average
useful life in excess of 20 years, periodic replacement of components is required as a matter of routine maintenance, in most cases with parts manufactured by us. We also distribute parts to
the growing digital cinema base of projectors.

LensesWe sell digital and film projection lenses throughout the world.

Service & MaintenanceThrough our wholly-owned subsidiary, Strong Technical Services, Inc. (STS) we are a national provider of cinema
services including film and digital projector maintenance, repair, installations, site surveys and other services. We believe that there will be increased demand for service due to the upcoming
digital conversion as theatre operators may not have the necessary technical expertise to maintain the sophisticated nature of digital projectors and accessories. In addition, we feel that there are
opportunities to provide service for other items at a theatre complex other than maintaining the projection equipment. STS is certified to install and service all digital, film and audio equipment,
and related peripherals including the equipment of our competitors. STS also offers service contracts to the theatre exhibition industry where for a set monthly charge, a series of maintenance or
repair services will be performed.

Markets

Our theatre business was founded in 1932. Our broad range of both standard and custom-made equipment along with other
ancillary equipment can completely outfit and automate a digital or film movie projection booth.

We
market and sell our products to end users and through a network of domestic and international dealers to major theatre exhibitors. During the past few years we have increasingly sold
directly to the end-users thereby bypassing this distribution network. We believe this trend will continue in the future and is changing how we market our products to the industry due in
large part to the shift to digital cinema. Sales and marketing professionals principally develop business by maintaining regular personal customer contact including conducting site visits, while
customer service and technical support functions are dispatched when needed. In addition, we market our products in trade publications such asFilm
JournalandBox Officeand by participating in annual industry trade shows such as ShoWest, ShowEast, CineAsia in Asia and
Cinema Expo in Europe, among others. Our sales and marketing professionals have extensive experience with the Company's product lines and have long-term relationships with many current and
potential customers.

Our
current distribution agreements allow us to market digital projectors in North and South America, including the Caribbean. In addition, we have distribution rights in China, Hong
Kong and certain other areas of Asia.

Competition

The markets for our products in the theatre segment are highly competitive. Competition in the digital cinema market includes two other
licensed OEM's of the Texas Instruments' 2K DLP Cinema

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technology
besides our partner, NEC; Christie Digital Systems and Barco. We also compete with SONY, which uses their own 4K digital cinema technology. During 2009, SONY made significant inroads into
gaining market share when they announced agreements with Regal Cinemas, Inc. and AMC Entertainment, Inc. to deploy their 4K digital cinema projectors into these two large circuits. In
response to this threat, Texas Instruments is developing their own 4K resolution solution which is expected to be available in late 2010. We believe that once the DLP 4K solution is ready for sale,
the perceived difference in resolution will diminish. We compete in the digital marketplace primarily on the basis of fulfillment and delivery, price and after-sale technical support.

Major
competitors for our products in the film cinema marketplace include Christie Digital Systems, Cinemeccanica SpA and Kinoton GmbH. The market for film products in the U.S.
primarily comes from the sale of replacement parts and lenses due to the transition to digital cinema, which has significantly affected the sale of film projectors. We continue to sell film projectors
to other parts of the world that are not as advanced regarding digital cinema. We compete oversees based on price, product name and customation capabilities.

We
cannot assure that our equipment, whether it be film or digital equipment will not eventually become obsolete as technology advances. For a further discussion of potential new
competition, see the "Business Strategy" section of this report under the caption "Expand Digital Opportunities".

The
majority of our competitors for our film and digital equipment have significantly greater resources than Ballantyne.

Lighting Segment

Overview

Under the trademark Strong®, we are a supplier of long-range follow spotlights and other entertainment and
architectural lighting products which are used for both permanent and touring applications. Under the trademark Strong Britelight®, we are a supplier of high intensity searchlights for the
motion picture production, television, live entertainment, theme park and architectural industries. We also sell high intensity searchlights under the trademark Sky-Tracker®.

Products

FollowspotsWe have been a developer, manufacturer and distributor of long-range followspots since 1950. Our followspots are primarily
marketed under the Strong® trademark and recognized trademarked models such as Super Trouper® and Gladiator®. The Super Trouper® followspot has been the
industry standard since 1958. Our long-range followspots are high-intensity general use illumination products designed for both permanent installations, such as indoor arenas,
theatres, auditoriums, theme parks, amphitheatres and stadiums, and touring applications. Our manufactured followspot line consists of six basic models ranging in output from 850 watts to 4,500 watts.
Lower wattage models, which have a range of 20 to 110 feet, are compact, portable and appropriate for small venues and truss mounting. The 4,500-watt model, which has a range of 300 to 600
feet, is a high-intensity xenon light followspot appropriate for large theatres, arenas and stadiums. Most of our followspots employ a variable focal length lens system which increases the
intensity of the light beam as it is narrowed from flood to spot.

In
response to a section of the marketplace demanding less expensive, smaller and more user-friendly products, we have introduced certain new spotlights over the last few
years. We distribute an Italian manufactured followspot called the Canto. The Canto spotlight product line consists of seven basic models ranging in output from 250 watts to 2,000 watts. We also
designed a new followspot called the Radiance®. The Radiance® is a mid-range followspot powered by an 850 watt metal halide lamp.

Promotional and Other Lighting ProductsWe are a supplier of high intensity promotional searchlights and lighting systems for the motion picture
production, television, live entertainment,

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theme
park and architectural markets. Strong Britelight® specialty illumination products have been used in numerous feature films and have also been used at live performances such as Super
Bowl half-time shows, the opening and closing ceremonies of the Winter Olympics and are currently illuminating such venues as the Luxor Hotel and Casino and the Stratosphere Hotel and
Casino in Las Vegas, Nevada. Our Sky-Tracker® high intensity promotional searchlights come in single or multiple head configurations, primarily for use at outside venues
requiring extremely bright lighting that can compete with other forms of outdoor illumination. These high intensity promotional searchlights have been used at Walt Disney World, Universal Studios,
various Olympic Games and grand openings. We purchased a product line during 2007 called the Technobeam® which projects logos, images and textures. This product is used in a variety of
entertainment establishments.

In
2008 we expanded our effort to add new distribution lines to our lighting offerings. These new lines include a broad set of LED products marketed under the Litetude brand name that
are made for us in China and expanded offerings from our Italian supplier of Canto.

LED ProductsDuring 2010, we expect to introduce a new line of LED lighting fixtures. The line will be marketed under the trademark of
Solutions. We will introduce 650 and 900 watt systems. These lights are designed to fill a demand for efficient LED based lighting solutions to the entertainment lighting marketplace. We
also intend to market these LED products to the entertainment and architectural lighting markets.

Markets

We sell our lighting products through a combination of a small direct sales force and commissioned representatives to arenas, stadiums,
theme parks, theatres, auditoriums and equipment rental companies. Our followspot products are marketed using the Strong® trademark and are used in over 100 major arenas throughout the
world. Our high intensity promotional searchlights are marketed under the Sky-Tracker® trademark. We expect to market our new LED products via our internal sales force.

Competition

The markets for our lighting products are also highly competitive. We compete in the lighting industry primarily on the basis of
quality, price, and branding and product line variety. Many of our competitors for our lighting products have significantly greater resources than Ballantyne.

Business Strategy

Our strategy combines the following key elements:

Expand Digital Opportunities.We currently are a party to distribution agreements with NEC and their subsidiaries whereby we distribute
their line of
Starus DLP Cinema projectors to certain areas of the world. We intend to garner market share in the digital cinema marketplace by leveraging our current industry leadership and relationships and
gaining additional territories to distribute product under our distribution agreements with NEC.

We
believe we can be a successful participant in the marketplace due to our agreements with NEC, our long term industry relationships and the industry's familiarity with our Company and
its large installed base worldwide. However, no assurance can be given that we will continue to be a part of the digital cinema marketplace. If we are unable to take advantage of future digital cinema
opportunities or respond to the new competitive pressures, the result could have a material adverse effect on our business, financial condition and operating results. In addition, the current
relationships with NEC are through non-exclusive distributorship agreements, some of which can be terminated by either party upon 90 days notice. In addition, the gross margin we
generate based on these distribution agreements

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is
lower than the margin we currently experience on our film projectors. It is unclear at this time if this lower margin can be offset by the expected increased price point and sales volume digital
cinema is expected to add when the rollout occurs.

Expand Service Company.We believe that there will be increased demand for service due to the upcoming digital conversion as theatre
operators may
not have the necessary technical expertise to maintain the more technical nature of digital projectors and accessories. In addition, we feel that there are opportunities to provide service for other
items at a theatre complex other than just maintaining the projection equipment. Our STS service subsidiary is forming a core business to service this digital and film marketplace. We built our STS
service subsidiary to be product agnostic whereby we can service not only the NEC projectors we distribute but also our competitors equipment as well. STS is certified to install and service most
digital, film and audio equipment, and related peripherals, including our competitors. An example of this agnostic plan was the signing of a professional services agreement wherein STS will provide
Barco, Inc., digital projection service and support if their customers request our services. Barco, Inc. is a competitor of ours for digital projectors. The agreement is a
one-year, non-exclusive agreement with renewal options.

Transition from a Manufacturer to a Distributor.We believe that the digital transition taking place within the theatre industry will
continue to
substantially reduce the demand for the products we manufacture and that we will transition to more of a distribution and service business model. However, we believe that the Company will continue to
manufacture film equipment and parts for a period of time. We will also continue to manufacture cinema screens through our screen subsidiary and also manufacture lighting products for our lighting
segment. We continue to reduce costs at our Omaha manufacturing facility through a cost and inventory reduction program designed to bring costs and inventory in line with declining revenues and
production.

Expand Screen Business.We plan on introducing new screen products to the theatre exhibition industry, an example of which is the
development of new
"High Gain" screens that could save theatre exhibitors operating costs. In addition, we are developing a business model to address international sales opportunities.

Growth Strategy.Our strategy is to pursue complementary strategic acquisitions both within our current operating segments and also in
other markets
that would fit in our business plans. We expect to make acquisitions in the future. However, we cannot assure that we will be able to locate appropriate acquisitions in the future, that any identified
candidates will be acquired or that acquired operations will be effectively integrated or prove profitable. We are also focusing efforts at increasing our product offerings to the theatre industry as
part of a strategy to expand our distribution capabilities.

Expand International Presence.We believe that international sales will continue to account for a significant portion of our digital
sales and that
film-related sales will continue for a
longer period of time than for the U.S. as the full scale rollout of digital cinema is expected to lag behind. We continue to expand our distribution capabilities by allocating more resources in
international countries. We are also working with NEC to expand our distribution territories for selling their digital projector line beyond North and South America, Hong Kong, China and certain other
areas of Asia.

Expand Lighting Segment.Our goal is to increase revenues using the remaining product lines within the segment and by increased
emphasis on expanding
our product offerings by developing and introducing new products and through strategic acquisitions. The new LED product offering is an example of such a strategy.

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Subsidiaries

We have four wholly-owned operational subsidiaries: Strong Westrex, Inc., Strong Technical Services, Inc., Strong/MDI
Screen Systems, Inc. and the American West Beijing Trading Company, Ltd.

Strong
Westrex, Inc. is the holding company for our sales and service office in Hong Kong and owns 100% of the American West Beijing Trading Company, Ltd.

Strong
Technical Services, Inc. was formed in 2006 upon the purchase of NCSC to service the film and digital marketplace.

Strong/MDI
Screen Systems, Inc. manufactures cinema screens and related accessories.

American
West Beijing Trading Company, Ltd. is located in Beijing, China and is our sales and service office for China.

Backlog

At December 31, 2009 and 2008, we had backlogs of $4.4 million and $10.0 million, respectively. Such backlogs
mainly consisted of orders received with a definite shipping date within twelve months; however, these orders are subject to cancellation. Our products are generally shipped within a few weeks
following receipt of orders. The dollar amount of our order backlog is therefore not considered by management to be a leading indicator of our expected sales in any particular fiscal period.

Manufacturing

Our manufacturing operations are conducted in Omaha, Nebraska and Joliette, Canada. The Omaha facilities encompass design, fabrication,
assembly and shipping of our various product lines excluding the majority of digital product lines. This central location reduces our transportation costs and delivery times of products throughout the
United States. Our manufacturing strategy is to minimize costs through manufacturing efficiencies and reduce fixed costs pertaining to manufacturing film projection equipment. As discussed in the
"Business Strategy" portion of this document, we believe that the digital transition taking place within the theatre industry has and will substantially reduce the demand for the products we
manufacture and that we will transition to more of a distribution and service business model. However, we believe that the Company will continue to manufacture film equipment and parts for a period of
time. We will also continue to manufacture cinema screens through our screen subsidiary in Joliette, Canada and also manufacture lighting products for our lighting segment. We are implementing
programs at our Omaha facility to reduce costs through a cost and inventory reduction program designed to bring costs and inventory in line with revenues.

The
manufacturing operations in Joliette, Canada consist of a 50,000 square-foot facility for the manufacture and shipping of the cinema screen systems business. These
facilities include a 90-foot-high PVC screen painting facility that houses two paint rigs to accommodate IMAX large format screens. They also manufacture screens for
2-D and 3-D capabilities.

Quality Control

We believe that our design standards, quality control procedures and the quality standards for the material and components used in our
products have contributed significantly to the reputation of the products for high performance and reliability. Inspection of incoming material and components as well as the testing of all of the
Company's products during various stages of assembly are key elements of this program.

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Warranty Policy

We generally provide a warranty to end users for substantially all of our products, which normally covers a period of 12 months,
but is extended under certain circumstances and for certain products. Under our warranty policy, we will repair or replace defective products or components at our election. Costs of warranty service
and product replacements were approximately $0.3, $0.6 and $0.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Patents and Trademarks

We own or otherwise have rights to numerous trademarks and trade names used in conjunction with the sale of our products. We currently
own one patent. We believe our success will not be dependent upon patent or trademark protection, but rather upon our scientific and engineering "know-how" and research and production
techniques.

Employees

As of March 16, 2010, we had a total of 181 employees. Of these employees, 91 were considered manufacturing, 4 were executive,
40 were considered service related and 46 were considered sales and administrative. We are not a party to any collective bargaining agreement and believe that the relationship with our employees is
good.

Environmental Matters

We are subject to various federal, state and local laws and regulations pertaining to environmental protection and the discharge of
material into the environment. During 2001, we were 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 ("EPA") and the Nebraska Department of Health and Human Services 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 cost of long term maintenance. In connection with the
AOC, we have paid our share of the costs. At December 31, 2009, we have provided for management's estimate of any future payments relating to this matter which are not material to the
consolidated financial statements.

Stockholder Rights Plan

On May 26, 2000, the Board of Directors of the Company adopted a Stockholder Rights Plan. Under terms of the Rights Plan, which
expires June 9, 2010, Ballantyne 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 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 our common stock at an exercise price of half the market price.

Executive Officers of the Company

John P. Wilmers, age 65, has been our President and CEO since March 1997 and a Director since 1995.

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Christopher
Stark, age 49, assumed the responsibilities of VP-Operations in May of 2007 and is currently Senior Vice President and Chief Operating Officer.

Ray
F. Boegner, age 60, has been Senior Vice President since 1997. Mr. Boegner joined us in 1985 and has acted in various sales roles.

Kevin
S. Herrmann, age 44, assumed the responsibilities of CFO, Corporate Secretary and Treasurer in November 2006. Prior to the appointment, Mr. Herrmann had been our Corporate
Controller since 1997.

Information available on Ballantyne Website

We make available free of charge on our website (www.ballantyne-strong.com) through a link to the Securities and Exchange Commission
("SEC") website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon as reasonably practical after we electronically file such material with, or
furnish it to, the SEC. However, information posted on our website is not part of the Form 10-K. The Board of Directors has adopted the following governance documents which are also
posted on our website:



These
corporate governance documents are also available in print to any stockholder upon request by writing to:



Financial Information About Geographic Areas

The information called for by this item is included in Note 26 of our consolidated financial statements in this report.

NYSE AMEX Stock Exchange Certification

On June 30, 2009, our Chief Financial Officer certified to the NYSE AMEX that he was not aware of any violation by the Company
of the NYSE AMEX Corporate governance listing standards as of that date. This certification is an annual certification required by the NYSE AMEX.

1A.  Risk Factors

You
should carefully consider the following risk factors and other information contained in this Annual Report on Form 10-K before investing
in shares of our common stock. Investing in our common stock involves a high degree of risk. If any of the following risk factors actually occurs, our business, financial condition and results of
operations could be materially and adversely affected. In that event, the trading price of our common stock could decline and you may lose part or all of your

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investment.
We undertake no obligation to revise or update any forward-looking statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events. Also
refer to the note regarding Forward-Looking Statements in Item 7 of Part II of this Form 10-K.

NEC is the sole supplier of the digital projectors we distribute to the theatre industry.

Through distribution agreements with NEC, we distribute their Starus DLP Cinema projectors to North and South America, Hong Kong, China
and certain other areas of Asia. These agreements are non-exclusive distributorship agreements, some of which could be terminated with 90 days advance notice. If we are unable to
maintain our relationship with NEC, the results would have a material adverse impact on our business, financial condition and operating results until we could find an alternative source of digital
equipment to distribute. Further, there can be no assurance that an alternative source of digital equipment could be found on favorable terms. We are also dependent on NEC to supply us digital
products in a timely manner and if there were delays in receiving product, we could lose market share which would negatively affect our operations. In addition, the current relationship with NEC is a
non-exclusive
distributorship agreement and as such the gross margin is and will be lower than the margin we currently experience on our film projectors. It is unclear at this time if this lower margin can be
offset by the expected increased price point and sales volume digital cinema is expected to add when the digital rollout occurs.

Interruptions of, or higher prices of components from NEC and other vendors may affect our results of operations and financial performance.

We are dependent on our vendors and suppliers for certain products in addition to the digital products we purchase from NEC. We believe
we have good vendor relationships and that we are generally able to obtain adequate pricing and other terms from vendors and suppliers. However, if we fail to maintain satisfactory relationships with
our vendors and suppliers or if our vendors and suppliers experience significant financial problems, we could experience difficulty in obtaining needed goods and services. Some vendors could also
decide to reduce inventories or increase prices to increase cash flow given current economic conditions. We utilize a single contract manufacturer for each of our intermittent movement components,
lenses and xenon lamps on the film side and as discussed earlier, NEC is currently the sole supplier for the digital projector we distribute to the theatre industries. The loss of any one or more of
the contract manufacturers could have an adverse effect on the Company unless alternative manufacturing arrangements are secured. We are not dependent upon any one contract manufacturer or supplier
for the balance of our raw materials and components. The industry transition to digital cinema is currently in the initial stages and during this time, there could be pricing pressures placed upon us
as we market the NEC line of digital equipment. While our partnership with NEC to-date has been to strategically price the NEC projectors to the market-place, there are no assurances that
if future pricing pressures arise that NEC will drop their prices to allow us to remain competitive. In addition, volatility in the price for certain raw materials and components such as steel and
fuel could adversely affect our financial results.

If the current digital technology changes to a format not supported by the DLP cinema technology from Texas Instruments, we could lose our ability to participate fully in
the digital cinema market place.

We cannot assure you that there will be a continued demand for the digital cinema products we distribute. NEC, along with two other
licensed OEM's of the Texas Instruments' DLP Cinema technology currently have the majority of the market share for digital projection equipment. However, there are also other companies such as SONY
using different digital technologies in the marketplace. There can be no assurance that these other technologies will not gain traction in the exhibition industry which could affect our ability to
fully participate in the digital cinema market place. During 2009, SONY made significant inroads into gaining market share when they announced agreements with Regal

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Cinemas, Inc.
and AMC Entertainment, Inc. to display their 4K digital Cinema projectors into these two large circuits. While we believe Texas Instruments is taking steps to respond to
the SONY threat, there can be no assurances that they will be successful.

If
we were forced to participate in digital cinema in other ways than being a distributor and service provider, we may have to leverage the Company. There is no assurance that we would
be able to access sufficient capital given the tightening of the global credit markets.

Our 44.4% ownership in our joint venture with RealD is subject to credit and concentration risk.

Digital Link II, LLC, ("Digital Link II") was formed between Ballantyne and RealD for the purposes of commercializing certain 3D
technology and to fund the deployment of digital projection systems to third party exhibitors. As of December 31, 2009, Digital Link II has deployed $12.9 million of such projection
equipment, net of accumulated amortization of $3.1 million. Such equipment is subject to use agreements with certain exhibitors whereby the exhibitors must purchase the equipment upon the
occurrence of certain triggering events. However, if any of these exhibitors would file for bankruptcy protection or be unable to fulfill their commitments in other ways, Digital Link II would be
forced to remove the equipment and attempt to resell such equipment. At this time, it is unclear what the financial impact would be to the joint venture, however, it would likely have a material
adverse effect on Digital Link II and also our financial condition and results of operations.

