FG Group Holdings Inc. - Quarter Report: 2009 June (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2009

 

OR

 

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

 

For the transition period from                     to                    

 

 

Commission File Number: 1-13906

 

BALLANTYNE STRONG, INC.

(Formally Ballantyne of Omaha, Inc.)

(Exact Name of Registrant as Specified in Its Charter)

 

 

(402) 453-4444

Registrant’s telephone number, including area code:

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

 

 

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

 

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

 

 

 

Table of Contents

 

TABLE OF CONTENTS

 

			Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Consolidated Balance Sheets, June 30, 2009 and December 31, 2008		1
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008		2
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008		3
	Notes to the Condensed Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		31
Item 4.	Controls and Procedures		31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 4.	Submission of Matters to a Vote of Security Holders		32
Item 6.	Exhibits		33
	Signatures		34

 

Table of Contents

 

Item 1.  Financial Statements

 

Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets
June 30, 2009 and December 31, 2008

 

		June 30,			December 31,
		2009			2008
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	21,168,964		$	11,424,984
Restricted cash		702,158			701,498
Accounts receivable (less allowance for doubtful accounts of $230,507 in 2009 and $195,141 in 2008)		10,013,868			7,038,258
Unbilled revenue		3,571,525			—
Inventories, net		8,950,484			9,476,687
Recoverable income taxes		1,157,682			1,111,118
Deferred income taxes		2,251,904			2,134,699
Consignment inventory		192,794			527,027
Other current assets		1,241,244			356,855
Total current assets		49,250,623			32,771,126
Investment in joint venture		2,711,008			3,138,568
Investment in securities		—			8,883,420
Property, plant and equipment, net		3,500,728			3,453,363
Intangible assets, net		1,223,865			1,374,438
Other assets		17,257			17,257
Deferred income taxes		1,502,233			1,474,766
Total assets		$	58,205,714		$	51,112,938
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	9,723,607		$	6,470,903
Warranty reserves		445,823			491,556
Accrued group health insurance claims		222,589			219,215
Accrued bonuses		251,493			185,064
Other accrued expenses		2,107,803			1,943,969
Customer deposits		2,229,169			1,216,590
Income tax payable		759,328			433,533
Total current liabilities		15,739,812			10,960,830
Deferred income taxes		253,558			311,413
Other accrued expenses, net of current portion		857,889			1,006,056
Total liabilities		16,851,259			12,278,299
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $.01 per share; Authorized 1,000,000 shares, none outstanding		—			—
Common stock, par value $.01 per share; Authorized 25,000,000 shares; issued 16,278,890 shares in 2009 and 16,168,510 shares in 2008		162,788			161,685
Additional paid-in capital		35,215,004			35,085,228
Accumulated other comprehensive income (loss):
Foreign currency translation		(719,581		)	(890,851		)
Unrealized loss on investments in securities, net of tax		—			(742,027		)
Minimum pension liability		93,658			93,658
Retained earnings		21,985,266			20,509,626
		56,737,135			54,217,319
Less 2,139,982 of common shares in treasury, at cost		(15,382,680		)	(15,382,680		)
Total stockholders’ equity			41,354,455			38,834,639
Total liabilities and stockholders’ equity		$	58,205,714		$	51,112,938

 

See accompanying notes to consolidated financial statements.

 