In
addition, Digital Link II has entered into notes payables bearing interest rates ranging from 7.0% to 7.25% to finance a portion of the deployments. Ballantyne and RealD have provided
guarantees for such notes in the event that Digital Link II would be unable to fulfill the principal and interest
obligations under such notes. As of December 31, 2009, we have outstanding guarantees of $1.3 million (excluding interest) for our 44.4% share.

During
2010, we expect Digital Link II to deploy more equipment and as such, our exposure is expected to increase.

The markets for our products are highly competitive.

The domestic and international markets for our product lines are highly competitive, evolving and subject to rapid technological and
other changes. We expect the intensity of competition in each of these areas to increase in the future. Competitors for our digital equipment have significantly greater resources than we do. In
addition, many of our competitors are manufacturing their own equipment, whereas, we employ a distribution business model through our distribution agreements with NEC. As a result, we may suffer from
pricing pressures that could adversely affect our ability to generate revenues. If we lose market share due to these issues, we may be unable to lower our cost structure quickly enough to offset the
lost revenue. If we are unable to compete successfully, our business and results of operations will be seriously harmed.

Our business is subject to the economic and political risks of selling products in foreign countries.

Sales outside the United States (mainly theatre sales) continue to be significant, accounting for 46% of consolidated sales in fiscal
2009. We are seeking to expand our share of foreign sales, which we expect will continue to account for a significant portion of our revenues. Foreign sales are subject to political and economic
risks, including political instability, currency controls, fluctuating exchange rates with respect to sales not denominated in U.S. dollars, changes in import/export regulations, tariffs and freight
rates. An increasing amount of our foreign sales are being denominated in non-U.S. denominated sales. During 2009, such sales rose to $18.5 million compared to $6.6 million
in 2008. To the extent that orders are denominated in foreign currencies, our reported sales and earnings are more subject to foreign exchange fluctuations. In addition, there can be no assurance that
our remaining international customers will continue to accept orders denominated in U.S. dollars. In addition, for

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those
sales which are denominated in U.S. sales, a weakening in the value of foreign currencies relative to the U.S. dollar could have a material adverse impact on us by increasing the effective price
of our products in international markets. Certain areas of the world are also more cost conscious than the U.S. market and there are instances where our products are priced higher than local
manufacturers. We are also exposed to foreign currency fluctuations between the Canadian and U.S. dollar due to our
screen manufacturing facility in Canada where a majority of their sales are denominated in the U.S. dollar while their expenses are denominated in Canadian currency. We cannot assure that these
factors will not adversely affect our foreign activities in the future.

The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results
of operations, financial condition or strategic objectives.

Our global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies,
which could result in conflicting legal requirements. These laws and regulations are complex, change frequently, have tended to become more stringent over time and increase our cost of doing business.
These laws and regulations include import and export control, environmental, health and safety regulations, data privacy requirements, international labor laws and work councils and
anti-corruption and bribery laws such as the U.S. Foreign Corrupt Practices Act, the U.N. Convention Against Bribery and local laws prohibiting corrupt payments to government officials. We
are subject to the risk that we, our employees, our affiliated entities, contractors, agents or their respective officers, directors, employees and agents may take action determined to be in violation
of any of these laws, particularly as we expand our operations through organic growth and acquisitions. An actual or alleged violation could result in substantial fines, sanctions, civil or criminal
penalties, debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might
adversely affect our results of operations, financial condition or strategic objectives.

Current negative economic conditions could adversely affect our results.

The current issues in the global credit markets and weaker economies may continue to negatively impact the Theatre and Lighting markets
we serve. This environment could serve to reduce demand for our products and adversely affect our operating results. These economic conditions may also impact the financial condition of one or more of
our key suppliers, including NEC, which could affect our ability to secure product to meet our customers' demand.

Our financial results and growth depend largely on the health of the theatre exhibition industry.

In 2009, approximately 96% of our revenues resulted from sales to the theatre exhibition industry. From fiscal years 2000 to 2002, this
industry experienced an unprecedented three-year decline. Several exhibition companies filed for federal bankruptcy protection. This resulted in our revenues declining from
$83.4 million in fiscal 1999 to $33.8 million in fiscal 2002.
While the health of the theatre exhibition industry has improved significantly, there are still risks in the industry which result in continued exposure to Ballantyne. In addition, growth in the
number of new movie screens may be adversely affected by the economy or other factors such as the global credit situation as the industry is very capital intensive. A lack of movie screen growth would
have a material adverse effect on our business, financial condition and results of operations.

The
industry is also in the initial stages of a transformation from film to digital equipment. Theatre exhibition companies plan to retrofit their existing complexes by removing the film
equipment and replacing it with digital. This transformation is expected to take large amounts of capital. Due to weakening global credit markets, this process has been delayed to a significant
degree. If the credit

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markets
remain weak, there is no assurance that this process will take place near-term. There is significant uncertainty as to how this delay would affect our Company's operations.

We are substantially dependent upon significant customers who could cease purchasing our products at any time.

Our top ten customers accounted for approximately 49% of 2009 consolidated net revenues. While we believe our 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 these significant customers could
have a material adverse effect on our business, financial condition and results of operations.

The Company has recorded deferred tax assets that are subject to annual valuation testing.

At December 31, 2009, we have recorded net deferred tax assets of $2.2 million. 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. If management would determine that some or all of
these assets would not be realized, valuation reserves would be required which would have a material adverse affect on our results of operations.

Difficulty in recruiting and retaining qualified technicians could hamper our business model pertaining to our service business.

We believe that there will be increased demand for service due to the upcoming digital conversion as theatre operators may not have the
necessary technical expertise to maintain the more technical nature of digital projectors and accessories. Once the rollout of digital cinema begins, competition for these qualified technicians will
increase and we cannot predict whether we will experience future technician shortages. If such a shortage were to occur, we could be unable to properly provide the necessary services to our customers
and subsequently lose market share. In addition, if technician salary increases were necessary to attract and retain them, our results of operations would be negatively impacted to the extent we could
not pass those additional costs to our customers. Finally, because the large scale rollout of digital cinema has not occurred, we cannot assure you that we will be able to successfully operate the
service business in a profitable manner as we have limited experience with the volume of work that will be necessary. Our efforts to take care of our customers' needs could lead to increased operating
and capital costs we have not planned on.

Growth through acquisition is a part of our business plan and we may not be able to successfully identify, finance or integrate acquisitions.

As discussed in further detail in the "Business Strategy" portion of Item 1, our strategy is to pursue complementary strategic
acquisitions in the theatre and other markets that would fit in our business plans. We expect to make acquisitions in the future. However, we cannot assure that we will be able to locate appropriate
acquisition candidates, that any identified candidates will be acquired or that acquired operations will be effectively integrated or prove profitable. Additionally, our credit facility with First
National Bank of Omaha currently prohibits Ballantyne from making acquisitions over $7 million without the bank's consent.

While we believe we currently have adequate internal control over financial reporting, we are required to assess our internal control over financial reporting on an annual
basis.

Section 404 of the Sarbanes-Oxley Act of 2002 and the accompanying rules and regulations promulgated by the SEC to implement it,
require us to include in our Annual Report on Form 10-K an assessment by our management regarding the effectiveness of our internal control over financial

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reporting.
The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year. This assessment must include
disclosure
of any material weaknesses in our internal control over financial reporting identified by management. During this process, if our management identifies one or more material weaknesses in our internal
control over financial reporting that cannot be remediated in a timely manner, we will be unable to assert such internal control is effective. While we currently believe our internal control over
financial reporting is effective, the effectiveness of our internal controls in future periods is subject to the risk that our controls may become inadequate because of changes in conditions, and, as
a result, the degree of compliance of our internal control over financial reporting with the applicable policies or procedures may deteriorate. If we are unable to conclude that our internal control
over financial reporting is effective (or if our independent auditors disagree with our conclusion), we could lose investor confidence in the accuracy and completeness of our financial reports, which
could have an adverse effect on our stock price.

If we fail to retain key members of management, our business may be materially harmed.

Our success depends, in substantial part, on the efforts and abilities of our current management team. Many of these individuals have
acquired specialized knowledge and skills with respect to Ballantyne and its operations. If certain of these individuals were to leave unexpectedly, we could face difficulty in hiring qualified
successors and could experience a loss in productivity while any successor obtains the necessary training and experience.

Our stock price is vulnerable to significant fluctuations.

The trading price of our common stock has been highly volatile in the past and could be subject to significant fluctuations in response
to variations in quarterly operating results, general conditions in the industries in which we operate and other factors. In addition, the stock market is subject to price and volume fluctuations
affecting the market price for the stock of many companies generally, which fluctuations often are unrelated to operating performance.

Certain anti-takeover provisions in Ballantyne's governing documents could make it more difficult for a third party to acquire Ballantyne.

The Board of Directors has adopted a Stockholder Rights Plan. Under the terms of the Rights Plan, which expires June 9, 2010, we
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), acquires 15% or more of
our common stock or announces a tender offer for 15% or more of our common stock. Under certain circumstances, the Rights Plan allows stockholders, other than the acquiring person or group, to
purchase our common stock at a price that is one-half the market price.

Our
Certificate of Incorporation also provides for, among other things, the issuance of 1,000,000 shares of preferred stock, par value $0.01 per share. The Board of Directors is
authorized, without stockholder approval, to cause Ballantyne to issue preferred stock in one or more series and to fix the voting powers and the designations, preferences and relative, participating,
optional or other rights and restrictions of the preferred stock. Accordingly, we may issue a series of preferred stock in the future that will have preference over the common stock with respect to
the payment of dividends and upon our liquidation, dissolution or winding up or have voting or conversion rights that could adversely affect the voting power and ownership percentages of the holders
of common stock. Our Certificate of Incorporation also provides for the affirmative vote of at least 662/3% of all outstanding shares of capital stock entitled to vote generally in the
election of directors, voting as a single class, to change certain provisions of the Certificate of Incorporation and Bylaws. Our Bylaws contain certain advance notice requirements relating to
stockholder proposals and stockholder nomination of directors. These provisions may have the effect of making it more difficult or discouraging transactions that could give

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stockholders
of Ballantyne the opportunity to realize a premium over the then prevailing market price for their shares of common stock.

Shares eligible for future sale could have a possible adverse effect on the market price.

Future sales of common stock in the public market, or the perception that such sales could occur, could adversely affect the market
price of the common stock or our ability to raise additional capital through sales of our equity securities.

As
of December 31, 2009, we had: i) 14,143,694 shares owned by stockholders and ii) 814,554 shares of common stock reserved for issuance under stock plans, of which
278,125 shares are issuable pursuant to currently outstanding options, and 116,491 shares of common stock issued but unvested pursuant to our restricted stock plans. Of the shares outstanding, subject
to outstanding options and reserved for issuance under the employee stock purchase plan, 14,421,819 shares are immediately eligible for resale in the public market without restriction.

We
are unable to predict the effect that the sales of these shares may have on the prevailing market price of the common stock.

Item 1B.    Unresolved Staff Comments

None.

Item 2.  Properties

Our headquarters and main manufacturing facility is located at 4350 McKinley Street, Omaha, Nebraska, where we own a building
consisting of approximately 166,000 square feet on approximately 12.0 acres. The premises are used for offices and for the manufacture, assembly and distribution of our products.

Our
Strong/MDI Screen Systems, Inc. subsidiary leases a 50,000 square-foot manufacturing plant in Joliette, Canada used for offices, manufacturing, assembly and
distribution of the cinema screens.

Our
American West Beijing Trading Company Ltd. subsidiary leases a small sales and service office in Beijing, China.

Strong
Technical Services, Inc. leases a small administrative office in Fall River, Massachusetts.

We
also lease a small sales and service office in Hong Kong.

Item 3.  Legal Proceedings

During December 2009, the Company settled an asbestos case entitledLarry C. Stehman and Leila Stehman v.
Asbestos Corporation, Limited and Ballantyne Strong, Inc. individually and as successor in interest to Strong International, Strong Electric Corporation and Century Projector Corporation, et
al, originally filed in the Superior Court of the State of California, County of
San Francisco. The settlement, including legal fees, resulted in charges of approximately $0.4 million during 2009.

The
Company is not a party to any legal proceedings as of the date of this report.

Item 4.  Removed and Reserved

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PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed and traded on the NYSE AMEX (formerly the American Stock Exchange) under the symbol "BTN". The following
table sets forth the high and low per share sale price for the common stock as reported by the NYSE AMEX.

High

Low2009

First Quarter

$
2.42

$
0.88Second Quarter


3.27


1.80Third Quarter


3.88


2.02Fourth Quarter


3.98


3.082008

First Quarter

$
5.97

$
4.02Second Quarter


5.20


3.85Third Quarter


4.70


1.55Fourth Quarter


2.23


0.992007

First Quarter

$
5.62

$
4.82Second Quarter


6.67


4.84Third Quarter


6.80


5.34Fourth Quarter


6.45


5.50


Our
common stock was held by approximately 185 stockholders of record as of March 16, 2010. Because many of our shares of common stock are held by brokers and
other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders. The last reported per share sale price for the common stock on March 16, 2010 was
$4.75. We had 14,184,724 shares of common stock outstanding on March 16, 2010.

On
November 12, 2008, our Board of Directors approved the repurchase up to $1.0 million of our common stock. No shares were repurchased in 2009. Approximately
$0.9 million remains available for repurchase as of March 16, 2010. The Company may purchase shares from time to time depending on market, economic and other factors.

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Equity Compensation Plan Information

The following table sets forth information regarding our Stock Option, Restricted Stock and Stock Purchase Plan Agreements as of
December 31, 2009.

Plan Category

Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights

Weighted average exercise
price of outstanding options,
warrants and rights

Number of securities
remaining available
for future issuance
under equity
compensation plans
excluding securities
reflected in column (a)(a)

(b)

(c)Equity compensation plans approved by security holders


278,125

$
2.29


419,938
(1)Equity compensation plans not approved by security holders








Total


278,125

$
2.29


419,938
(1)


---

Dividend Policy

We intend to retain our earnings to assist in financing our business and do not anticipate paying cash dividends on our common stock in
the foreseeable future. The declaration and payment of dividends by the Company are also subject to the discretion of the Board, and our credit facility contains certain prohibitions on the payment of
cash dividends. Any determination by the Board as to the payment of dividends in the future will depend upon, among other things, business conditions, our financial condition and capital requirements,
as well as any other factors deemed relevant by the Board. We have not paid cash dividends since we went public in 1995.

Item 6.    Selected Financial Data (1)

Years Ended December 31,2009

2008

2007

2006

2005Statement of operations dataNet revenue

$
72,146

$
54,815

$
51,486


49,732


53,857Gross profit

$
14,732

$
8,794

$
9,456


10,826


14,905Net earnings (loss)

$
2,071

$
(3,034
)
$
228


1,568


4,309Net earnings (loss) per shareBasic

$
0.15

$
(0.22
)
$
0.02


0.12


0.33Diluted

$
0.15

$
(0.22
)
$
0.02


0.11


0.31Balance sheet dataWorking capital

$
35,805

$
21,810

$
32,390


34,974


32,627Total assets

$
60,210

$
51,113

$
54,140


49,908


46,936Total debt

$


$


$



15


43Stockholders' equity

$
42,518

$
38,835

$
43,042


42,389


39,998


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Item 7.  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 not only historical information, but also forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements that are not historical are forward-looking and reflect expectations for future Company performance.
For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking
statements involve a number of risks and uncertainties, including but not limited to those discussed in the "Risk Factors" section contained in Item 1A. Given the
risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as
anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well
as others not now anticipated. 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 factors on our
business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as required by law,
the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Overview

We are a manufacturer, distributor and service provider for the theatre exhibition industry on a worldwide basis. We also design,
develop, manufacture and distribute lighting
systems to the worldwide entertainment lighting industry through our Strong Entertainment lighting segment.

We
have two primary reportable core operating segments: theatre and lighting. Approximately 96% of fiscal year 2009 sales were from theatre products and approximately 4% were lighting
products. Additional information related to our reporting segments can be found in the notes to the consolidated financial statements.

Results of Operations:

The following table sets forth, for the periods indicated, the percentage of net revenues represented by certain items reflected in our
consolidated statements of operations.

Years Ended December 31,2009

2008

2007

2006

2005Net revenue


100.0
%

100.0
%

100.0
%

100.0
%

100.0
%Cost of revenues


79.6


84.0


81.6


78.2


72.3Gross profit


20.4


16.0


18.4


21.8


27.7Selling and administrative expenses(1)


15.3


19.7


18.1


16.3


15.7Income (loss) from operations


5.1


(7.4
)

(0.8
)

3.0


12.0Net earnings (loss) from continuing operations


2.9


(5.5
)

0.4


3.2


8.0


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Twelve Months Ended December 31, 2009 Compared to the Twelve Months Ended December 31, 2008

Revenues

Net revenues during the twelve months ended December 31, 2009 rose to $72.1 million from $54.8 million in 2008.

Twelve Months Ended
December 31,2009

2008TheatreProducts

$
65,186,543

$
47,158,724Services


3,810,626


3,186,650Total theatre revenues


68,997,169


50,345,374Lighting


3,121,840


4,260,868Other


26,748


208,319Total net revenues

$
72,145,757

$
54,814,561


Theatre Segment

Sales of theatre products and services increased to $69.0 million in 2009 from $50.4 million in 2008.

Digital Product Sales

Sales of digital products rose to $27.9 million from $12.6 million in 2008 as the industry change to digital projection
equipment began to accelerate during 2009. We believe the increased demand resulted from movie exhibitors wanting to show movies in 3D digital format as they believed that 3D movies result in higher
box office receipts. We believe the demand for digital equipment will continue to increase not only for the 3D benefits but also for such potential benefits as additional advertising and being able to
project more alternative entertainment at the movie theatres. The majority of the increase in digital sales resulted from sales of digital projectors; however, sales of digital lamps also rose from
$0.9 million in 2008 to $3.0 million in 2009.

Film Product Sales

Sales of film projection equipment declined to $12.0 million in 2009 from $14.0 million a year-ago due to the
theatre exhibition industry's transition to digital-based systems discussed above, coupled with a slowdown in new theatre construction in the United States and worldwide largely due to the current
economic and credit market conditions. Included in film equipment revenues were sales of used film equipment which amounted to $0.3 million compared to $1.4 million a
year-ago. These used units were obtained from theatre chains which have converted their film auditoriums to digital and had no further use for the film projectors. We see a
short-term opportunity to buy and resell these units as they become available and which are in a suitable condition for us to be able to refurbish them in a profitable manner. We believe
the decrease in used equipment sales during 2009 pertains to the lack of quality used equipment currently in the market. We do expect used equipment sales to increase once the exhibitors begin to
change out entire movie theatre complexes from film to digital. We also expect these changes to significantly affect sales of new film equipment sales which are expected to decline in 2010 and beyond.

Sales
of replacement parts declined to $6.8 million during 2009 from $7.4 million during 2008. We expect sales of film replacement parts to decrease over time but the
decline is expected to be at a slower pace compared to the film projectors themselves as the equipment will require maintenance up

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to
the point they are replaced by a digital unit. However, we are unsure how the used equipment market will impact our replacement part sales when film equipment is replaced during the full digital
cinema rollout.

Sales
of film lenses were comparable to a year-ago at $0.4 million. Sales of xenon lamps were also flat compared to a year-ago at $6.0 million. As
with replacement parts, the decline in sales of film lenses and lamps, due to the digital rollout is expected to be at a slower pace compared to film projectors. However, unlike replacement part
sales, we do not expect the used equipment market to significantly impact the sale of lamps.

Screen Product Sales

We generated screen sales of $12.2 million in 2009 compared to $6.8 million a year-ago. Sales were at record
levels for this product line due to higher demand for the special "silver" screens needed for certain digital 3D applications. As discussed earlier, this demand is resulting from our customers wanting
to show certain movies in digital 3D and also more 3D movies being available from the Hollywood studios. In addition, sales of large format screens to IMAX were higher than a year-ago.

We
sell screens for both digital cinema and film applications. In some instances, a screen can be used interchangeably with either a digital projector or a film projector. However, there
are certain digital 3D applications such as the technology by RealD that require special "silver" screens that we manufacture and which, as discussed earlier, are driving the growth of the product
line.

Service Revenues

Service revenues increased in 2009 to $3.8 million from $3.2 million a year-ago due to an increase in digital
projectors being sold in the industry.

Lighting Segment

Sales of lighting products fell to $3.1 million during 2009 from $4.3 million in 2008. Sales of follow spotlights fell to
$1.8 million from $2.5 million a year-ago. Sale of skytrackers fell to $0.1 million from $0.4 million in 2008, while replacement part sales fell from
$0.7 million in 2008 to $0.6 million in 2009. Sales of all other lighting products, including but not limited to xenon lamps, britelights and nocturns amounted to $0.7 million in
2009 compared to $0.6 million in 2008. Lighting products have been impacted by the effects of the troubled credit markets as a
significant portion of the business is dependant on the construction or improvements of stadiums and auditoriums around the world.

Export Revenues

Sales outside the United States (mainly theatre sales) increased to $33.2 million in 2009 from $18.2 million in 2008
resulting primarily from increased sales in China where sales increased from $5.7 million in 2008 to $14.4 million in 2009. Sales into Mexico and South America were also higher than a
year-ago increasing by $3.4 million and $2.4 million, respectively. Sales in Canada increased to $2.7 million in 2009 compared to $1.7 million a
year-ago due to an increase in 3D silver screens. Sales into Europe reflected increased business for film products increasing to $2.2 million from $1.6 million a
year-ago. Sales into Asia declined to $1.5 million from $2.0 million in 2008, while sales to India declined by $0.3 million compared to a year-ago. 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 our 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 our products overseas at reasonable selling prices.

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Gross Profit

Consolidated gross profit increased to $14.7 million in 2009 from $8.8 million a year-ago and as a percent of
total revenue increased to 20.4% from 16.0% in 2008. Gross profit in the theatre segment increased to $13.8 million in 2009 from $7.5 million in 2008 and as a percentage of theatre sales
increased to 20.0% from 14.9% a year-ago. The increase in gross profit and gross profit as a percentage of revenues resulted from improved margins from our screen business. We also cut
costs from our primary manufacturing operations in Omaha during 2009. Margins were also higher from our service business due to revenues increasing 20% from a year-ago resulting in margins
increasing $1.0 million. The current service business relates to servicing film projection equipment which is in a mature industry and at the same time, we are growing the infrastructure in
anticipation of the upcoming digital cinema rollout. This combination is resulting in the division experiencing negative margins putting pressure on our overall margin. We expect this business to
transition to servicing more digital projectors in the future when the digital cinema rollout accelerates and as a result margins should improve.

We
do expect our gross margin as a percentage of revenues to decrease in the future primarily due to increased sales of digital projection equipment which carry lower margins compared to
most of our other products. However, the sales price on the digital projectors is higher than what we receive on film projectors which offsets gross margin dollars to a degree. Gross margins will also
be impacted in the future by higher film manufacturing costs pertaining to lower demand for manufactured film products. We expect to purchase film inventory components in lower quantities resulting in
some raw material price increases and to experience less manufacturing throughput in the Omaha plant to cover fixed overhead costs. The timing of this is dependant on the timing of the digital cinema
rollout.

The
gross profit in the lighting segment amounted to $0.9 million or 28.5% as a percentage of revenues in 2009 compared to $1.2 million or 28.0% as a percentage of revenues
in 2008. The results reflect lower sales levels in the segment.

Selling Expenses

Selling expenses decreased to $2.9 million in 2009 compared to $3.3 million in 2008 and as a percent of total revenue
declined to 4.0% from 6.1% a year-ago. The results reflect cutbacks in payroll which also resulted in lower travel and tradeshow expenditures. In addition, the 2008 results reflected
higher health insurance costs.

Administrative Expenses

Administrative costs rose to $8.1 million in 2009 from $7.5 million in 2008 but as a percent of total revenue decreased
to 11.3% in 2009 from 13.7% in 2008. The increase in expenses were related to severance charges, settlement of an asbestos lawsuit, outside consulting expenses, bonuses and stock compensation
expenses, coupled with additional costs pertaining to the growth of our office in Beijing, China.

During
the first quarter of 2009 we incurred $0.2 million of severance charges due to the layoff of personnel as we began transition to more of a distribution model due to lower
production needed for digital projects. We also settled an asbestos lawsuit resulting in additional legal costs of $0.4 million. We experienced higher consulting fees during the year pertaining
to the Board of Directors performing a search for the successor to the current Chief Executive Officer before his scheduled retirement date at the end of fiscal year 2011. Management also achieved
more targets under the Company's bonus plan resulting in higher bonus expenses compared to a year-ago. Stock compensation expenses rose due to the Company having more unvested restricted
stock as opposed to a year-ago. We first began granting restricted stock in 2008 and thus 2009 was the first full year of stock expense. This was also coupled with more cumulative grants
of restricted stock, higher stock prices and shorter vesting periods.

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We
did cut back in certain other administrative areas such as bank fees, audit and compliance costs. Payroll costs were also lower due to the layoffs in the first quarter of 2009.

Goodwill Impairment

During the fourth quarter of 2008, we recorded a goodwill impairment charge of $2.3 million within our Theatre and Lighting
segments based on an impairment analyses which took into consideration the ongoing transition taking place in our strategy and operations, moving from the manufacture of traditional film equipment to
a business model focused on the distribution and service of digital projectors. As a result of the impairment analysis performed, we determined the book value of goodwill was impaired. No such charges
took place in 2009 as we no longer have any goodwill.

Other Financial Items

During 2008, we sold our coater and marinade product line for approximately $275,000 resulting in a net gain of approximately $258,000.
The product line was sold to a former Chief Financial Officer of the Company.

Our
results for 2009 also reflect a loss of $0.9 million pertaining to our 44.4% share of equity in the loss from Digital Link II, LLC. This loss compares to
$0.7 million a year-ago and was higher due to more depreciation and interest costs resulting from additional deployments.

We
recorded net interest income of $0.1 million during 2009 compared to $0.5 million a year-ago as our investment balances were lower during 2009 due to the
sale of our auction-rate securities which carried much higher interest rates compared to the interest-bearing cash we are currently investing in. In addition, average interest rates were
much lower on interest bearing cash and cash equivalents in general compared to the year-ago period.

Other
income amounted to $0.3 million in 2008 compared to expense of $0.1 million in 2009. The results primarily reflect the impact of transaction gains arising from
foreign exchange fluctuations during the year due to the U.S. dollar decreasing versus the Canadian dollar.

We
recorded income tax expense of approximately $0.7 million in 2009 compared to an income tax benefit of $0.9 million in 2008. The effective tax rate (calculated as a
ratio of income tax benefit (expense) to pretax earnings (loss), inclusive of equity method investment earnings (losses)) was approximately 24.7% for 2009, compared to 23.1% in 2008. The effective tax
rate change from year to year results from differing foreign and U.S. tax rates applied to respective pre-tax earnings (loss) amounts by tax jurisdiction.

For
the reasons outlined herein, we generated net earnings of approximately $2.1 million and basic and diluted earnings per share of $0.15 in 2009, respectively, compared to a net
loss of $3.0 million during 2008 and basic and diluted losses per share of $0.22 a year-ago, respectively.

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Twelve Months Ended December 31, 2008 Compared to the Twelve Months Ended December 31, 2007

Revenues

Net revenues during the twelve months ended December 31, 2008 increased to $54.8 million from $51.5 million in
2007.

Twelve Months Ended
December 31,2008

2007TheatreProducts

$
47,158,724

$
42,883,762Services


3,186,650


3,667,134Total theatre revenues


50,345,374


46,550,896Lighting


4,260,868


4,268,437Other


208,319


666,531Total net revenues

$
54,814,561

$
51,485,864


Theatre Segment

Sales of theatre products and services increased to $50.4 million in 2008 from $46.6 million in 2007.

Digital Product Sales

Sales of digital products rose to $12.6 million from $4.2 million in 2007 due to higher demand as the change to digital
projection equipment began to accelerate in 2008. We believe that much of this demand is resulting from our customers wanting to show movies in 3D digital format as they believe that 3D movies result
in higher attendance and ticket sales. The Hollywood studios have also increased the number of movies that can be shown in 3D. The results were negatively impacted, however, by the global credit
environment as the purchase of digital equipment requires a significant amount of capital.

Film Product Sales

Sales of film projection equipment declined to $14.0 million in 2008 from $22.5 million a year-ago due to the
theatre exhibition industry's transition from traditional film projectors to digital-based systems coupled with a slowdown in new theatre construction in the United States and worldwide due largely to
the current economic and credit market conditions. Included in film equipment revenues were sales of used film equipment which amounted to $1.4 million compared to $1.7 million a
year-ago. These used units were obtained from theatre chains which have converted their film auditoriums to digital and had no further use for the film projectors. We see a
short-term opportunity to buy and resell these units as they become available and which are in a suitable condition for us to be able to refurbish them in a profitable manner.

Sales
of replacement parts rose slightly to $7.4 million from $7.2 million during 2007. We expect sales of film replacement parts to decrease over time but the decline is
expected to be at a slower pace compared to the film projectors themselves as the equipment will require maintenance up to the point they are replaced by a digital unit.

Sales
of film lenses decreased to $0.4 million from $1.7 million a year-ago. More than any other film product, used lenses have overtaken the market. Sales of
xenon lamps declined slightly to $6.0 million compared to $6.4 million a year-ago and are not yet experiencing the effects of the industry transition to digital cinema as
finished goods are.

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Screen Product Sales

We generated screen sales of $6.8 million in 2008 compared to $0.9 million a year-ago. However, the results
are not comparable as we did not purchase our screen subsidiary MDI until late 2007. However, the sales generated by MDI during 2008 were at record levels for this company due to higher demand for the
special "silver" screens needed for certain 3D applications. As discussed earlier, we believe this demand resulted from our customers wanting to show certain movies in digital 3D and also more 3D
movies being available from the Hollywood studios.

We
sell screens for both digital cinema and film applications. In some instances, a screen can be used interchangeably with either a digital projector or a film projector. However, there
are certain digital 3D applications such as the technology by RealD that require special "silver" screen that we manufacture and which, as discussed earlier, are driving the growth of MDI.

Service Revenues

Service revenues declined in 2008 to $3.2 million from $3.7 million a year-ago as the business is feeling the
effects of the decline in the traditional film business without a substantial increase in digital service business due to the delay in the full-scale digital rollout. Revenues generated
from servicing film equipment fell to $2.3 million compared to $3.1 million in 2007 while revenues generated from servicing digital equipment rose to $0.9 million from
$0.6 million a year-ago.

Lighting Segment

Sales of lighting products remained steady at $4.3 million during 2007 and 2008, respectively. Sales of follow spotlights rose
to $2.5 million from $2.2 million a year-ago as we have allocated additional resources to grow the core spotlight business which is now comprised of items we manufacture and
also products that we distribute. While spotlight sales were higher during 2008, the product line is beginning to feel the effects of the troubled credit markets as these sales are in many instances
dependent on the construction of stadiums and auditoriums around the world. It is currently unclear if certain projects will be delayed or canceled during 2009 and beyond. The increase in spotlight
sales was offset by a reduction in demand for all other lighting products. Replacement parts decreased to $0.7 million from $0.8 million in 2007. Sky-Tracker sales fell to
$0.4 million during 2008 from $0.6 million in 2007 due to lower
demand for these large expensive lights and resulting in large part from the economy and credit market situation. Sales of all other lighting products, including but not limited to, xenon lamps,
britelights and nocturnes amounted to $0.6 million in 2008 compared to $0.7 million a year-ago.

Export Revenues

Sales outside the United States (mainly theatre sales) rose to $18.2 million in 2008 from $14.2 million a
year-ago primarily due to increased sales in Asia, Latin America and Canada. 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 our 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 our products overseas at reasonable
selling prices.

Gross Profit

Consolidated gross profit decreased to $8.8 million in 2008 from $9.5 million a year-ago and as a percent of
total revenue declined to 16.0% from 18.4% in 2007 due to the reasons discussed below. Gross profit in the theatre segment fell to $7.5 million in 2008 from $8.0 million in 2007 and as a
percentage of theatre sales declined to 14.9% from 17.3% a year-ago. The margin primarily reflects the transition that is taking place in the theatre industry from traditional film
projection equipment to

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digital
projection equipment in addition to the slowdown in new theatre construction in the United States. During 2008 we sold $12.6 million of digital equipment which we primarily distribute
through a distribution agreement with NEC Corporation of America. These sales compare to $4.2 million a year-ago. The gross margin percentage on these sales is significantly lower
than the margin we currently experience on our film projectors. However, the sales price on the digital projectors is higher than what we receive on film projectors which offsets gross margin dollars
to a degree. Our margin was also impacted by our service subsidiary. The current service business primarily relates to servicing film projection equipment which is in a mature industry and at the same
time, we are growing the infrastructure in anticipation of the upcoming digital cinema rollout. This combination is resulting in the division experiencing negative margins putting pressure on our
overall margin. We expect this business to transition to servicing more digital projectors in the future when the digital cinema rollout accelerates. At that time, margins are expected to increase.
Gross margins also continue to be impacted by higher manufacturing costs pertaining to lower demand for our manufactured film products. We are purchasing film inventory components in lower quantities
resulting in some raw
material price increases and we are experiencing less manufacturing throughput in the Omaha plant to cover fixed overhead costs. Our theatre margins were positively impacted by profits from our MDI
screen manufacturing subsidiary.

The
gross profit in the lighting segment amounted to $1.2 million or 28.0% as a percentage of revenues in 2008 compared to $1.1 million or 26.1% as a percentage of revenues
in 2007.

Selling Expenses

Selling expenses increased to $3.3 million in 2008 compared to $3.2 million in 2007, but as a percent of total revenue
declined slightly to 6.1% from 6.2% a year-ago.

Administrative Expenses

Administrative costs rose to $7.5 million in 2008 from $6.1 million in 2007 and as a percent of total revenue increased
to 13.7% in 2008 from 11.9% in 2007. Administrative expenses were impacted by $0.6 million from the addition of MDI, the Canadian subsidiary purchased in the fourth quarter of 2007. During
2008, we also experienced higher costs from a year-ago that pertained to audit services and higher personnel costs in our service subsidiary as we grew its infrastructure to assist in the
upcoming digital rollout we expect to take place. Other items increasing administrative costs included additional professional fees pertaining to legal and other compliance costs. We also experienced
an increase in stock compensation expenses of $0.2 million pertaining to grants of restricted stock. Since 2008 was the first year any restricted stock was granted under the plan, there have
been no such expenses in previous years.

Goodwill Impairment

During the fourth quarter of 2008, we recorded a goodwill impairment charge of $2.3 million within our Theatre and Lighting
segments. Our operating performance has declined compared to a year-ago and our share price and market capitalization remains depressed as compared to book value. Overall U.S. economic
trends are declining as seen in most indices including those applicable to the manufacturing sector. Declining economic activity and the tightening of global credit markets, negatively impacts the
volume of sales of our theatre projection equipment, lighting equipment and related services provided and the price we receive for these sales and services. The analyses also took into consideration
the ongoing transition taking place in our strategy and operations, moving from the manufacture of traditional film equipment to a business model focused on the distribution and service of digital
projectors. As a result of the impairment analysis performed, we determined the book value of goodwill was impaired. During 2007, we recorded a goodwill impairment charge within our theatre

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segment
of $0.6 million that pertained to the operations of our Design & Manufacturing, Inc. subsidiary which was subsequently sold during the fourth quarter of 2007.

Other Financial Items

During 2008, we sold our Coater and Marinade product line for approximately $275,000 resulting in a net gain of approximately $258,000.
The product line was sold to a former Chief Financial Officer of the Company.

During
2007, the Company recorded a $0.2 million gain on the initial transfer of equipment into our 44.4% owned joint venture with RealD, Digital Link II, LLC. No such
transaction took place in 2008.

Our
results for 2008 also reflect a loss of $0.7 million pertaining to our 44.4% share of equity in the loss from Digital Link II, LLC. This loss compares to
$0.2 million a year-ago and was higher due to more depreciation and interest costs resulting from additional deployments.

We
recorded net interest income of $0.5 million during 2008 compared to $0.8 million a year-ago as our investment balances were lower during the current year
coupled with a sharp drop in interest rates due to the current economic environment.

Other
income amounted to $0.3 million in 2008 compared to expense of $0.1 million in 2007. The results reflect the impact of transaction gains arising from foreign exchange
fluctuations during the year due to the U.S. dollar increasing versus the Canadian dollar.

We
recorded an income tax benefit of approximately $0.9 million in 2008 compared to an income tax benefit of $0.2 million in 2007. The effective tax rate (calculated as a
ratio of income tax benefit (expense) to pretax income (loss), inclusive of equity method investment earnings (losses)) was approximately 23.1% for 2008, which reflects the benefit from the impact of
tax-free interest income and non-deductible goodwill impairment charges.

For
the reasons outlined herein, we experienced a net loss of $3.0 million and basic and diluted loss per share of $0.22 in 2008, respectively, compared to net income of
$0.2 million during 2007 and basic and diluted earnings per share of $0.02 a year-ago, respectively.

Liquidity and Capital Resources

During the past several years, we have met our working capital and capital resource needs from either our operating or investing cash
flows or a combination of both. We ended fiscal year 2009 with total cash and cash equivalents of $23.6 million compared to $11.4 million at December 31, 2008. The increase was
primarily due to the liquidation in 2009 of all of our investments in auction-rate securities at par which previously had been recorded as a long-term investment. During 2008,
the market for the Company's investments in auction-rate securities began experiencing a liquidity issue when the securities came up for auction due to an imbalance of buyers and sellers
for the securities. These conditions continued to persist in 2009, however, we were able to liquidate the remaining $9.4 million of the securities through a financial institution during the
year. We had previously been able to liquidate $0.6 million of these securities from other means since the beginning of the fiscal year. The increase in cash can also be attributed to the
Company generating $2.4 million of operating cash flow during 2009.

We
are party to a revolving credit facility with First National Bank of Omaha expiring March 31, 2010. 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 December 31, 2009. We
pay interest on outstanding amounts equal to the Prime Rate plus 0.25% (3.5% at December 31, 2009) and pay a fee of 0.125% on the unused portion. The credit

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facility
contains certain restrictions primarily related to restrictions on acquisitions and dividends. All of our personal property and certain stock in our subsidiaries secure the credit facility.
No amounts are currently outstanding. We intend to obtain a similar credit facility prior to the expiration of the current line of credit.

Net
cash provided by operating activities amounted to $2.4 million in 2009 compared to $4.4 million in 2008. Despite generating earnings of approximately
$2.1 million during 2009, the decrease in operating cash flow from fiscal 2008 resulted primarily from receivables, inventory and other current assets increasing $3.8, $3.9 and
$0.3 million respectively. These working capital needs were offset to a degree by increases in accounts payable and customer balances of $3.3 and $1.1 million, respectively resulting in
a net working capital increase of $3.6 million for these five working capital items. The increase in accounts receivable, inventory and accounts payable pertain to increased purchases and sales
of digital products which also carry a higher price point reflecting the transition taking place in the theatre exhibition industry. The increase in other current assets and customer deposits
primarily pertain to prepayments of digital product from vendors and where we require prepayments from customers in certain instances primarily related to how business is transacted in certain parts
of China and Asia.

Net
cash provided by operating activities amounted to $4.4 million in 2008 compared to net cash used in operating activities of $1.8 million in 2007. The improvement from
2007 primarily came from turning $1.2 million of our consignment inventory into cash as compared to 2007 where we purchased $3.1 million of such inventory resulting in a swing of cash
flow of approximately $4.3 million. In addition, cash flow from 2007 was used to expand our digital equipment inventory resulting in cash used of $4.0 million in 2007 compared to cash
used to increase inventory levels of $0.9 million in 2008.

Net
cash provided by investing activities amounted to $9.4 million in 2009 compared to $2.8 million in 2008. The increase resulted from the liquidation, at par, of
approximately $10.0 million of our auction-rate securities. $9.4 million of the proceeds resulted from the sale of such securities to a financial institution which we have a
banking relationship, while the remaining amounts were redeemed through other means. During 2008, we liquidated at par, approximately $3.0 million of these securities. During 2009, we incurred
capital expenditures of $0.9 million which compared to $0.8 million in the year-ago period. Other items affecting investing activities included decreases of restricted
investments of $0.3 million in 2009 and $0.5 million in 2008, a result of payments of deferred purchase prices for acquisitions. The 2008 results also reflect $0.3 million of
proceeds from the sale of our coater and marinade product line during that year.

Net
cash provided by investing activities amounted to $2.8 million in 2008 compared to $3.1 million in 2007. During 2008 we incurred $0.8 million of capital
expenditures and liquidated at par, approximately $3.0 million of our auction-rate securities. In addition, we received $0.3 million of proceeds from the sale of our coater
and marinade product line during the second quarter of 2008. During 2007, investing outflows consisted primarily of our $3.4 million (including restricted cash placed in escrow) purchase of
MDI, capital expenditures of $0.6 million and additional investments of $1.4 million in our joint venture with RealD (Digital Link II). Total outflows during 2007 were offset by cash
generated of $1.6 million from the sale of Design & Manufacturing, Inc. and the liquidation at par, of $7.0 million of our auction-rate securities.

Net
cash provided by financing activities fell to $0.03 million in 2009 from $0.3 million a year-ago. The transactions in 2009 consisted solely of proceeds from
our employee stock purchase plan. The transactions in 2008 consisted of proceeds from our various stock plans, the purchase of shares under our Board-approved share repurchase program, and an increase
in checks outstanding in excess of bank balances of approximately $0.1 million.