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Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Three and Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2009			2008			2009			2008
Net revenues		$	19,602,707		$	13,643,104		$	36,746,160		$	27,840,276
Cost of revenues		15,350,114			11,593,249			29,114,497			23,480,540
Gross profit		4,252,593			2,049,855			7,631,663			4,359,736
Selling and administrative expenses:
Selling		767,791			742,718			1,436,190			1,530,520
Administrative		1,875,652			1,634,972			3,952,312			3,660,268
Total selling and administrative expenses		2,643,443			2,377,690			5,388,502			5,190,788
Gain on the sale of assets		—			258,170			—			258,170
Loss on disposal of assets		(1,943		)	—			(1,943		)	(1,285		)
Income (loss) from operations		1,607,207			(69,665		)	2,241,218			(574,167		)
Interest income		29,404			129,350			70,534			275,536
Interest expense		(9,328		)	(9,163		)	(17,441		)	(17,698		)
Equity in loss of joint venture		(233,625		)	(184,909		)	(418,137		)	(297,900		)
Other income (expense), net		(68,333		)	19,882			112,904			46,674
Income (loss) before income taxes		1,325,325			(114,505		)	1,989,078			(567,555		)
Income tax benefit (expense)		(391,404		)	(5,576		)	(513,438		)	193,038
Net income (loss)		$	933,921		$	(120,081	)	$	1,475,640		$	(374,517	)
Basic earnings (loss) per share		$	0.07		$	(0.01	)	$	0.11		$	(0.03	)
Diluted earnings (loss) per share		$	0.07		$	(0.01	)	$	0.10		$	(0.03	)
Weighted average shares outstanding:
Basic		13,995,286			13,890,882			13,991,766			13,874,661
Diluted		14,138,239			13,890,882			14,127,450			13,874,661

 

See accompanying notes to consolidated financial statements.

 

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Ballantyne Strong, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

		2009			2008
Cash flows from operating activities:
Net income (loss)		$	1,475,640		$	(374,517	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for doubtful accounts		43,098			26,680
Provision for obsolete inventory		227,728			336,069
Depreciation of consignment inventory		297,479			593,625
Depreciation of property, plant, and equipment		434,751			451,900
Amortization of intangibles		190,976			220,076
Equity in loss of joint venture		418,137			297,900
Loss on disposal of fixed assets		1,943			1,285
Gain on sale of assets		—			(258,170		)
Deferred income taxes		(609,393		)	(306,424		)
Share-based compensation expense		106,614			75,022
Excess tax benefits from stock options exercised		—			(92,362		)
Changes in assets and liabilities:
Accounts receivable		(10,275,086		)	146,607
Unbilled revenue		3,571,525			—
Inventories		332,186			(2,074,911		)
Consignment inventory		36,754			1,862,466
Other current assets		(882,648		)	(264,799		)
Accounts payable		3,400,921			(952,077		)
Warranty reserves		(55,012		)	(33,778		)
Accrued group health insurance claims		3,374			72,228
Accrued bonus		64,948			102,696
Other accrued expenses		27,017			60,091
Customer deposits		1,010,201			(22,177		)
Current income taxes		252,175			(305,425		)
Other assets		—			(1,850		)
Net cash provided by (used in) operating activities		73,328			(439,845		)
Cash flows from investing activities:
Increase in acquisition costs		—			(46,969		)
Investment in joint venture		9,423			(17,914		)
Proceeds from sale of assets		—			271,360
Increase in restricted investments		(660		)	(2,482		)
Capital expenditures		(457,146		)	(492,115		)
Proceeds from sales and redemptions of investment securities		10,025,000			1,225,000
Net cash provided by investing activities		9,576,617			936,880
Cash flows from financing activities:
Proceeds from exercise of stock options		—			59,113
Excess tax benefits from stock options exercised		—			92,362
Net cash provided by financing activities		—			151,475
Effect of exchange rate changes on cash and cash equivalents		94,035			(4,782		)
Net increase in cash and cash equivalents		9,743,980			643,728
Cash and cash equivalents at beginning of year		11,424,984			4,220,355
Cash and cash equivalents at end of year		$	21,168,964		$	4,864,083

 

See accompanying notes to consolidated financial statements.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

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 condensed 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.

 

The condensed consolidated financial statements included herein are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America for annual reporting purposes or those made in the Company’s annual Form 10-K/A filing.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K/A for the fiscal year-ended December 31, 2008.

 

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

 

Use of Management Estimates

 

The preparation of condensed 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 condensed 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.