Net
cash provided by financing activities amounted to $0.3 million in 2008 compared to $0.3 million in 2007. The transactions in 2008 consisted of proceeds from our various
stock plans, the

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purchase
of shares under our Board-Approved share repurchase program, and an increase in checks outstanding in excess of bank balances of approximately $0.1 million. The transactions in the
2007 period primarily consisted of transactions from our various stock plans.

Transactions with Related and Certain Other Parties

During 2008, we sold our coater and marinade product line in exchange for $275,000 in cash. In connection with the sale, we recorded a
pre-tax net gain of approximately $258,000 (estimated $159,000 after-tax) which is net of related costs to sell. The product line was sold to a former Chief Financial Officer
of the Company.

We
sell digital theatre projection equipment to our joint venture, Digital Link II, LLC ("LLC") in the normal course of business. The LLC in turn provides the digital theatre
projection equipment to third party customers under operating lease agreements. Revenue recognized by the Company on the sale transaction to the LLC is limited by its 44.4% ownership in the joint
venture which will be recognized upon sale of the equipment to the third parties. Revenue recognized during the years ended December 31, 2009, 2008 and 2007 amounted to approximately $1.2, $2.1
and $0.7 million, respectively.

Financial Instruments and Credit Risk Concentrations

Our top ten customers accounted for approximately 49% of 2009 consolidated net revenues and were primarily from the theatre segment.
Trade accounts receivable from these customers represented approximately 52% of net consolidated receivables at December 31, 2009. Sales to Regal Cinemas, Inc. and Vari International
each represented approximately 10% of consolidated sales. Additionally, receivables from NEC and the China Film Jingdian Cinema Investment Company, Ltd. represented approximately 9% and 16% of net
consolidated receivables at December 31, 2009, respectively. While we believe our relationships with these 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 our significant customers could have a material adverse effect on our business, financial condition and results of
operations. We 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 we sell our products.
In addition, advancing technologies, such as digital cinema, could disrupt historical customer relationships.

Financial
instruments that potentially expose us to a concentration of credit risk principally consist of accounts receivable. We sell product to a large number of customers in many
different geographic regions. To minimize credit concentration risk, we perform ongoing credit evaluations of our customers' financial condition or use letters of credit.

Hedging and Trading Activities

The Company's primary exposure to foreign currency fluctuations pertains to its subsidiary in Canada. In certain instances, the Company
may enter into a foreign exchange contract to manage a portion of this risk. For the period ended December 31, 2009, the Company had recorded approximately $19,600 of unrealized loss associated
with these open contracts in its consolidated statement of operations.

We
do not have any trading activities that include non-exchange traded contracts at fair value.

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Off Balance Sheet Arrangements and Contractual Obligations

Our 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 our other contractual obligations:

Payments Due by PeriodContractual Obligations

Total

2010

2011

2012

2013

2014

ThereafterNon-competition agreement

$
50,000





50,000











Postretirement benefits


201,518


17,342


18,485


19,553


20,528


21,500


104,110Operating leases


1,117,635


446,869


420,616


227,329


22,821





Contractual cash obligations

$
1,369,153


464,211


489,101


246,882


43,349


21,500


104,110


We
have a contractual obligation to pay up to $50,000 to High End Systems, Inc. Payment is contingent on satisfaction of certain future sales of the product line purchased as part
of the business. In addition, we have accrued approximately $0.1 million for the estimated underpayment of income taxes we are obligated to pay. The accrual is primarily related to state tax
matters. There were no other contractual obligations other than inventory and property, plant and equipment purchases in the ordinary course of business.

The
Company has entered into agreements with third-party film exhibitors which provide for the use of digital theatre projection equipment with a purchase option in the future. Certain
operating lease agreements entered into by the Company required the third-party exhibitors to make a deposit on the digital projection equipment provided for use. The customer deposits collected are
recorded as a non-current liability within the Balance Sheet.

During
2008 and 2009, the Company and RealD provided guarantees to notes entered into by Digital Link II, LLC to finance digital projection equipment deployed in the normal course
of business. The notes bear interest at rates ranging from 7.0% to 7.25%. The following table summarizes the Company's guarantees:

Guarantee Date

Interest Rate

Original Notes
Payable Balance

Ballantyne
Ownership

Original Guarantee

Remaining
Guarantee
as of 12/31/09July-08


7.0
%
$
1,329,125


44.40
%
$
590,132

$
326,761November-08


7.2
%

756,440


44.40
%

335,860


159,738November-08


7.0
%

1,142,239


44.40
%

507,154


335,844January-09


7.2
%

265,538


44.40
%

117,899


70,756April-09


7.2
%

1,039,646


44.40
%

461,602


259,297September-09


7.0
%

184,098


44.40
%

81,739


72,334October-09


7.25
%

152,850


44.40
%

67,865


67,865$
4,869,936




$
2,162,251

$
1,292,595


Under
terms of the guarantees, the Company and RealD would be required to fulfill the guarantee should the joint venture be in default of its loans or contract terms. The Company has
recorded a liability for the fair value of the obligations undertaken by issuing the guarantees which amount to approximately $0.04 million at December 31, 2009. The Guarantees will
expire by the end of June 2012.

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

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Table of Contents

Seasonality

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

Legal

See Note 25 to the consolidated financial statements, and Item 3 of this report, for a description of legal matters.

Inflation

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

Critical Accounting Policies and Estimates

General

The following accounting policies involve judgments and estimates used in preparation of the consolidated financial statements. 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.

Our
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

Ballantyne manufactures or distributes and sells projectors which are highly complex and have many components that make up a complete
system, which is referred to as an "integrated system." Each customer selects options for certain components in determining the integrated system they chose to purchase. To recognize revenue, we
follow the requirements of ASC Subtopic 605-10,Revenue Recognition-General, which consists of determining that:



Once
the customer has determined the features for their "integrated system," we either manufacture or integrate the system to their preference and then ship the system when it is
complete. Revenue is generally recognized upon shipment of the product to the third party. In those limited situations where the shipping terms are FOB destination point, we recognize revenue when the
product is delivered.

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Allowance for Doubtful Accounts

We make judgments about the credit worthiness of both current and prospective customers based on ongoing credit evaluations performed
by our 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 collectability 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
December 31, 2009, there were approximately $11.0 million in gross outstanding receivables and $0.2 million recorded in the allowance for doubtful accounts to
cover potential future customer non-payments. At December 31, 2008, there were approximately $7.2 million in gross outstanding accounts receivable and $0.2 million
recorded in the allowance for doubtful accounts. If economic conditions deteriorate significantly or if one of our 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. Our 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 our future manufacturing schedules, customer demand and
the development of digital technology, which could make our 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 December 31, 2009 we had recorded gross inventory of approximately $15.7 million
and $2.7 million of inventory reserves. This compared to $12.3 million and $2.8 million, respectively, at December 31, 2008.

Warranty

Our products must meet certain product quality and performance criteria. In addition to known claims or warranty issues, we estimate
future claims on recent sales. We rely 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, we consider 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, our
accrued cost for warranty claims would increase.

At
December 31, 2009, the warranty accrual amounted to $0.4 million and amounts charged to expense were $0.3 million. At December 31, 2008, the warranty
accrual amounted to $0.5 million and amounts charged to expense were $0.6 million. The decrease in expenses during 2009 pertains to specific items written off or paid for during 2009
which were accrued into expense in previous periods and where the issues have largely been resolved as of December 31, 2009.

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Long-lived Assets and Amortizable Intangibles

We review long-lived assets and amortizable intangibles, 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.

Our
most significant long-lived assets subject to these periodic assessments of recoverability are property, plant and equipment, which have a net book value of
$3.6 million at December 31, 2009. Our amortizable intangibles, which are subject to recovery, consist of trademarks, customer relationships and non-competition agreements
and have a carrying value of $1.1 million at December 31, 2009. Because the recoverability of property, plant and equipment and intangibles are 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 we are 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 or intangibles over their fair value.

Consignment Inventory

Digital and film projection equipment is provided to potential customers for consignment and demonstration purposes under customer use
agreements. Additionally, during 2007, the Company entered into operating lease agreements with third party customers for the use of certain projection equipment of which a majority of the projection
equipment was sold during the first quarter of 2008. The Company recognized revenue in accordance with ASC Subtopic 605-10,Revenue
Recognition-General, upon delivery of title to customer. No other income was generated under these operating lease agreements. The Company considered the guidance contained
within ARB 43, EIFT 01-08 and SFAS No. 13 to determine the proper accounting treatment for the agreements referenced above.

Consignment
inventory is reviewed for impairment by comparing the inventory to estimated future usage and sales. Digital and film projection equipment on consignment amounted to
approximately $0.5 million at December 31, 2009 and December 31, 2008, respectively.

Deferred Income Taxes

Income taxes are accounted for under the asset and liability method. We use an estimate of our 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.

Stock-based Compensation

The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated
values. The Company uses the straight-line amortization method over the vesting period of the awards. The Company has historically issued shares upon exercise of stock options or vesting
of restricted stock units from new stock issuances.

35

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Table of Contents

Share-based
compensation cost that has been included in earnings (loss) from operations amounted to $379,325, $271,498 and $81,325 for the twelve months ended December 31, 2009,
2008 and 2007, respectively. No share-based compensation cost was capitalized as a part of inventory as of December 31, 2009 and 2008.

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R) (to be included in ASC Topic
810). This statement requires reporting entities to evaluate former QSPE's for consolidation, changes to approach to determining a VIE's primary beneficiary from a quantitative assessment to a
qualitative assessment designed to identify a controlling financial interest. This statement is effective as of the beginning of a Company's first fiscal year that begins after November 15,
2009. The Company does not believe the adoption will have a material impact on its consolidated financial statements.

In
June 2009, the FASB issued EITF 08-1, "Multiple-Deliverable Revenue Arrangements" (to be included in ASC Subtopic 605-25). This statement amends ASC
605-25 to eliminate the requirement that all undelivered elements have VSOE or TPE before an entity can recognize the portion of the overall arrangement fee that is attributable to items
that already have been delivered. EITF 08-1 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010. Early adoption is permitted. The Company does not believe the adoption will have a material impact on its consolidated financial statements.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

The
principal market risks affecting us are exposure to interest rates and foreign currency exchange rates. We market our products throughout the United States
and the world. As a result, we could be adversely affected by such factors as changes in foreign currency rates and weak economic conditions. As a majority of our sales are currently denominated in
U.S. dollars, a strengthening of the dollar can and sometimes has made our products less competitive in foreign markets.

Interest
RatesWe have a variable interest rate credit facility, however, we have no outstanding balances as of December 31, 2009. If we would borrow up to the maximum
amount available under these facilities, a one percent increase in the interest rate would increase interest expense by $0.04 million per annum. Interest rate risks from our other
interest-related accounts such as our postretirement obligations are not deemed significant.

Foreign
ExchangeExposures to transactions denominated in a currency other than the entity's functional currency are primarily related to our China and Canadian subsidiaries.
From time to time, as market conditions indicate, we will enter into foreign currency contracts to manage the risks
associated with forecasted transactions. A portion of our cash in the China and Canadian subsidiaries is denominated in foreign currencies, where fluctuations in exchange rates will impact our cash
balances in U.S. dollar terms. A hypothetical 10% change in the value of the U.S. dollar would impact our reported cash balance by approximately $0.3 million.

36

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Table of Contents

Item 8.    Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Page No.Management's Responsibility for Consolidated Financial Statements


38Report of Independent Registered Public Accounting Firm


39Consolidated Financial StatementsConsolidated Balance SheetsDecember 31, 2009 and 2008


40Consolidated Statements of OperationsYears Ended December 31, 2009, 2008 and 2007


41Consolidated Statements of Stockholders' EquityYears Ended December 31, 2009, 2008 and 2007


42Consolidated Statements of Cash FlowsYears Ended December 31, 2009, 2008 and 2007


43Notes to Consolidated Financial StatementsYears Ended December 31, 2009, 2008 and 2007


44Financial Statement Schedule Supporting Consolidated Financial StatementsSchedule IIValuation and Qualifying Accounts


74


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Table of Contents

MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of Ballantyne Strong, Inc. and Subsidiaries and the other information contained in this
Annual Report on Form 10-K were prepared by and are the responsibility of management. The financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and necessarily include amounts based on management's best estimates and judgments.

In
fulfilling its responsibilities, management relies on a system of internal controls, which provide reasonable assurance that the financial records are reliable for preparing financial
statements and maintaining accountability of assets. Internal controls are designed to reduce the risk that material errors or irregularities in the financial statements may occur and not be timely
detected. These systems are augmented by written policies, careful selection and training of qualified personnel, an organizational structure providing for the division of responsibilities and a
program of financial, operational and systems reviews.

The
Audit Committee of the Board of Directors, composed of four non-employee directors, is responsible for recommending to the Board of Directors the independent accounting
firm to be retained each year. The Audit Committee meets regularly, and when appropriate separately, with the independent auditors and management to review the Company's performance. The independent
auditors and the Audit Committee have unrestricted access to each other in the discharge of their responsibilities.

/s/ JOHN P. WILMERS John P. Wilmers
President and Chief Executive Officer/s/ KEVIN HERRMANN Kevin Herrmann
Secretary/Treasurer and Chief Financial Officer


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Table of Contents



Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
Ballantyne Strong, Inc.:

We
have audited the accompanying consolidated balance sheets of Ballantyne Strong, Inc. and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2009.
In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule II. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule II based on
our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ballantyne Strong, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule II, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG
LLP

Omaha,
Nebraska
March 23, 2010

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries        Consolidated Balance Sheets        December 31, 2009 and 2008

2009

2008AssetsCurrent assets:Cash and cash equivalents

$
23,589,025

$
11,424,984Restricted cash


442,766


701,498Accounts receivable (less allowance for doubtful accounts of $205,314 in 2009 and $195,141 in 2008)


8,877,980


7,038,258Unbilled revenue


1,894,075


Inventories, net


12,987,048


9,476,687Recoverable income taxes


1,850,699


1,111,118Deferred income taxes


1,943,679


2,134,699Consignment inventory


486,527


527,027Other current assets


667,592


356,855Total current assets


52,739,391


32,771,126Investment in joint venture


2,216,638


3,138,568Investment in securities





8,883,420Property, plant and equipment, net


3,612,935


3,453,363Intangible assets, net


1,103,128


1,374,438Other assets


17,257


17,257Deferred income taxes


520,951


1,474,766Total assets

$
60,210,300

$
51,112,938Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
9,768,896

$
6,470,903Other accrued expenses


3,623,143


2,839,804Customer deposits


2,295,946


1,216,590Income tax payable


1,246,247


433,533Total current liabilities


16,934,232


10,960,830Deferred income taxes


274,977


311,413Other accrued expenses, net of current portion


483,425


1,006,056Total liabilities


17,692,634


12,278,299Commitments and contingenciesStockholders' 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 16,283,676 shares in 2009 and 16,168,510 shares in 2008


162,836


161,685Additional paid-in capital


35,332,787


35,085,228Accumulated other comprehensive loss:Foreign currency translation


(286,086
)

(890,851
)Unrealized loss on investments in securities, net of tax





(742,027
)Minimum pension liability


110,665


93,658Retained earnings


22,580,144


20,509,62657,900,346


54,217,319Less 2,139,982 of common shares in treasury, at cost


(15,382,680
)

(15,382,680
)Total stockholders' equity


42,517,666


38,834,639Total liabilities and stockholders' equity

$
60,210,300

$
51,112,938


See accompanying notes to consolidated financial statements.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries        Consolidated Statements of Operations        Years Ended December 31, 2009, 2008 and
2007

2009

2008

2007Net revenues

$
72,145,757

$
54,814,561

$
51,485,864Cost of revenues


57,413,724


46,021,049


42,030,270Gross profit


14,732,033


8,793,512


9,455,594Selling and administrative expenses:Selling


2,914,019


3,327,967


3,170,367Administrative


8,147,861


7,487,172


6,147,004Goodwill impairment





2,314,282


639,466Total selling and administrative expenses


11,061,880


13,129,421


9,956,837Gain on transfer of assets








234,557Gain (loss) on sale or disposal of assets


(16,911
)

275,406


(166,386
)Income (loss) from operations


3,653,242


(4,060,503
)

(433,072
)Interest income


87,203


513,990


797,073Interest expense


(33,316
)

(35,437
)

(36,937
)Equity in loss of joint venture


(889,997
)

(683,311
)

(245,703
)Other income (expense), net


(67,156
)

320,530


(90,920
)Earnings (loss) before income taxes


2,749,976


(3,944,731
)

(9,559
)Income tax benefit (expense)


(679,458
)

911,041


237,690Net earnings (loss)

$
2,070,518

$
(3,033,690
)
$
228,131Basic earnings (loss) per share

$
0.15

$
(0.22
)
$
0.02Diluted earnings (loss) per share

$
0.15

$
(0.22
)
$
0.02Weighted average shares outstanding:Basic


14,002,985


13,914,743


13,817,802Diluted


14,161,255


13,914,743


14,094,927


See
accompanying notes to consolidated financial statements.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries        Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)        Years
Ended December 31, 2009, 2008 and 2007

Common
Stock

Additional
Paid-In
Capital

Comprehensive
Income (Loss)

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Income
(Loss)

Total
Stockholders'
EquityBalance at December 31, 2006

$
158,243


34,216,227





23,315,185


(15,315,454
)

14,746


42,388,947Comprehensive Income:Net income








228,131


228,131








228,131Foreign currency translation








(59,427
)







(59,427
)

(59,427
)Adjustment to minimum pension liability








61,087








61,087


61,087Comprehensive Income








229,791Issuance of 121,250 shares of common stock upon exercise of stock options


1,213


64,202














65,415Issuance of 10,611 shares of common stock under the employees stock purchase plan


106


73,262














73,368Income tax benefit related to stock option plans





217,720














217,720Stock compensation expense





66,457














66,457Balance at December 31, 2007

$
159,562


34,637,868





23,543,316


(15,315,454
)

16,406


43,041,698Comprehensive Loss:Net loss








(3,033,690
)

(3,033,690
)







(3,033,690
)Foreign currency translation








(831,424
)







(831,424
)

(831,424
)Unrealized loss on investments in securities, net of tax








(742,027
)







(742,027
)

(742,027
)Adjustment to minimum pension liability








17,825








17,825


17,825Comprehensive Loss








(4,589,316
)Issuance of 123,625 shares of common stock upon exercise of stock options


1,236


88,187














89,423Issuance of 69,000 shares of common stock under the restricted stock plan


690

















690Issuance of 19,642 shares of common stock under the employees stock purchase plan


197


34,766














34,963Stock Buyback














(67,226
)




(67,226
)Income tax benefit related to stock option plans





92,362














92,362Stock compensation expense





232,045














232,045Balance at December 31, 2008

$
161,685


35,085,228





20,509,626


(15,382,680
)

(1,539,220
)

38,834,639Comprehensive Income:Net income








2,070,518


2,070,518








2,070,518Foreign currency translation








604,765








604,765


604,765Unrealized gain on investments in securities, net of tax








742,027








742,027


742,027Adjustment to minimum pension liability








17,007








17,007


17,007Comprehensive income








3,434,317Issuance of 99,615 shares of common stock under the restricted stock plans


996


34,259














35,255Issuance of 15,551 shares of common stock under the employees stock purchase plan


155


27,837














27,992Stock compensation expense





185,463














185,463Balance at December 31, 2009

$
162,836


35,332,787





22,580,144


(15,382,680
)

(175,421
)

42,517,666


See accompanying notes to consolidated financial statements.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries        Consolidated Statements of Cash Flows        Years Ended December 31, 2009, 2008 and
2007

2009

2008

2007Cash flows from operating activities:Net earnings (loss)

$
2,070,518

$
(3,033,690
)
$
228,131Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:Provision for doubtful accounts


32,358


44,602


63,517Provision for obsolete inventory


523,015


1,246,867


667,587Depreciation of other assets


516,811


993,602


928,647Depreciation of property, plant and equipment


837,097


924,247


1,060,506Amortization of intangibles


398,642


421,113


162,377Equity in loss of joint venture


889,997


683,311


245,703Goodwill impairment





2,314,282


639,466Loss (gain) on the sale of assets


1,482


(258,170
)

142,284Loss (gain) on disposal of assets


15,429


(17,236
)

24,102Deferred income taxes


708,846


(1,224,685
)

34,876Share-based compensation expense


379,325


271,498


81,325Excess tax benefits from stock options exercised





(92,362
)

(217,720
)Changes in assets and liabilities:Accounts receivable


(1,875,812
)

665,543


(106,381
)Unbilled revenue


(1,894,075
)




Inventories


(3,930,485
)

(1,024,226
)

(3,996,477
)Consignment inventory


(476,311
)

1,247,472


(3,123,341
)Other current assets


(306,993
)

(34,666
)

136,781Accounts payable


3,320,026


293,331


2,805,500Other accrued expenses


135,590


(189,960
)

(665,905
)Customer deposits


1,071,716


253,022


559,328Current income taxes


(50,009
)

841,301


(1,519,913
)Other assets





28,393


8,298Net cash provided by (used in) operating activities


2,367,167


4,353,589


(1,841,309
)Cash flows from investing activities:Acquisitions, net of cash acquired





(8,751
)

(2,910,819
)Investment in joint venture





(94,395
)

(1,429,417
)Proceeds from the sale of business, net of cash








1,641,005(Increase) decrease in restricted investments


258,732


490,249


(594,640
)Capital expenditures


(907,659
)

(818,626
)

(613,410
)Proceeds from sale of assets


2,222


271,369


Purchases of investments in securities








Proceeds from sales of investments in securities


10,025,000


2,975,000


7,000,000Net cash provided by investing activities


9,378,295


2,814,846


3,092,719Cash flows from financing activities:Payments on long-term debt








(14,608
)Increase in checks outstanding in excess of bank balances





106,782


Proceeds from employee stock purchase plan


27,992


34,963


73,368Payments under share repurchase program





(67,226
)

Proceeds from exercise of stock options





90,113


65,415Excess tax benefits from stock options exercised





92,362


217,720Net cash provided by financing activities


27,992


256,994


341,895Effect of exchange rate changes on cash and cash equivalents


390,587


(220,800
)

4,396Net increase in cash and cash equivalents


12,164,041


7,204,629


1,597,701Cash and cash equivalents at beginning of year


11,424,984


4,220,355


2,622,654Cash and cash equivalents at end of year

$
23,589,025

$
11,424,984

$
4,220,355


See accompanying notes to consolidated financial statements.

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Ballantyne Strong, Inc. and Subsidiaries        Notes to the Consolidated Financial Statements        Years ended December 31, 2009, 2008 and 2007

1.    Nature of Operations

On May 20, 2009, the Company amended its Certificate of Incorporation to change the Company's name from Ballantyne of
Omaha, Inc. to Ballantyne Strong, Inc. ("Ballantyne" or the "Company") to align the Company with a name known to a majority of the Company's customers and to provide branding to the
trademark name "Strong."

Ballantyne,
a Delaware corporation, and its wholly-owned subsidiaries Strong Westrex, Inc., Strong Technical Services, Inc., Strong / MDI Screen Systems, Inc., and
the American West Beijing Trading Company, Ltd., design, develop, manufacture, service and distribute theatre and lighting systems. The Company's products are distributed to movie exhibition
companies, sports arenas, auditoriums, amusement parks and special venues.

2.    Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

Use of Management Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles 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 and changes in facts and circumstances may alter such estimates and affect results of
operations and financial position in future periods. Certain amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to the 2009 presentation.

Revenue Recognition

Ballantyne sells movie projectors which are highly complex and have many components that make up a complete system, which is referred
to as an "integrated system." Each customer selects options for certain components in determining the integrated system they chose to purchase. To recognize revenue, the Company follows the
requirements of Accounting Standards Codification (ASC) Subtopic 605-10,Revenue RecognitionGeneral,which consists of
determining that:



Once
the customer has determined the features for their "integrated system," the Company either manufactures or integrates the system to their preference and then ships the system when
it is complete. Revenue is generally recognized upon shipment of the product to the third party. In those

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

limited
situations where the shipping terms are FOB destination point, the Company recognizes revenue when the product is delivered.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable
are included in net cash provided by operating activities in the consolidated statements of cash flows.

The
Company maintained an allowance for doubtful accounts of $205,314 and $195,141 at December 31, 2009 and 2008, 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 collectability of the account. As such, these factors
may change over time causing the reserve level to adjust accordingly.

Consignment Inventory

Digital and film projection equipment is provided to potential customers for consignment and demonstration purposes under customer use
agreements. The Company
recognized revenue in accordance with Staff Accounting Bulletin 104,Revenue RecognitionGeneral,upon delivery of title to customer. The
Company considered the guidance contained within ASC Subtopic 605-10 to determine the proper accounting treatment for the agreements referenced above.

Consignment
inventory is reviewed for impairment by comparing the inventory to estimated future usage and sales. Digital and film projection equipment on consignment amounted to
approximately $0.5 million at December 31, 2009 and 2008, respectively.

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. Inventory balances are net of reserves of slow moving or obsolete inventory estimated based on management's review of inventories on hand compared to
estimated future usage and sales.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of assets of businesses acquired through purchase business combinations.
Goodwill and intangible assets that are determined to have an indefinite useful life are not amortized but instead tested for impairment at least annually as well as when events and circumstances
indicate that an impairment may have occurred. Certain factors that may occur and indicate that an impairment exists include, but are not limited to, operating results that are lower than expected and
adverse industry or market economic trends.

The
impairment testing requires management to estimate the fair value of the assets or reporting unit. The estimate of the fair value of the assets is determined on the basis of
discounted cash flows. In estimating the fair value, management must make assumptions and projections regarding such items as future cash flows, future revenues, and future earnings in addition to
other factors. The fair value of the reporting unit is then compared to the carrying amount of the assets to quantify an impairment charge as of the assessment date for the excess of the carrying
amount of the reporting unit's assets over the fair value of the reporting unit's assets.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Intangible
assets with definite lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

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.

Major Maintenance Activities

The Company incurs maintenance costs on all its major equipment. Repair and maintenance costs are expensed as incurred.

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 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. 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.

Sales Taxes

Sales taxes assessed by governmental authorities including sales, use, and excise taxes are on a net basis and therefore the
presentation of these taxes is excluded from revenues and is shown as a liability on the balance sheet until remitted to the appropriate taxing authorities.

Research and Development and Engineering

Research and development and engineering costs are charged to operations in the period incurred. Such costs amounted to approximately
$714,000, $637,000 and $606,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

Advertising Costs

Advertising and promotional costs are expensed as incurred and amounted to approximately $772,000, $833,000 and $845,000 for the years
ended December 31, 2009, 2008 and 2007, respectively.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Fair Value of Financial and Derivative Instruments

ASC 820, "Fair Value Measurements and Disclosures" states the fair value is the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is the amount at which the instruments could
be exchanged in a current transaction between willing parties. The carrying values of cash and cash equivalents, receivables, debt, accounts payable and accrued expenses reported in the consolidated
balance sheets equal or approximate their fair values due to the short-term nature of these instruments.

ASC
815-15 "Derivatives and HedgingOverall", requires companies to recognize all derivative financial instruments
as either assets or liabilities at their fair value. During 2009, the Company maintained forward contracts to hedge its exposure to foreign currency risk related to transactions being conducted at the
Company's Canadian subsidiary. The contracts did not have a material impact on the Company's operations.

Cash and Cash Equivalents

All short-term, highly liquid financial instruments are classified as cash equivalents in the consolidated balance sheets
and statements of cash flows. Generally, these instruments have maturities of three months or less from date of purchase.

Earnings (loss) Per Common Share

Basic earnings (loss) per share have been computed on the basis of the weighted average number of shares of common stock outstanding.
Diluted earnings (loss) per share 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 earnings (loss) per share:

Years Ended December 31,2009

2008

2007Basic earnings (loss) per share:Earnings (loss) applicable to common stock

$
2,070,518

$
(3,033,690
)
$
228,131Weighted average common shares outstanding


14,002,985


13,914,743


13,817,802Basic earnings (loss) per share

$
0.15

$
(0.22
)
$
0.02Diluted earnings (loss) per share:Earnings (loss) applicable to common stock

$
2,070,518

$
(3,033,690
)
$
228,131Weighted average common shares outstanding


14,002,985


13,914,743


13,817,802Assuming conversion of options and restricted stock awards outstanding


158,270





277,125Weighted average common shares outstanding, as adjusted


14,161,255


13,914,743


14,094,927Diluted earnings (loss) per share

$
0.15

$
(0.22
)
$
0.02


At
December 31, 2009, options to purchase 118,125 shares of common stock at a weighted average price of $4.55 per share were outstanding but were not included in the computation
of diluted earnings per share as the option's exercise price was greater than the average market price of the common shares. These options expire between May 2010 and May 2011. At December 31,
2008, options and restricted stock outstanding were not included in the computation of diluted earnings (loss) per share

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

as
the Company reported a loss from continuing operations available to common stockholders. At December 31, 2007, options to purchase 42,000 shares of common stock at a weighted average price
of $7.30 per share were outstanding but were not included in the computation of diluted earnings per share as the options' exercise price was greater than the average market price of the common
shares.

Stock Compensation Plans

The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated
values. The Company uses the straight-line amortization method over the vesting period of the awards. The Company has historically issued shares upon exercise of stock options or vesting
of restricted stock from new stock issuances.

Share-based
compensation cost that has been included in income (loss) from operations amounted to $379,325, $271,498 and $81,325 for the twelve months ended December 31, 2009,
2008 and 2007,
respectively. No share-based compensation cost was capitalized as a part of inventory as of December 31, 2009 and 2008.

Impairment of Long-Lived Assets and Amortizable Intangibles

The Company reviews long-lived assets and amortizable intangibles, 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 "The Impairment or Disposal of Long-Lived Assets Subsection of Subtopic
360-10: Property, Plant and EquipmentOverall". 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
$3.6 million at December 31, 2009. The Company's amortizable intangibles which are subject to recovery consist of trademarks, customer relationships and non-competition
agreements which have a carrying value of $1.1 million at December 31, 2009. Because the recoverability of property, plant and equipment and intangibles 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 or intangibles over their fair value. In addition,
the Company has long-lived assets which consist of the Company's equity method investment in a joint venture. The Company would recognize a loss when there is a loss in value of the equity
method investment which is other than a temporary decline. No impairment existed at December 31, 2009.

Retirement Benefits

The Company has adopted the provisions of ASC Subtopic 715-60: CompensationRetirement
BenefitsDefined Benefit PlansOther Postretirement which requires the recognition of the overfunded or underfunded status of a defined benefit postretirement plan as an asset
or liability in the balance sheet, the measurement of a plan's assets and its obligations that determine its funded status as

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

of
the end of the employer's fiscal year, and the recognition of changes in the funded status through comprehensive income in the year in which the changes occur.

Foreign Currency Translation

For foreign operations, local currencies are considered the functional currency. The assets and liabilities of foreign subsidiaries are
translated into the United States dollar at the foreign exchange rates in effect at the end of the period. Revenue and expenses of foreign subsidiaries are translated using an average of the foreign
exchange rates in effect during the period. Translation adjustments are not included in determining net earnings (loss) but are presented in comprehensive income (loss) within the consolidated
statements of changes in shareholder's equity and comprehensive income (loss).

Transaction
gains and losses that arise from foreign exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the
statements of operations as incurred.

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 three years ended December 31, 2009.

Warranty accrual at December 31, 2006

$
617,052Charged to expense


170,549Addition related to acquisition


11,639Amounts written off, net of recoveries


(417,530
)Warranty accrual at December 31, 2007

$
381,710Charged to expense


594,421Amounts written off, net of recoveries


(484,575
)Warranty accrual at December 31, 2008

$
491,556Charged to expense


289,150Amounts written off, net of recoveries


(402,561
)Warranty accrual as of December 31, 2009

$
378,145


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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Adoption of New Accounting Pronouncements

In May 2008, the FASB issued ASC 105-10, "Generally Accepted Accounting PrinciplesOverall". ASC Subtopic
105-10 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the United States ("GAAP"). ASC 105-10 became effective 60 days following the SEC's approval of the Public
Company Accounting Oversight Board's related amendments to remove the GAAP hierarchy from auditing standards. The adoption did not have a material impact on the Company's consolidated financial
statements.

In
June 2009, the FASB issued ASC 105-10, "Generally Accepted Accounting PrinciplesOverall". ASC 105-10 establishes the FASB Accounting Standards
Codification (the "Codification") as a source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretative releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP. All guidance contained in
the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered,
non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates ("ASU's"). The FASB will not consider ASU's as authoritative in their own right. ASU's will serve only to
update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. The Codification became the exclusive
authoritative reference for nongovernmental U.S. GAAP for use in financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this
Codification did not have a material impact on the Company's consolidated financial position or results of operations.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R) (to be included in ASC Topic
810). This statement requires reporting entities to evaluate former QSPE's for consolidation, changes to approach to determining a VIE's primary beneficiary from a quantitative assessment to a
qualitative assessment designed to identify a controlling financial interest. This statement is effective as of the beginning of a Company's first fiscal year that begins after November 15,
2009. The Company does not believe the adoption will have a material impact on its consolidated financial statements.

In
January 2010, the FASB issued ASU 2010-06, "Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements," which amends
Subtopic 829-10. ASU 2010-06 enhances disclosure requirements related to fair value measurements. Certain provisions of ASU 2010-06 are
effective for annual and interim periods beginning after December 15, 2009 and others for fiscal years beginning after December 15, 2010. Beginning with the quarter-ended
March 31, 2010, the Company will provide new disclosures, as applicable to its fair value instruments. The disclosures required for fiscal periods beginning after December 15, 2010 are
currently not applicable to the Company.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

3.    Comprehensive Income (Loss)

The accumulated other comprehensive income (loss), net, shown in the Company's consolidated balance sheets includes the unrealized loss
on investments in securities, pension liability adjustments and the accumulated foreign currency translation adjustment. The following table shows the difference between the Company's reported net
earnings (loss) and its comprehensive income (loss):

Years Ended December 31,2009

2008

2007Comprehensive income (loss):Net income (loss)

$
2,070,518

$
(3,033,690
)
$
228,131Other comprehensive income (loss):Unrealized gain (loss) on investment in securities


742,027


(742,027
)

Foreign currency translation adjustment


604,765


(831,424
)

(59,427
)Adjustment to minimum pension liability


17,007


17,825


61,087Total comprehensive income (loss)

$
3,434,317

$
(4,589,316
)
$
229,791


Included
in unrealized gain (loss) on investment in securities for the twelve months ended December 31, 2009 are realized holding losses of approximately $1,142,000 less a
reclassification adjustment for gains recorded on the settlement of the securities included in net earnings of approximately $1,142,000.

4.    Business Acquisitions

On October 12, 2007, the Company, through a wholly-owned subsidiary, Strong Digital Systems, Inc., acquired 100% of the
outstanding shares of Marcel Desrochers, Inc. (MDI), a manufacturer and supplier of film and digital cinema screens, for cash consideration. As a result of the acquisition, MDI formed a core
business established to supply cinema screens to the digital and film cinema marketplace. The total purchase price of MDI at the date of acquisition was $2.5 million including cash acquired.
The purchase price excluded an additional $0.9 million of restricted funds that were placed in escrow to secure certain indemnification and other obligation contingencies of which
$0.2 million remains as of December 31, 2009. Funds for the purchase were provided by internally generated cash flows. Direct transaction costs related to the acquisition amounted to
$0.3 million.

During
the first quarter of 2007, the Company acquired certain assets of a business in the lighting segment from High End Systems, Inc. The results of Technobeam's operations have
been included in the consolidated financial statements from the acquisition date through the reporting period ended December 31, 2009. The Company made an initial payment of
$0.2 million. Additional consideration to be paid of up to $150,000 was contingent upon satisfaction and attainment of certain future sales of the business product line of which $50,000 remains
as of December 31, 2009. Direct transaction costs were not material to the acquisition.

5.    Digital Link II Joint Venture

Investment in Digital Link II

On March 6, 2007, the Company entered into an agreement with RealD to form an operating entity Digital Link II, LLC (the
"LLC"). Under the agreement, the LLC was formed with the

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Company
and RealD as the only two members with membership interests of 44.4% and 55.6%, respectively. The LLC was formed for purposes of commercializing certain 3D technology and to fund the
deployment of digital projector systems and servers to exhibitors.

Summarized
financial data for the LLC is as follows (unaudited):

Balance Sheet

December 31,
2009

December 31,
2008Current assets

$
876,801

$
952,146Property, plant and equipment, net


12,935,437


12,935,438Current liabilities


3,046,981


1,651,046Non-current liabilities


5,574,220


4,049,809Deficit


5,191,037


7,305,658


12 months ended December 31,Statement of Operations

2009

2008

2007Depreciation

$
1,526,142

$
1,054,093

$
558,940Other expense


569,477


367,087


9,746Net loss


2,095,619


1,421,180


568,686


The
Company accounts for its investment by the equity method. Under this method, the Company records its proportionate share of LLC net income or loss based on the most recently
available financial statements. The Company's portion of losses of the LLC amounted to approximately $0.9, $0.7 and $0.2 million for the twelve months ended December 31, 2009,
2008 and 2007, respectively.

Guarantees

During 2009 and 2008, the Company and RealD provided guarantees to notes payable entered into by Digital Link II, LLC to finance
digital projection equipment deployed in the normal course of business. The notes bear interest at rates ranging from 7.0% to 7.25%. The following table summarizes the Company's guarantees:

Guarantee Date

Interest Rate

Original Notes Payable Balance

Ballantyne Ownership

Original Guarantee

Remaining Guarantee as of 12/31/09July-08


7.0
%
$
1,329,125


44.40
%
$
590,132

$
326,761November-08


7.2
%

756,440


44.40
%

335,860


159,738November-08


7.0
%

1,142,239


44.40
%

507,154


335,844January-09


7.2
%

265,538


44.40
%

117,899


70,756April-09


7.2
%

1,039,646


44.40
%

461,602


259,297September-09


7.0
%

184,098


44.40
%

81,739


72,334October-09


7.25
%

152,850


44.40
%

67,865


67,865$
4,869,936




$
2,162,251

$
1,292,595


Under
terms of the guarantees, the Company and RealD would be required to fulfill the guarantee should the joint venture be in default of its loans or contract terms. The Company has
recorded a liability for the fair value of the obligations undertaken by issuing the guarantees which amount to

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

approximately
$0.04 million at December 31, 2009. The Guarantees will expire by the end of June 2012.

6.    Sale of Product Line

During 2008, the Company sold its coater and marinade product line in exchange for $275,000 in cash. In connection with the sale, the
Company recorded a pre-tax net gain of approximately $258,000 (estimated $159,000 after-tax) which is net of related costs to sell.

7.    Investments

The Company had certain investments in auction-rate securities which were classified as
available-for-sale securities and accounted for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In June 2009, the
Company entered into a settlement agreement with a financial institution with whom the Company had a banking relationship to sell, at the Company's option, all or a portion of its outstanding
auction-rate securities ("ARS") at par, plus accrued interest. The settlement agreement provided for a provision on confidentiality and a release of the financial institution from claims
related to the Company's purchase, ownership and sale of the securities. Subsequently, in June 2009, the Company sold its remaining outstanding ARS under the terms of the settlement agreement which
amounted to $9,375,000 plus interest accrued. During 2009, the Company also liquidated, at par, outstanding ARS which amounted to $650,000 of which $50,000 were sold through the normal auction process
and $600,000 were redeemed by the fund itself.

The
Company previously recorded a temporary impairment as an unrealized loss on the outstanding ARS in other comprehensive income (loss) prior to settlement of the ARS. As a result of
entering into the settlement agreement, the Company recorded the temporary impairment as a realized loss of approximately $1.1 million within other income (expense). The Company also recorded
an offsetting gain on the settlement in the amount of $1.1 million which was recorded in other income (expense) during twelve months ended December 31, 2009.

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

8.    Fair Value of Financial Instruments

The fair value of the Company's cash and cash equivalents, accounts receivable, accounts payable and accrued expenses equal or
approximate their fair values due to the short-term nature of these instruments. The estimated fair values and related assumptions used to estimate fair value of the Company's financial
instruments are disclosed below.

ASC
820 establishes a hierarchy for fair value measurements based upon observable independent market inputs and unobservable market assumptions. Inputs refer broadly to the assumptions
that market participants would use in pricing the assets or liability, including assumptions about risk. Considerable judgment is required in interpreting market data used to develop the estimates of
fair
value. The following represents the three categories of inputs used in determining the fair value of financial assets and liabilities:

Level 1:

Quoted market prices in active markets for identical assets or liabilities.Level 2:

Observable market based inputs or unobservable inputs that are corroborated by market data.Level 3:

Unobservable inputs that are used in the measurement of assets and liabilities. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market
participants in pricing the asset or liability.


A
reconciliation of assets and liabilities measured at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) from January 1, 2009 to
December 31, 2009 follows:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Investments in
Auction-Rate
Securities

TotalBalance at December 31, 2008

$
8,883,420

$
8,883,420Total unrealized gains or losses included in other comprehensive income (loss)


1,141,580


1,141,580Purchases, issuances and settlements


(10,025,000
)

(10,025,000
)Balance at December 31, 2009

$


$
The amount of total gains or losses for the period included in earnings (loss) (or changes in net assets) attributable to the change in unrealized gains or
losses relating to assets still held at December 31, 2009.

$


$



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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

9.    Inventories

Inventories consist of the following:

December 31, 2009

December 31, 2008Raw materials and components

$
4,714,956

$
4,938,126Work in process


169,707


465,998Finished goods


8,102,385


4,072,563$
12,987,048

$
9,476,687


The
inventory balances are net of reserves of approximately $2,665,000 and $2,792,000 as of December 31, 2009 and December 31, 2008, respectively.

10.    Property, Plant and Equipment

Property, plant and equipment include the following:

December 31, 2009

December 31, 2008Land

$
313,500

$
313,500Buildings and improvements


4,106,869


3,992,556Machinery and equipment


5,802,596


5,102,713Office furniture and fixtures


2,196,827


2,015,29612,419,792


11,424,065Less accumulated depreciation


(8,806,857
)

(7,970,702
)Net property, plant and equipment

$
3,612,935

$
3,453,363


Depreciation
expense amounted to approximately $837,000, $924,000 and $1,061,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

55

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

11.    Intangible Assets

As of December 31, 2009 and December 31, 2008, the Company had unamortized identifiable net assets of $1,103,128 and
$1,374,438, respectively. The following table details amounts relating to those assets.

December 31,2009

2008Amortizable intangible assets:Customer relationships

$
1,706,003

$
1,599,393Trademarks


227,470


208,282Non-competition agreement


166,158


164,623$
2,099,631

$
1,972,298Accumulate amortization:Customer relationships

$
(741,061
)
$
(448,060
)Trademarks


(165,066
)

(94,034
)Non-competition agreement


(116,376
)

(81,766
)$
(1,022,503
)
$
(623,860
)


The
increase in the cost of the identifiable assets is due to certain intangibles recorded in a foreign currency and therefore affected by fluctuations in the exchange rate.
Additionally, the Company had intangible net assets of $26,000 at December 31, 2009 with indefinite lives and therefore will not be
amortized. Intangible assets, other than goodwill, with definitive lives are amortized over their useful lives.

During
2007, the Company purchased certain intangible assets pertaining to an agreement between High End Systems and the Company. The assets were recorded at fair value. Customer
relationships are being amortized over a useful life of four years, non-compete intangibles are being amortized over a useful life of three years. The trademark intangible was determined
to have an indefinite life and therefore will not be amortized.

During
2007, the Company purchased certain intangible assets pertaining to the stock acquisition of Marcel Desrochers, Inc. These assets were recorded at fair value. Customer
relationships and the non-competition agreement are being amortized over useful lives of five years and the trademark is being amortized over three years.

The
Company recorded amortization expense relating to other identifiable intangible assets of $398,642, $421,113 and $162,377 for the years ended December 31, 2009, 2008 and 2007,
respectively. Future amortization expenses related to the intangibles recorded at December 31, 2009 are as follows: 2010$373,428; 2011$329,180;
2012$269,472; 2013$43,476; thereafter$61,572.

12.    Sale of Design & Manufacturing, Inc.

During the fourth quarter of 2007, the Company sold substantially all of the assets and liabilities of its wholly-owned subsidiary,
Design & Manufacturing, Inc. (Design) in exchange for $1.7 million in cash. In connection with the sale, the Company recorded a loss on the sale of $0.1 million.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

13.    Goodwill

Goodwill represents the excess of cost over the fair value of assets of businesses acquired through purchase business combinations in
accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142,Goodwill and Other Intangible Assets. Goodwill
and intangible assets that are determined to have an indefinite useful life are not amortized but instead tested for impairment at least annually as well as when events and circumstances indicate that
an impairment may have occurred.

The
impairment testing requires management to estimate the fair value of the assets or reporting unit. The Company assesses the current fair values of each reporting unit based on an
income approach using discounted cash flows. In estimating the fair value, management must make assumptions and projections regarding such items as future cash flows, future revenues, and future
earnings in addition to other factors. The fair value of the reporting unit is then compared to the carrying amount of the assets to quantify an impairment charge as of the assessment date for the
excess of the carrying amount of the reporting unit's assets over the fair value of the reporting unit's assets.

During
2008, the Company's operating performance declined as compared to the prior year and the share price and market capitalization was depressed as compared to book value. The
analyses also took into consideration the ongoing transition taking place in the Company's strategy and operations, moving from the manufacture of traditional film equipment to a business model
focused on the distribution and service of digital projectors. As a result of the impairment analysis performed, the Company determined the entire carrying value of goodwill was impaired during the
fourth quarter of 2008.

The
following table shows the changes in the carrying amount of goodwill attributable to each applicable segment:

Theatre

Lighting

TotalBalances at December 31, 2006

$
1,794,426




$
1,794,426Increase due to acquisition


1,193,161


91,000


1,284,161Impairment charge


(639,466
)




(639,466
)Change in foreign currency exchange rates


(18,128
)




(18,128
)Balances at December 31, 2007


2,329,993


91,000


2,420,993Impairment charge


(2,223,282
)

(91,000
)

(2,314,282
)Change in foreign currency exchange rates


(106,711
)




(106,711
)Balances at December 31, 2008

$





$



Accordingly,
the Company took a 2008 non-cash charge amounting to $2.3 million. The effect of the charge increased 2008 reported net loss and loss per share. A tax
benefit related to the impairment charges taken during 2008 of $0.2 million was recognized.

57

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

14.    Other Current Accrued Expenses

The major components of other current accrued expenses are as follows:

December 31,2009

2008Employee related

$
1,809,825

$
1,221,450Interest and taxes


571,366


524,883Acquisition and related accruals


233,874


287,039Post-retirement benefit obligation


17,342


22,006Legal and professional fees


495,844


166,346Other


494,892


618,080Total

$
3,623,143

$
2,839,804


15.    Other Long Term Accrued Expenses

The major components of long-term accrued expenses are as follows:

December 31,2009

2008Acquisition and related accruals

$
92,371

$
423,998Post-retirement benefit obligation


342,669


352,359Other


48,385


229,699Total

$
483,425

$
1,006,056


16.    Debt

The Company is party to a revolving credit facility (the "Credit Facility") with First National Bank of Omaha expiring March 31,
2010. 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 December 31, 2009. The Company pays interest on outstanding amounts equal to the Prime Rate plus 0.25% (3.5% at December 31, 2009) and pays a
fee of 0.125% on the unused portion. No amounts are currently outstanding. The Company intends to obtain a similar credit facility prior to the expiration of its current line of credit.

17.    Income Taxes

Income (loss) before income taxes consists of:

Years Ended December 31,2009

2008

2007United States

$
(3,382,912
)
$
(5,670,768
)
$
(510,868
)Foreign


6,132,888


1,726,037


501,309$
2,749,976

$
(3,944,731
)
$
(9,559
)


58

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Income
tax expense (benefit) attributable to income from continuing operations consists of:

Years Ended December 31,2009

2008

2007Current:Federal expense (benefit)

$
(1,763,604
)
$
(815,539
)
$
(369,069
)State expense (benefit)


(65,085
)

4,286


(19,774
)Foreign expense


1,799,301


1,201,317


102,312Deferred:Federal expense (benefit)


727,052


(845,050
)

35,067State expense (benefit)


(3,750
)

(120,286
)

13,774Foreign expense


(14,456
)

(335,769
)

$
679,458

$
(911,041
)
$
(237,690
)


Income
tax expense attributable to income (loss) from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate of 34 percent to pretax
income (loss) from continuing operations as follows:

Years Ended December 31,2009

2008

2007Expected tax expense (benefit)

$
934,992

$
(1,341,208
)
$
(3,250
)State income taxes, net of federal effect


(45,431
)

(76,560
)

(3,960
)Foreign tax rates varying from 34%


(263,203
)




Tax-exempt interest


(12,252
)

(103,198
)

(167,597
)Non-deductible goodwill





557,305


Other


65,352


52,620


(62,883
)$
679,458

$
(911,041
)
$
(237,690
)


59

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Deferred
tax assets and liabilities were comprised of the following:

December 31,2009

2008Deferred tax assets:Non-deductible accruals

$
292,049

$
296,501Inventory reserves


1,448,463


1,651,191Warranty reserves


126,564


163,065Net Operating Losses


157,455


116,000Uncollectible receivable reserves


247,038


183,148Accrued group health insurance claims


59,313


76,725AMT credit carry forward


161,886


Unrealized loss on investments in securities





399,553Stock compensation expense


69,404


144,747Goodwill impairment





202,209Depreciation and amortization


310,979


7,435Other


176,659


65,972Net deferred tax assets


3,049,810


3,306,546Deferred tax liabilityequity in loss of joint venture


(860,157
)

(8,494
)Net deferred tax assets

$
2,189,653

$
3,298,052


Federal
and state income taxes have not been provided on accumulated but undistributed earnings of foreign subsidiaries aggregating approximately $7.7 million at
December 31, 2009, as such earnings have been permanently reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed
earnings is not practicable.

The
Company follows Financial Accounting Standards Board ASC 740,Income Taxesas it pertains to uncertain tax positions. ASC 740 requires
that uncertain tax positions are evaluated in a two-step process, whereby 1) the Company determines whether it is more likely than not that the tax positions will be sustained based
on the technical merits of the position and 2) for those tax positions that meet the more likely than not recognition threshold, the Company would recognize the largest amount of tax benefit
that is greater than fifty percent likely to be realized upon ultimate settlement with the related tax authority. The Company's uncertain tax positions are related to tax years that remain subject to
examination by the relevant taxable authorities. The Company has examinations not yet initiated for Federal purposes for fiscal years 2005 through 2008. In most cases, the Company has examinations
open for State or local jurisdictions based on the particular jurisdiction's statute of limitations. The Company does not currently have any examinations in process. As of December 31, 2009,
total unrecognized tax benefits amounted to approximately $0.1 million.

Estimated
amounts related to estimated underpayment of income taxes, including interest and penalties, are classified as a component of tax (benefit) expense in the consolidated
statements of operations and were not material for the year ended December 31, 2009. Amounts accrued for estimated underpayment of income taxes amounted to $0.1 million as of
December 31, 2009. The accruals largely related to state tax matters.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

18.    Note Receivable

During July 2006, the Company entered into a note receivable arrangement with Digital Link LLC (Digital Link) pertaining
to the sale and installation of digital projectors. The sale amounted to $780,000 of which 25% was due upon installation and was collected. The remaining amounts are due over a 5-year
period at an 8% interest rate. At December 31, 2009, $210,111 was due from Digital Link.

Only
the payments received on the note receivable totaling $569,889 were recorded as revenue with the remaining amounts to be recognized as revenue in future periods when the cash is
received from Digital Link as described in the note receivable arrangement or when collections from the Digital Link can be reasonably assured. The costs incurred with the sale of projectors to
Digital Link were expensed during 2006 with no future associated costs to be incurred.

19.    Supplemental Cash Flow Information

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

Years Ended December 31,2009

2008

2007Cash paid during the year for:Interest

$
9,964

$
7,411

$
28,672Income taxes

$
1,456,741

$
683,491

$
1,247,312Non-cash investing activities:Non-cash investment in joint venture

$


$


$
2,543,771


20.    Stock Compensation

The Company accounts for awards of share-based compensation in accordance with ASC 718,Stock
CompensationOverall, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors
based on estimated fair values. Share-based compensation expense recorded amounted to $379,325, $271,498 and $81,325 for the years ended December 31, 2009, 2008 and 2007, respectively.

Options

The Company currently maintains a 2005 Outside Directors Stock Option Plan which was approved by the Company's stockholders. During
fiscal 2008, the Board of Directors made the decision to discontinue granting further stock options under this plan, however, there are outstanding stock options remaining under this plan. The Company
also maintained a 1995 Employee Stock Option Plan which expired in 2005, however, there are outstanding stock options remaining under this expired plan.

A
2001 Non-Employee Directors Stock Option Plan was discontinued in April 2009 by the Compensation Committee of the Board of Directors. No stock options remain outstanding
under this plan.

All
past and future grants under the Company's stock option plans were granted at exercise prices based on the fair market value of the Company's common stock on the date of grant. The
outstanding

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

options
generally vested over periods ranging from zero to three years from the grant date and expired between 5 and 10 years after the grant date. No stock options were granted during the
years ended December 31, 2009 and 2008, respectively.

Earnings
(loss) before income taxes included $0, $18,281 and $66,457 of share-based compensation expense related to stock options, with associated tax benefits of $0, $6,398 and $23,260
for the years ended December 31, 2009, 2008 and 2007 respectively. All stock options outstanding were fully vested as of January 1, 2009. Therefore, no share-based compensation expense
was recorded during the twelve months ended December 31, 2009.

The
following table summarizes the Company's activities with respect to its stock options for the three years ended December 31, 2009 as follows:

Number of
Options

Weighted
Average
Exercise Price
Per Share

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
ValueOutstanding at December 31, 2006


720,925

$
3.77Granted





Exercised


(121,250
)

0.54Forfeited


(155,925
)

10.40Outstanding at December 31, 2007


443,750


2.33Granted





Exercised


(123,625
)

0.73Forfeited


(42,000
)

7.30Outstanding at December 31, 2008


278,125


2.29Granted





Exercised





Forfeited





Outstanding at December 31, 2009


278,125

$
2.29


1.69

$
480,450Exercisable at December 31, 2009


278,125

$
2.29


1.69

$
480,450


The
aggregate intrinsic value in the table above represents the total that would have been received by the option holders if all in-the-money options had been
exercised on December 31, 2009.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

The following table summarizes information about stock options outstanding and exercisable at December 31, 2009:

Options Outstanding at
December 31, 2009

Options Exercisable at
December 31, 2009Range of option exercise price

Number of
options

Weighted
average
remaining
contractual
life

Weighted
average
exercise price
per option

Number of
options

Weighted
average
remaining
contractual
life

Weighted
average
exercise price
per option$0.62 to 0.63


160,000


2.33

$
0.62


160,000


2.33

$
0.624.25 to 4.75


118,125


0.82


4.55


118,125


0.82


4.55$0.62 to 4.75


278,125


1.69

$
2.29


278,125


1.69

$
2.29


As
of December 31, 2009, all stock option awards were fully vested. Therefore, no unrecognized compensation cost related to non-vested stock option awards remained at
December 31, 2009.

Restricted Stock Plans

During 2005, the Company adopted and the stockholders approved, the 2005 Restricted Stock Plan. Under terms of the plan, the
Compensation Committee of the Board of Directors selects which employees of the Company are to receive restricted stock awards and the terms of such awards. The total number of shares reserved for
issuance under the plan was 250,000 shares. The plan expires in September 2010. During May 2008, the Company granted 54,000 shares to certain employees. A portion of the shares vested on
January 1, 2009 with the remaining shares vesting on January 1, 2010 as the Company achieved certain earning thresholds, as defined within the restricted stock agreements. Additionally,
during February of 2009, 64,491 shares of restricted stock were granted under this plan as partial payment under the Company's 2008 Short-Term Incentive Plan. At December 31, 2009,
131,509 shares remain available for issuance under the Plan.

During
2008, the Company adopted and the stockholders approved, the Ballantyne Strong, Inc. Non-Employee Directors' Restricted Stock Plan (Non-Employee
Plan) to replace the 2005 Outside Directors' Stock Option Plan. The total number of shares reserved for issuance under the Non-Employee Plan was increased from 120,000 shares to 250,000 by
a vote of the stockholders at the 2009 Annual Stockholders Meeting. During May 2008, the Company granted 15,000 restricted shares under the Non-Employee Plan to the Board of Directors.
These shares vested on May 21, 2009. During May 2009, the Company granted 27,000 restricted shares under the Non-Employee Plan to the Board of Directors. These shares vest the day
after the Company's 2010 Annual Stockholders Meeting. Additionally, in April 2009, 18,889 restricted shares were issued in conjunction with an agreement entered into with a member of the Company's
Board of Directors to provide consulting services. Subsequently, in September 2009, the consulting agreement was mutually terminated as the objectives of the agreement were achieved. As a result,
8,124 shares vested on the date of the termination agreement and the remaining 10,765 shares were cancelled and made available for future issuance in accordance with the Non-Employee Plan.
At December 31, 2009, 199,876 shares remain available for issuance under the Plan.

In
connection with the restricted stock granted to certain employees and non-employee directors, the Company is accruing compensation expense based on the estimated number of
shares expected to be issued utilizing the most current information available to the Company at the date of the financial

63

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

statements.
The Company estimates the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant.

As
of December 31, 2009, the total unrecognized compensation cost related to non-vested restricted stock awarded was approximately $58,144 and is expected to be
recognized over a weighted average period of 7.7 months.

The
following table summarizes restricted stock activity for the two years ended December 31, 2009:

Number of Restricted Stock Shares

Weighted Average Grant Price Fair ValueNonvested at January 1, 2008




$
Granted


69,000


4.48Shares vested





Shares forfeited





Nonvested at December 31, 2008


69,000

$
4.48Granted


110,380


1.88Shares vested


(52,124
)

4.11Shares forfeited


(10,765
)

2.25Nonvested at December 31, 2009


116,491

$
2.38


No
restricted stock awards were granted during 2007.

As
of December 31, 2009, total unvested, restricted stock awards outstanding amounted to 116,491 shares.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan, approved by the stockholders, provides for the purchase of shares of Ballantyne common
stock by eligible employees at a per share purchase price equal to 85% of the fair market value of a share of Ballantyne common stock at either the beginning or end of the offering period, as defined,
whichever is lower. Purchases are made through payroll deductions of up to 10% of each participating employee's salary. The maximum number of shares that can be purchased by participants in any
offering period is 2,000 shares. Additionally, the Plan has set certain limits, as defined, in regard to the number of shares that may be purchased by all eligible employees during an offering period.
At December 31, 2009, 88,553 shares of common stock remained available for issuance under the Plan. The Plan expires in October 2010.

The
total estimated grant date fair value of purchase rights outstanding under the Employee Stock Purchase Plan was $2.05 using the Black-Scholes option-pricing model made with the
following weighted average assumptions: risk-free interest rate0.47%, dividend yield0%, expected volatility69.95% and expected life in
years1. The Company recorded $30,656, $4,197 and $14,868 of share-based compensation expense pertaining to the stock purchase plan with associated tax benefits of $10,730, $1,469 and
$2,456 for the years ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009, the total unrecognized estimated compensation cost was $22,469 which is expected to be
recognized over a period of 10 months.

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

21.    Share Repurchase Program

On November 12, 2008, the Company's Board of Directors approved a share repurchase program. Under the share repurchase program,
the Company may repurchase up to $1.0 million of the Company's outstanding shares of common stock. As of December 31, 2009, the
Company has repurchased 42,177 shares at a weighted-average cost of approximately $1.59 per share for a total cost of $67,226 which were recorded to treasury stock. No repurchases were made during
fiscal 2009. At December 31, 2009, $932,775 remains available under the authorized program.

22.    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 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.

23.    Related Party Transactions

The Company sold digital theatre projection equipment, in the normal course of business, to its joint venture, Digital Link
II, LLC ("LLC") for approximately $2.2, $3.7 and $1.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. The LLC in turn provides the digital theatre
projection equipment to third party customers under operating lease agreements. Revenue recognized during 2009, 2008 and 2007, respectively was $1.2, $2.1 and $0.7 million. Revenue recognized
by the Company on the sale transaction to DL II is limited by its 44.4% ownership in the joint venture which will be recognized upon sale of the equipment to the third parties.

24.    Foreign Exchange Contracts

The Company's primary exposure to foreign currency fluctuations pertains to its subsidiary in Canada. In certain instances the Company
may enter into foreign exchange forward contracts to manage a portion of this risk. At December 31, 2009 and 2008, the Company had open forward exchange contracts to purchase Canadian dollars
at a fixed rate of U.S. dollars with notional amounts totaling $3.2 million and $0.6 million, respectively. The fair value of these open contracts amounted to approximately $0.02 and
$0.03 million at December 31, 2009 and 2008, respectively. The Company has recorded approximately $19,600 and $34,800 of unrealized loss associated with these
open contracts in its consolidated statement of operations at December 31, 2009 and 2008, respectively. No foreign exchange contracts were entered into during 2007.

25.    Commitments, Contingencies and Concentrations

a.    Bonus
Plans

The
Compensation Committee of the Board of Directors administers a Short-Term Incentive Plan (the "Plan"). The Plan is an annual incentive program that provides certain
officers and key employee's bonuses in the form of cash or restricted stock or a combination of both if the Company achieves

65

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

certain
financial goals. Each payout is further subject to the achievement of certain individual goals, as defined.

The
Company has recorded expenses related to the Plan of approximately $448,000, $149,000 and $54,000 for the years ended December 31, 2009, 2008 and 2007. The bonuses are
generally paid through a distribution of cash and restricted stock.

b.    Retirement
Plan

The
Company sponsors a defined contribution 401-K plan (the "Plan") for all eligible employees. Pursuant to the provisions of the Plan, employees may defer up to 100% of
their compensation. The Company will match 50% of the amount deferred up to 6% of their compensation. The contributions made to the Plan by the Company for the years ended December 31, 2009,
2008 and 2007 amounted to approximately $163,000, $184,000 and $215,000, respectively.

c.    Postretirement
Health Care

The
Company sponsors a postretirement health care plan (the "Plan") for certain current and former executives and their spouses. The Company'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.

Effective
December 31, 2006, the Company adopted the recognition and disclosure provisions of FASB Statement 158. Statement 158 requires companies to recognize the funded status
of defined benefit pension and other postretirement plans as a net asset or liability on its balance sheet. Actuarial gains and losses are generally amortized subject to the corridor, over the average
remaining service life of the Company's active employees.

The
following table sets forth the Plan's benefit obligations, fair value of plan assets, and funded status at December 31, 2009 and 2008:

2009

2008Reconciliation of benefit obligationBenefit obligation at January 1

$
304,713

$
313,512Interest cost


16,567


17,128Benefits paid, net of contributions


(4,429
)

(3,974
)Actuarial gain


(23,000
)

(21,953
)Benefit obligation at December 31


(293,851
)
$
(304,713
)Fair value of plan assets at December 31





Funded status at end of year


(293,851
)
$
(304,713
)Amounts recognized in the balance sheet consist of:Noncurrent assets

$


$
Current liabilities


(17,342
)

(22,006
)Noncurrent liabilities


(276,509
)

(282,707
)Accumulated other comprehensive income


(110,665
)

(93,658
)Net amount recognized

$
(404,516
)
$
(398,371
)


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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Amounts
recognized in accumulated other comprehensive income consists of:

2009

2008Net actuarial gain

$
110,665

$
93,658Total accumulated other comprehensive income

$
110,665

$
93,658


The
accumulated benefit obligation for the Plan was $293,851 and $304,713 at December 31, 2009 and 2008, respectively. Net periodic benefit cost recognized in 2009, 2008 and 2007
was:

2009

2008

2007Interest cost

$
16,567

$
17,128

$
17,574Amortization of gain


(5,993
)

(4,128
)

(2,531
)Net periodic benefit cost recognized

$
10,574

$
13,000

$
15,043


Other
changes in plan assets and benefit obligations recognized in accumulated other comprehensive income in December 31, 2009, 2008 and 2007 are as follows:

2009

2008

2007Net actuarial gain

$
23,000

$
21,953

$
63,618Amortization of gain

$
(5,993
)
$
(4,128
)
$
(2,531
)Total recognized in accumulated other comprehensive income

$
17,007

$
17,825

$
61,087Total recognized in net periodic benefit cost and accumulated other comprehensive income

$
27,581

$
30,825

$
76,130


For
the defined postretirement benefits plan, amortization of the net gain from accumulated other comprehensive income into net periodic benefit cost in the amount of $7,007 is expected
to be recognized in the next fiscal year.

Weighted
average assumptions used to determine benefit obligations at December 31, 2009, 2008 and 2007 were as follows:

2009

2008

2007Discount rate


5.75
%

5.75
%

5.75
%Rate of compensation increase


N/A


N/A


N/AHealth care cost trend rate


6.5
%

7.00
%

7.50
%


Weighted
average assumptions used to determine net benefit cost for the years ended December 31, 2009, 2008 and 2007 were as follows:

2009

2008

2007Discount rate


5.75
%

5.75
%

5.75
%Expected long-term rate of return on plan assets


N/A


N/A


N/ARate of compensation increase


N/A


N/A


N/AHealth care cost trend rate


6.5
%

7.00
%

7.50
%


67

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Assumed
health care trend rates have a significant effect on the amounts reported for health care plans. A 1% change in assumed health care cost trend rates would have the following
effects:

1%
Increase

1%
DecreaseEffect on total service and interest cost components of periodic postretirement health care benefit cost

$
1,987

$
(1,781
)Effect on the health care component of the accumulated postretirement benefit obligation

$
33,756

$
(30,244
)


For
measurement purposes, a 6.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2009. The rate was assumed to decrease gradually to 6.0%
through 2011 and remain at that level thereafter.

2009

2008

2007Benefit cost

$
10,574

$
13,000

$
15,043Employer contribution








Plan participants' contributions


1,800


1,800


1,800Benefits paid


6,229


5,774


6,764


The
Company expects to contribute $17,342 to its postretirement benefit plan in 2010.

The
benefits expected to be paid from the postretirement benefit plan in each year 2010-2014 are $17,342, $18,485, $19,553, $20,528 and $21,500, respectively. The aggregate
benefits expected to be paid in the five years from 2015-2019 are $104,110. The expected benefits are based on the same assumptions used to measure the Company's benefit obligation at
December 31 and include estimated future employee service.

d.    Concentrations

The
Company's top ten customers accounted for approximately 49% of 2009 consolidated net revenues. The top ten customers were primarily from the theatre segment. Trade accounts
receivable from these
customers represented approximately 52% of net consolidated receivables at December 31, 2009. Sales to Regal Cinemas, Inc. and Vari International each represented approximately 10% of
consolidated sales. Additionally, receivables from NEC and the China Film Jingdian Cinema Investment Company, Ltd represented approximately 9% and 16% of net consolidated receivables at
December 31, 2009, respectively. 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.

68

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Through
distribution agreements with NEC, the Company distributes Starus DLP Cinema projectors to North and South America, Hong Kong, China and certain other areas of Asia. These
agreements are non-exclusive distributorship agreements and some of which can be terminated with 90 day advance notice. NEC is the primary supplier of the digital products the
Company distributes to the Theatre Industry. If the Company is unable to maintain its relationship with NEC, the results would have a material adverse impact on its business, financial condition and
operating results until the Company could find an alternative source of digital equipment to distribute. The principal raw materials and components used in the Company's manufacturing processes
include aluminum, reflectors, electronic subassemblies and sheet metal. The Company uses a single manufacturer for each of its intermittent movement components, reflectors, 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 are secured.

e.    Leases

The
Company and its subsidiaries lease plant and office facilities, furniture, autos and equipment under operating leases expiring through 2012. These leases generally contain renewal
options and the Company expects to renew or replace the leases in the ordinary course of business. Rent expense under operating lease agreements amounted to approximately $440,000, $316,000 and
$126,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

As
part of the acquisition of Marcel Desrochers, Inc. on October 12, 2007, the Company entered into a lease agreement for the manufacturing facilities located in Canada
which are primarily used for the manufacture of motion picture theatre screens. The term of the lease is for sixty months which expires on October 12, 2012.

Future
minimum lease payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2009 are as follows:
2010$446,869; 2011$420,616; 2012$227,329; and 2013$22,821.

f.    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 December 31, 2009 and 2008 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.

g.    Litigation

During
December 2009, the Company settled an asbestos case entitledLarry C. Stehman and Leila Stehman v. Asbestos Corporation, Limited and Ballantyne of
Omaha, Inc. individually and as successor in interest to Strong International, Strong Electric Corporation and Century Projector Corporation, et al, in the Superior
Court of the State of California, County of San Francisco. The settlement, including legal fees resulted in charges of $0.4 million during the year ended December 31, 2009.

The
Company is not a party to any outstanding legal actions as of the date of this report.

69

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

26.    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 December 31, 2009, the Company's operations were conducted principally through two business segments: Theatre and Lighting. Theatre operations include the design,
manufacture, assembly, sale and service of motion picture projectors, xenon lamphouses and power supplies. Theatre operations also include the sale and service of digital projection equipment and
accessories, sound systems, 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 Company allocates resources to business segments and
evaluates the performance of these segments based upon reported segment operating profit. The Company previously evaluated the performance of the segments based on reported segment gross profit. Prior
year amounts have been reclassified to conform to the 2009 presentation. All intercompany sales are eliminated in consolidation.

70

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

Summary by Business Segments

2009

2008

2007Net revenueTheatreProducts

$
65,186,543

$
47,158,724

$
42,883,762Services


3,810,626


3,186,650


3,667,134Total theatre


68,997,169


50,345,374


46,550,896Lighting


3,121,840


4,260,868


4,268,437Other


26,748


208,319


666,531Total revenue

$
72,145,757

$
54,814,561

$
51,485,864Operating income (loss)TheatreProducts

$
9,993,972

$
3,232,948

$
4,052,735Services


(451,392
)

(1,907,083
)

(251,861
)Total theatre


9,542,580


1,325,865


3,800,874Lighting


69,702


189,714


276,912Other


13,100


89,651


274,431Total segment operating income


9,625,382


1,605,230


4,352,217Unallocated general and administrative expenses


(5,972,140
)

(5,665,733
)

(4,785,289
)Interest, net


53,887


478,553


760,136Equity in loss of joint venture


(889,997
)

(683,311
)

(245,703
)Other income (loss)


(67,156
)

320,530


(90,920
)Income (loss) before income taxes

$
2,749,976

$
(3,944,731
)
$
(9,559
)Identifiable assetsTheatreProducts

$
55,720,152

$
45,842,050Services


1,225,122


1,345,836Total theatre


56,945,274


47,187,886Lighting


3,264,975


3,664,039Other


51


261,013Total

$
60,210,300

$
51,112,938Expenditures on capital equipmentTheatreProducts

$
844,121

$
511,568

$
395,964Services


59,698


282,911


184,951Total theatre


903,819


794,479


580,915Lighting


3,840


24,147


32,495Total

$
907,659

$
818,626

$
613,410


71

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

2009

2008

2007Depreciation, amortization and impairmentTheatreProducts

$
1,471,600

$
4,312,839

$
2,665,786Services


242,618


265,818


60,220Total theatre


1,714,218


4,578,657


2,726,006Lighting


38,332


74,587


64,990Total

$
1,752,550

$
4,653,244

$
2,790,996Gain (loss) on disposal of long-lived assetsTheatreProducts

$
(16,911
)
$
15,285

$
(165,338
)Services








Total theatre


(16,911
)

15,285


(165,338
)Lighting





1,951


(1,048
)Other





258,170


Total

$
(16,911
)
$
275,406

$
(166,386
)


Summary by Geographical Area

2009

2008

2007Net revenueUnited States

$
38,988,135

$
36,587,451

$
37,316,708Canada


2,661,815


1,694,384


901,614China


14,406,150


5,648,450


3,872,075Asia (excluding China)


1,491,885


2,028,579


1,912,991Mexico


7,385,709


3,938,821


3,471,576South America


4,289,795


1,906,745


845,992Europe


2,176,042


1,620,346


2,022,575Other


746,226


1,389,785


1,142,333Total

$
72,145,757

$
54,814,561

$
51,485,864Identifiable assetsUnited States

$
43,982,105

$
42,508,283China


4,030,131


90,718Asia (excluding China)


4,029,054


2,803,196Canada


8,169,010


5,710,741Total

$
60,210,300

$
51,112,938


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

72

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Table of Contents

Ballantyne Strong, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements(Continued)

Years ended December 31, 2009, 2008 and 2007

27.    Quarterly Financial Data (Unaudited)

The following is a summary of the unaudited quarterly results of operations for 2009 and 2008.

First Quarter

Second Quarter

Third Quarter

Fourth Quarter2009:Net revenue

$
17,143,453

$
19,602,707

$
16,552,036

$
18,847,561Gross profit


3,379,070


4,252,593


3,555,283


3,545,087Net earnings(2)


541,719


933,921


543,096


51,782Basic and diluted earnings per share:Basic(3)


0.04


0.07


0.04


0.00Diluted(3)


0.04


0.07


0.04


0.00Stock price:High


2.42


3.27


3.88


3.98Low


0.88


1.80


2.02


3.082008:Net revenue

$
14,197,172

$
13,643,105

$
12,309,108

$
14,665,176Gross profit


2,309,881


2,049,855


2,146,120


2,287,656Net loss(1)


(254,436
)

(120,081
)

(340,648
)

(2,318,525
)Basic and diluted loss per share:Basic(3)


(0.02
)

(0.01
)

(0.02
)

(0.17
)Diluted(3)


(0.02
)

(0.01
)

(0.02
)

(0.17
)Stock price:High


5.97


5.20


4.70


2.23Low


4.02


3.85


1.55


0.99


(1)During
the fourth quarter of 2008, the Company recorded a non-cash goodwill impairment charge within the theatre and lighting segments of
approximately $2.3 million.(2)During
the fourth quarter of 2009, the Company settled a lawsuit resulting in a charge of approximately $0.3 million during the quarter.(3)Earnings
(loss) per share is computed independently for each of the quarters. Therefore, the sum of the quarterly earnings (loss) per share may not equal
the total for the year.


73

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Table of Contents

Schedule II        Ballantyne Strong, Inc.        and Subsidiaries        Valuation and Qualifying Accounts

Balance at
beginning
of year

Charged to
costs and
expenses

Amounts
Written
off(1)

Balance at
end
of yearAllowance for doubtful accounts and notesYear ended December 31, 2009Allowance for doubtful accounts

$
195,141


32,358


(22,185
)

205,314Year ended December 31, 2008Allowance for doubtful accounts

$
534,526


44,602


(383,987
)

195,141Year ended December 31, 2007Allowance for doubtful accounts

$
498,783


63,517


(27,774
)

534,526Inventory reservesYear ended December 31, 2009Inventory reserves

$
2,791,644


523,015


(649,223
)

2,665,436Year ended December 31, 2008Inventory reserves

$
1,901,038


1,246,867


(356,261
)

2,791,644Year ended December 31, 2007Inventory reserves

$
1,534,874


667,587


(301,423
)

1,901,038


(1)The
deductions from reserves are net of recoveries.


74

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Table of Contents

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A(T).  Controls and Procedures

1.    Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, 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, 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). Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective.

2.    Internal Control over Financial Reporting

(a) Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Securities
Exchange Act Rule 13a-15(f). 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 Company's internal control over financial reporting. The Company's management used the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) to perform this evaluation. Based on that evaluation, the Company's management concluded that the Company's
internal control over financial reporting was effective as of December 31, 2009.

This
annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was
not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that requires the Company to provide only
management's report in the annual report.

(b) Changes in Internal Control over Financial Reporting

Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that no changes in our internal
control over financial reporting occurred during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Item 9B.  Other Information

None

75

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Table of Contents

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Incorporated by reference to the Ballantyne Strong, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held
May 19, 2010.

Item 11.  Executive Compensation

Incorporated by reference to the Ballantyne Strong, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held
May 19, 2010.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Incorporated by reference to the Ballantyne Strong, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held
May 19, 2010.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

Incorporated by reference to the Ballantyne Strong, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held
May 19, 2010.

Item 14.  Principal Accounting Fees and Services

Incorporated by reference to the Ballantyne Strong, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held
May 19, 2010.

PART IV

Item 15.  Exhibits, Financial Statement Schedules

An
Index to the Consolidated Financial Statements is filed as a part of Item 8.

Schedule IIValuation
and Qualifying Accounts is included on page 74.

Financial
Statements of the Registrant's subsidiaries are omitted because the Registrant is primarily an operating company and the subsidiaries are wholly-owned.

76

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Table of Contents

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 STRONG, INC.By:

/s/ JOHN WILMERS

By:

/s/ KEVIN S. HERRMANNJohn Wilmers, President,
Chief Executive Officer and Director



Kevin S. Herrmann, Secretary/Treasurer
and Chief Financial OfficerDate: June 23, 2010

Date: June 23, 2010


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

By:

/s/ WILLIAM F. WELSH, II  (1) William F. Welsh, II, ChairmanDate:

June 23, 2010By:

/s/ ALVIN ABRAMSON  (1) Alvin Abramson, DirectorDate:

June 23, 2010By:

/s/ CHRISTOPHER E. BEACH  (1) Christopher E. Beach, DirectorDate:

June 23, 2010By:

/s/ MARC E. LEBARON  (1) Marc E. LeBaron, DirectorDate:

June 23, 2010By:

/s/ MARK D. HASEBROOCK  (1) Mark D. Hasebroock, DirectorDate:

June 23, 2010By:

Steven J. Schuster, DirectorDate:(1) By:

/s/ KEVIN S. HERRMANN Kevin S. Herrmann,Attorney-In-FactDate:

June 23, 2010


77

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Table of Contents

FINANCIAL STATEMENTS

DIGITAL LINK II, LLC
YEARS ENDED MARCH 26, 2010, MARCH 27, 2009 AND MARCH 31, 2008

78

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Table of Contents

DIGITAL LINK II, LLC        TABLE OF CONTENTS



Page No.Report of Independent Registered Public Accounting Firm


80Financial StatementsBalance Sheets, March 26, 2010 and March 27, 2009


81Statements of Operations, Years Ended March 26, 2010, March 27, 2009 and March 31, 2008


82Statements of Cash Flows, Years Ended March 26, 2010, March 27, 2009 and March 31, 2008


83Notes to the Financial Statements


84


79

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Table of Contents



Report of Independent Registered Public Accounting Firm

To
the Members of
Digital Link II, LLC

We
have audited the accompanying balance sheets of Digital Link II, LLC, a California limited liability company, as of March 26, 2010 and March 27, 2009, and the
related statements of operations and cash flows for each of the three years in the period ended March 26, 2010. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Digital Link II, LLC at March 26, 2010 and
March 27, 2009, and the results of its operations and its cash flows for each of the three years in the period ended March 26, 2010, in conformity with U.S. generally accepted accounting
principles.

/s/
ERNST & YOUNG LLP

Los
Angeles, California
June 24, 2010

80

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Table of Contents



Digital Link II, LLC        Balance Sheets

March 26,
2010

March 27,
2009AssetsCurrent assets:Cash and cash equivalents

$
783,644

$
458,659Accounts receivable


437,976


1,567,116Total current assets


1,221,620


2,025,775Digital equipment


15,846,839


13,647,832Total assets

$
17,068,459

$
15,673,607Liabilities and Members' EquityCurrent liabilities:Accounts payable

$
1,950

$
Current portion of long-term debt


3,673,394


1,305,014Deferred revenue


3,500


15,500Accrued property taxes


531,091


368,966Due to related parties


1,761,338


1,648,276Other accrued expenses


51,357


Total current liabilities


6,022,630


3,337,756Virtual print fees


2,750,825


1,977,725Customer deposits


1,580,000


1,415,000Deferred revenue, net of current portion


36,917


25,417Long-term debt, net of current portion


1,866,829


2,086,488Total liabilities


12,257,201


8,842,386Members' equity


4,811,258


6,831,221Total liabilities and members' equity

$
17,068,459

$
15,673,607


See
accompanying notes to the financial statements.

81

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Table of Contents



Digital Link II, LLC        Statements of Operations

Year Ended
March 26, 2010

Year Ended
March 27, 2009

Year Ended
March 31, 2008Digital equipment revenues

$
1,019,074

$


$
Installation revenues


3,500


2,583


3,500Total revenues


1,022,574


2,583


3,500Cost of revenues


2,450,048


1,154,380


802,395Gross profit (loss)


(1,427,474
)

(1,151,797
)

(798,895
)Operating expensesSelling and marketing expenses


93,623


106,738


Administrative expenses


209,077


259,627


132,880Loss from operations


(1,730,174
)

(1,518,162
)

(931,775
)Interest expense


287,539


97,945


30,408Loss before income taxes


(2,017,713
)

(1,616,107
)

(962,183
)Income tax expense


2,250


1,303


1,600Net loss

$
(2,019,963
)
$
(1,617,410
)
$
(963,783
)


See
accompanying notes to the financial statements

82

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Table of Contents



Digital Link II, LLC        Statements of Cash Flows

Year ended
March 26, 2010

Year ended
March 27, 2009

Year ended
March 31, 2008Cash flows from operating activities:Net loss

$
(2,019,963
)
$
(1,617,410
)
$
(963,783
)Adjustments to reconcile net loss to net provided by (used in) operating activities:Depreciation of digital equipment


1,578,865


1,154,380


802,395Interest on long-term debt


32,940


30,306


30,408Non-cash effect of digital equipment sold


844,957





Changes in assets and liabilities:Accounts receivable


1,129,140


(1,308,320
)

(202,874
)Accounts payable


1,950


(11,689
)

(727,224
)Accrued property tax


162,125


247,502


121,464Due to related parties


113,062


1,615,744
)

(161,261
)Other accrued expenses


51,357





Deferred revenue


(500
)

9,417


31,500Customer deposits


165,000


1,415,000


Virtual print fees


773,100


1,777,575


200,150Net cash provided by (used in) operating activities


2,832,033


3,312,505


(869,225
)Cash flows from investing activities:Purchases of digital equipment


(4,622,829
)

(5,948,969
)

(2,383,759
)Net cash used in investing activities


(4,622,829
)

(5,948,969
)

(2,383,759
)Cash flows from financing activities:Payments on long-term debt


(1,834,894
)

(480,983
)

(530,769
)Proceeds from the issuance of long-term debt


3,950,675


3,493,342


Proceeds from member contributions





14,688


3,849,981Net cash provided by financing activities


2,115,781


3,027,047


3,319,212Net increase in cash and cash equivalents


324,985


390,583


66,228Cash and cash equivalents at beginning of year


458,659


68,076


1,848Cash and cash equivalents at end of year

$
783,644

$
458,659

$
68,076


See accompanying notes to the financial statements

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Digital Link II, LLC        Notes to the Financial Statements        Years ended March 26, 2010, March 27, 2009 and March 31, 2008

1.    Nature of Operations

Company

On March 6, 2007, Digital Link II, LLC (the "Company") was formed between Ballantyne Strong, Inc. (formerly known as
Ballantyne of Omaha, Inc.) and RealD with member interests of 44.4% and 55.6%, respectively. The Company was formed for purposes of commercializing certain 3D technology and to fund the deployment of
digital projector systems and servers to third-party exhibitors.

Fiscal Period

Beginning in fiscal year 2009, the Company changed its fiscal year end to four 13-week periods for a total of
52 weeks to align its year end with that of RealD, the majority interest holder in the Company. As a result, the Company's year-end for the fiscal years ended 2010 and 2009 were
March 26, 2010 and March 27, 2009, respectively. Previously, the Company had a fiscal year end of March 31st.

2.    Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods.

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 accompanying balance sheets and statements of cash flows.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company continually monitors the trade
accounts receivable to determine if an allowance for doubtful accounts is necessary. 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. No allowance for doubtful accounts exists at March 26, 2010 or March 27, 2009.

Digital Equipment

Digital equipment also includes digital servers, lenses and accessories and are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful life of 10 years. Upon installation at the customer location, the Company retains title to the digital equipment which is held and
used by customers. The digital equipment is held for sale at either a specified date or upon occurrence of certain contingent events. As of March 26, 2010, digital equipment scheduled to be

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Digital Link II, LLC

Notes to the Financial Statements(Continued)

Years ended March 26, 2010, March 27, 2009 and March 31, 2008

purchased
within the next twelve months had a carrying value of $4.1 million. Depreciation is included in cost of revenue.

Revenue Recognition

The Company has entered into various system use agreements with third-party exhibitors which provide for the use of digital projection
equipment with a purchase option in the future. In accordance with Staff Accounting Bulletin No. 104,Revenue Recognition, the Company recognizes
revenue when title has transferred to the exhibitor and collectibility is reasonably assured if the option to purchase is made by the exhibitor. Revenues recognized by the Company under the system use
agreements consist of installation fees received from these exhibitors. The Company recognizes these revenues over the terms of the use agreements.

Repairs and Maintenance

Repair and maintenance costs are expensed as incurred.

Fair Value of Financial Instruments

The Company's financial assets and liabilities are measured and reported in accordance with Accounting Standards Codification Topic
(ASC) 820-10,Fair Value Accounting(ASC 820), which provides a common definition of fair value and establishes a framework to make
the measurement of fair value in U.S. GAAP more consistent and comparable. This guidance also requires expanded disclosures to provide information about the extent to which fair value is used
to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. Fair value is defined as the amount that would be received
for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value be classified and disclosed in
the following three categories:



The
Company's financial assets and liabilities, which include financial instruments as defined by ASC 820, include cash and cash equivalents, accounts receivable, accounts payable
and long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are a reasonable approximation of fair value due to the short maturities of
these instruments. The carrying amount of long-term debt approximates fair value based on borrowing rates currently available to the Company.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Factors or circumstances that could indicate the occurrence of such events include current period operating or

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Digital Link II, LLC

Notes to the Financial Statements(Continued)

Years ended March 26, 2010, March 27, 2009 and March 31, 2008

cash
flow losses combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing operating or cash flow losses, or incurring costs in excess of amounts
originally expected to acquire or construct an asset. If the asset is not recoverable, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
The Company's most significant long-lived assets subject to these periodic assessments of recoverability are digital equipment, which have a net book value of $15,846,839 and $13,647,832
at March 26, 2010 and March 27, 2009, respectively. As of March 26, 2010 and March 27, 2009 the Company concluded that no impairments related to long-lived
assets exist.

Income Taxes

The Company is treated as a limited liability company for federal and state income tax purposes. Under this treatment, state and
federal income taxes are the responsibility of the Company's members. The Company is subject to minimum and capital tax requirements in certain states.

Reclassifications

Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year
presentation.

Subsequent events

In accordance with ASC 855,Subsequent Events, we have evaluated all events or
transactions that occurred after March 26, 2010 through the date of issuance of our financial statements.

Recent Accounting Pronouncements

Accounting Standards Codification Topic 105, U.S. GAAP (ASC 105) establishes the FASB Accounting Standards Codification(the Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also
sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing
non-SEC accounting and reporting standards. As the Codification was not intended to change or alter existing U.S. GAAP, it does not have a material impact on the Company's financial
statements. The Company adopted ASC 105 on July 1, 2009.

In
January 2010, Accounting Standards Update 2010-6,Fair Value Measurements and Disclosures: Improving Disclosures About Fair Value
Measurements(ASU 2010-6) was issued which requires entities to make new disclosures about recurring or nonrecurring fair value measurements including
significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of
Level 3 fair value measurements. ASU 2010-6 is effective for the Company beginning in the first quarter of fiscal 2010, except for Level 3 reconciliation disclosures
which are effective for the Company beginning in the first quarter of fiscal 2011. The Company is currently evaluating the impact the adoption of new guidance will have on the Company's financial
statements.

Accounting
Standards Codification Topic 855,Subsequent Events(ASC 855) establishes principles and requirements for
reviewing and reporting subsequent events and requires disclosure of the date

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Digital Link II, LLC

Notes to the Financial Statements(Continued)

Years ended March 26, 2010, March 27, 2009 and March 31, 2008

through
which subsequent events are evaluated and whether the date corresponds with the time at which the financial statements were available for issue (as defined) or were issued. In February 2010,
the FASB issued ASU 2010-09,Subsequent Events. ASU 2010-09 was issued to amend ASC 855 to remove the
requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. This change is intended to alleviate potential conflicts with
current SEC guidance. The provisions of ASU 2010-09 are effective upon issuance. The Company adopted ASC 855 on September 25, 2009. The adoption of ASC 855 and
ASU 2010-09 did not have a material impact on the Company's financial statements.

3.    Accounts Receivable

Accounts receivable consist of the following:

March 26, 2010

March 27, 2009Trade accounts receivable

$
307,050

$
1,487,850Accounts receivable from Digital Link I, LLC


130,926


79,266$
437,976

$
1,567,116


Accounts
receivable from RealD and Digital Link I, LLC, a wholly-owned subsidiary of RealD, consist of virtual print fees collected from third-party studios by RealD on the
Company's behalf.

4.    Digital Equipment

Digital equipment includes the following:

March 26, 2010

March 27, 2009Digital equipment

$
19,223,526

$
15,604,607Less accumulated depreciation


(3,376,687
)

(1,956,775
)Net digital equipment

$
15,846,839

$
13,647,832


Depreciation
expense amounted to approximately $1,579,000 and $1,154,000 for the twelve months ended March 26, 2010 and March 27, 2009, respectively.

5.    Virtual Print Fees

The Company has entered into customer use agreements with third-party film exhibitors which provide for the use of digital equipment
with a purchase option in the future. Under the terms of the agreement, the studios have agreed to pay the Company a Virtual Print Fee for every print shown on the projection equipment. If the option
to purchase is made by the exhibitor, the overall purchase price to the exhibitor will be reduced by the Virtual Print Fees paid by the studios and collected by the Company. Therefore, the Virtual
Print Fees collected are recorded as a non-current liability within the Balance Sheet.

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Digital Link II, LLC

Notes to the Financial Statements(Continued)

Years ended March 26, 2010, March 27, 2009 and March 31, 2008

6.    Customer Deposits

The Company has entered into customer use agreements with third-party film exhibitors which provide for the use of digital theatre
projection equipment with a purchase option in the future. Certain operating lease agreements entered into by the Company required the third-party exhibitors to make a deposit on the digital
projection equipment provided for use. The customer deposits collected are recorded as a non-current liability within the Balance Sheet.

7.    Debt

In March 2007, the Company entered into a note agreement with Doremi Labs, Inc. to purchase multiple digital cinema players for
approximately $941,000 with approximately $533,000 due within thirty days and the remaining balloon payment of principal and interest due in March 2010. The note bears interest at an imputed rate of
8.36%. At March 26, 2010, the note agreements had a balance of $412,083. The note agreement was fully paid off on March 31, 2010.

The
Company has entered into various loan financing agreements with NEC Financial Corporation to fund the purchase of digital projection equipment. Pursuant to the terms of the
agreement, the loans are to be repaid over periods ranging from 22 to 36 months and bear interest rates ranging from 7.0% to 7.46% per annum. Equal payments of principal and interest are due on
a monthly basis. The loans are guaranteed by Ballantyne Strong, Inc. and RealD in proportion to each member's respective ownership interests. The loans are secured by a security interest on the
digital equipment. At March 26, 2010, the loan agreements with NEC Financial Corporation had a balance of $5,128,140. The final loan agreement payment is due on June 1, 2012.

Total
remaining payments due and outstanding in aggregate by fiscal year are as follows: 2011$3,673,394; 2012$1,847,997; 2013$18,832.

9.    Members' Equity

All contributions are to be made in proportion to the members' respective ownership interests. For financial reporting and income tax
purposes, all items of income and loss are allocated to the members in accordance with their respective ownership interests.

The
following table summarizes the changes in members' equity for the 3-year period:

Ballantyne
Strong, Inc.

RealD

TotalMembers' equity at March 31, 2007 (Unaudited)

$
2,380,827

$
2,981,397

$
5,362,224Capital contributions


1,791,764


2,243,738


4,035,502Net loss


(427,920
)

(535,863
)

(963,783
)Members' equity at March 31, 2008

$
3,744,671

$
4,689,272

$
8,433,943Capital contributions


5,817


8,871


14,688Net loss


(718,130
)

(899,280
)

(1,617,410
)Members' equity at March 27, 2009

$
3,032,358

$
3,798,863

$
6,831,221Net loss


(896,864
)

(1,123,099
)

(2,019,963
)Members' equity at March 26, 2010

$
2,135,494

$
2,675,764

$
4,811,258


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Digital Link II, LLC

Notes to the Financial Statements(Continued)

Years ended March 26, 2010, March 27, 2009 and March 31, 2008

10.    Supplemental Cash Flow Information

Supplemental disclosures to the statement of cash flows are as follows:

March 26, 2010

March 27, 2009

March 31, 2008Cash paid during the period for:Interest

$
254,599

$
67,639

$
Taxes


2,250


1,303


Non-cash investing activities:Non-cash inventory transfer from Ballantyne

$


$


$
185,521


11.    Related Party

Certain digital and theatre projection equipment held by the Company and provided to third-party exhibitors was purchased from
Ballantyne Strong, Inc. ("Ballantyne"), who holds a 44.4% equity interest in the Company. During 2010, 2009 and 2008, the Company purchased $4,623,000, $5,949,000 and $2,569,000, respectively of
projection equipment and related services from Ballantyne. As of March 26, 2010 and March 27, 2009, approximately $1,587,000 and $1,515,000 was outstanding and due to Ballantyne for the
purchases made. The amounts due are recorded as due to related parties and classified as a current liability within the Balance Sheet.

During
2010 and 2009, the Company collected maintenance fees from exhibitors on behalf of Strong Technical Services, Inc., a subsidiary of Ballantyne. As of March 26, 2010 and
March 27, 2009 approximately $66,000 and $47,000 were due to Strong Technical Services, Inc. for services rendered at
March 27, 2009. The amounts due are recorded as due to related parties and classified as a current liability within the Balance Sheet.

Total
current receivables from Digital Link I, LLC, a wholly-owned subsidiary of RealD, was approximately $131,000 and $79,000 as of March 26, 2010 and March 27,
2009, respectively. The outstanding receivables consist of virtual print fees collected from third-party studios by RealD on the Company's behalf. The amounts due from Digital Link I, LLC are
recorded in total accounts receivable within the Balance Sheet.

Total
due to RealD was approximately $108,000 and $87,000 as of March 26, 2010 and March 27, 2009, respectively. The outstanding payable consists of amounts due for
management and administration services provided by RealD. The amount due is recorded in due to related parties and classified as a current liability within the Balance Sheet.

12.    Commitments

During the ordinary course of business, the Company makes certain indemnities and commitments under which it may be required to make
payments in relation to certain transactions. These indemnities include indemnities of certain customers and licensees of its marketed product. The duration of these indemnities and commitments vary,
and in certain cases, is indefinite. The majority of these indemnities and commitments do not provide for any limitation of the maximum potential future payments the Company could be obligated to
make. The Company has not recorded any liability for these indemnities and commitments in the accompanying balance sheet. The Company does, however, accrue

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Digital Link II, LLC

Notes to the Financial Statements(Continued)

Years ended March 26, 2010, March 27, 2009 and March 31, 2008

for
losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable.

13.    Subsequent Event (unaudited)

Subsequent to March 26, 2010, the Company received $7.0 million in cash from a motion picture exhibitor customer for the
sale of digital equipment, resulting in a gain of $2.9 million.

In
June 2010, a Unanimous Written Consent of the Members of Digital Link II was signed to approve the distribution of $2.0 million to the operating members based on
membership interests of 44.4% for Ballantyne and 55.6% for Real D.

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EXHIBIT INDEX

3.1

Certificate of Incorporation as amended (incorporated by reference to Exhibit 3.1 to the Form S-8, File No. 333-139177 (the "Form S-8").3.1.1

First Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1.1 to the Form S-8).3.1.2

Second Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1.2 to the Form S-8).3.1.3

Third Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1.3 to the Form S-8).3.1.4

Fourth Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1.4 to the Form 10-Q for the quarter ended June 30, 2009).3.2

Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Form S-8).3.2.1

First Amendment to Bylaws of the Company (incorporated by reference to Exhibit 3.2.1 to the Form S-8).3.2.2

Second Amendment to Bylaws of the Company (incorporated by reference to Exhibit 3.2.2 to the Form S-8).3.2.3

Third Amendment to the Bylaws of the Company (incorporated by reference to Exhibit 3.2.3 to the Form S-8).3.2.4

Fourth Amendment to the Bylaws of the Company (incorporated by reference to Exhibit 99.1 to the Form 8-K as filed on May 1, 2007).3.3

Stockholder Rights Agreement dated May 25, 2000 between the Company and Mellon Investor Services, L.L.C. (formerly Chase Mellon Shareholder Services, L.L.C.) (incorporated by reference to Exhibit 1 to the
Form 8-A12B as filed on May 26, 2000).3.3.1

First Amendment dated April 30, 2001 to Rights Agreement dated as of May 25, 2000 between the Company and Mellon Investor Services, L.L.C. as Rights Agent (incorporated by reference to the Form 8-K as
filed on May 7, 2001).3.3.2

Second Amendment dated July 25, 2001 to Rights Agreement dated as of May 25, 2000 between the Company and Mellon Investor Services, L.L.C., as Rights Agent (incorporated by reference to Exhibit 3.3.2
to the Form 10-Q for the quarter ended September 30, 2001).3.3.3

Third Amendment dated October 2, 2001 to Rights Agreement dated as of May 25, 2001 between the Company and Mellon Investor Services, L.L.C. as Rights Agent (incorporated by reference to Exhibit 3.3.3
to the Form 10-Q for the quarter ended September 30, 2001).4.2

Revolving Credit Agreement dated March 10, 2003 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2 to the Form 10-K for the year ended December 31,
 2002).4.2.1

First Amendment to Revolving Credit Agreement dated August 31, 2003 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.1 to the Form 10-Q for the
quarter ended September 30, 2003).4.2.2

Second Amendment to Revolving Credit Agreement dated February 27, 2004 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.2 to the Form 10-K for the
year ended December 31, 2003).


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4.2.3

Third Amendment to Revolving Credit Agreement dated August 30, 2004 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.2 to the Form 10-Q for the quarter
ended September 30, 2004).4.2.4

Fourth Amendment to Revolving Credit Agreement between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.4 to the Form 10-Q for the quarter ended September 30,
 2005).4.2.5

Fifth Amendment to the Revolving Credit Agreement dated August 28, 2006 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.5 to the Form 10-Q for the
quarter ended September 30, 2006).4.2.6

Consent and Waiver Agreement dated September 29, 2006 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.6 to the Form 10-Q for the quarter ended
September 30, 2006).4.2.7

Sixth Amendment to the Revolving Credit Agreement dated August 29, 2007 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.5 to the Form 10-Q for the
quarter ended September 30, 2007).4.2.8

Seventh Amendment to the Revolving Credit Agreement dated March 31, 2008 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.1 to the Form 8-K as filed on
April 4, 2008).4.2.9

Eighth Amendment to the Revolving Credit Agreement dated August 29, 2008 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.9 to the Form 10-Q for the
quarter ended September 30, 2008).4.2.10

Ninth Amendment to the Revolving Credit Agreement dated September 26, 2008 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.1 to the Form 8-K as filed
on October 2, 2008).4.2.12

Tenth Amendment to the Revolving Credit Agreement dated August 28, 2009 between the Company and First National Bank of Omaha, Inc. (incorporated by reference to Exhibit 4.2.12 to the Form 10-Q for the
quarter ended September 30, 2009).10.1

Ballantyne of Omaha, Inc. Restricted Stock Plan (incorporated by reference to Appendix D to the Schedule 14A Definitive Proxy Statement for the Company's 2005 Annual Meeting).*10.2

Ballantyne of Omaha, Inc. 2005 Outside Directors Stock Option Plan (incorporated by reference to Appendix C to the Schedule 14A Definitive Proxy Statement for the Company's 2005 Annual
Meeting).*10.3

Ballantyne of Omaha, Inc. Non-Employee Director Restricted Stock Plan (incorporated by reference to Appendix A to the Schedule 14A Definitive Proxy Statement for the Company's 2008 Annual
Meeting).*10.4

Ballantyne of Omaha, Inc. 2005 Employee Stock Purchase Plan (incorporated by reference to Appendix B to the Schedule 14A Definitive Proxy Statement for the Company's 2005 Annual Meeting).*10.6

2009 Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 2009).*10.6.2

Share Repurchase Program (incorporated by reference to Exhibit 99.1 to the Form 8-K as filed on November 13, 2008).*


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10.8

Operating Agreement of Digital Link II, LLC, dated March 6, 2007, between the Company and RealD (incorporated by reference to Exhibit 10.8 to the Form 10-K for the year ended December 31,
2006).10.9

Asset Purchase Agreement between the Company and National Cinema Service Corp. dated June 30, 2006 (incorporated by reference to Exhibit 4.1 to the Form 10-Q for the quarter ended June 30,
2006).10.10

Authorized Digital Cinema Reseller Master Agreement between the Company and NEC Display Solutions of America, Inc. (incorporated by reference to Exhibit 10.10 to the Form 10-K for the fiscal year ended
December 31, 2009).10.11

Definitive Agreement between the Company and NEC Viewtechnology Ltd. (incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended September 30, 2006).10.12

Equipment Purchase Agreement between the Company and Digital Link, LLC (incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended September 30, 2006).10.13

Amendment No. 1 to Equipment Purchase Agreement between the Company and Digital Link, LLC (incorporated by reference to Exhibit 10.2.1 to the Form 10-Q for the quarter ended September 30,
2006).10.14

Asset Purchase Agreement between the Company and Brian Hendricks dated December 10, 2007 (incorporated by reference to the Form 8-K/A as filed on December 20, 2007).10.15

Asset Purchase Agreement between the Company and Marcel Desrochers, Inc. dated October 12, 2007 (incorporated by reference to the Form 8-K/A as filed on December 28, 2007).10.16

Ballantyne of Omaha, Inc. Non-Employee Director Restricted Stock Plan (incorporated by reference to Appendix A to the Schedule 14A Definitive Proxy Statement for the Company's 2008 Annual
Meeting). *10.17

Guaranty Agreement between Company and NEC Financial Services, LLC (incorporated by reference to Exhibit 10.17 to the Form 10-K/A for the year ended December 31, 2008).10.18

Amendment No. 1 to the Ballantyne Strong, Inc. Non-Employee Directors Restricted Stock Plan. (incorporated by reference to Exhibit 10.18 to the Form 10-K for the fiscal year ended December 31,
2009).10.19

Agreement entered into by Company for sale of remaining outstanding auction-rate securities (incorporated by reference to Exhibit 10.19 to the Form 10-Q for the quarter ended June 30,
2009).10.20

Termination agreement entered into between the Company and Christopher E. Beach (incorporated by reference to Exhibit 10.20 to the Form 10-Q for the quarter ended September 30, 2009).21

Registrant owns 100% of the outstanding capital stock of the following subsidiaries:




Name

Jurisdiction of Incorporationa.

Strong Westrex, Inc.

Nebraskab.

Strong Technical Services, Inc.

Nebraskac.

Strong/MDI Screen Systems, Inc.

Canadad.

American West Beijing Trading Company, Ltd.

China


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23

Consent of KPMG LLP. 23.1

Consent of Independent Auditors. 24

The Power of Attorney authorizing John P. Wilmers and/or Kevin Herrmann to sign the amendment to the Annual Report on Form 10-K for fiscal 2009 on behalf of non-management directors. 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. 


*Management
contract or compensatory plan.Filed
herewith.


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