 

Except as noted below, no changes were made to the Company’s significant accounting policies disclosed in Note 2 of the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2008.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

Adoption of New Accounting Pronouncements

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 15 which delayed the effective date of FASB 157 for certain non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining Fair Value of a Financial Asset in a Market that is not Active.” FSP No. FAS 157-3 clarifies the application of FASB Statement No. 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSB No. FAS 157-3 is effective for the Company beginning in the third quarter of 2008. The adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated financial position or results of operations. See further discussion in Note 9.

 

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations (“SFAS No. 141(R)”)”. SFAS No. 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141(R) also establishes disclosures requirements to enable the evaluation of the nature and financial effects of the business combination. The provisions of SFAS No. 141(R) is effective for any business combinations occurring on or after January 1, 2009. The adoption will impact the Company’s accounting for future acquisitions and related transaction costs.

 

In September 2008, the FASB issued FASB Staff Position FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees” which amends FASB Statement No. 133 and FASB Interpretation FIN 45. FSP No. FAS 133-1 and FIN 45-4 requires sellers of credit derivatives, including credit derivatives embedded in hybrid instruments, to disclose additional information about exposure to potential loss from credit-risk-related events. The new disclosures require both sellers of credit derivatives and guarantors to disclose the current status of payment/performance risk. The disclosures are effective for the Company beginning on January 1, 2009. The adoption of FSP No. FAS 133-1 and FIN 45-4 did not have a material impact on its consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 (“No. 161”)”. This statement amends FASB Statement No. 133 to require enhanced disclosures about an entity’s derivative and hedging activities. The provisions of SFAS No. 161 are effective for the Company beginning on January 1, 2009. The adoption of FASB No. 161 did not have a material effect on its consolidated financial statements.

 

In April 2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (APB) Opinion No. 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP SFAS 107-1 and APB 28-1”). This FSP extends the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 also amend APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 were effective for the Company beginning on January 1, 2009.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

In February 2009, the FASB issued FSP FAS 115-a, FAS 124-a, and EITF 99-20-b, “Recognition and Presentation of Other-Than-Temporary Impairments.” This statement amends FASB No. 115 and No. 124 and EITF Issue No. 99-20 to change the amount of other-than-temporary impairment that is recognized in earnings when there are credit losses on a debt security for which management does not intend to sell and for which it is more likely than not that the entity will not have to sell prior to recovery of the noncredit impairment. The provisions of this statement are effective for interim and annual periods ending after June 15, 2009. The adoption of these pronouncements did not have a material impact on the Company’s consolidated financial position or results of operations.

 

In February 2009, the FASB issued FSP FAS 115-e, “Determining when a Market for an Asset or Liability is Active or Inactive and determining when a Transaction is distressed.” This statement is expected to reaffirm the exit price objective of fair value measurements and to provide guidance on inactive markets and distressed transactions. The provisions of FSP FAS No. 115-e are effective for fiscal years, and interim periods within those fiscal years, beginning on or after June15, 2009. The adoption of these pronouncements did not have a material impact on the Company’s consolidated financial position or results of operations.

 

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events (“SFAS No. 165”).” This statement addresses accounting and disclosure requirements related to subsequent events. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. The adoption of these pronouncements did not have a material impact on the Company’s consolidated financial position or results of operations.

 

Recently Issued Accounting Pronouncements

 

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”)”. SFAS No. 162 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”). SFAS No. 162 will be 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 Company does not believe the adoption will have a material impact on its consolidated financial statements.

 

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R). 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 SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 168”).” The Codification under SFAS No. 168 will become 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 Company does not believe the adoption will have a material impact on its consolidated financial statements.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

In June 2009, the FASB issued EITF 08-1, “Revenue Arrangements with Multiple Deliverables.” This issue revises the current accounting treatment under EITF 00-21to specifically address how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. This issue is applicable to revenue arrangements entered into or materially during Company’s first fiscal year that begins after June 15, 2010.  The Company does not believe the adoption will have a material impact on its consolidated financial statements.

 

3.              Earnings (Loss) Per Common Share

 

The Company computes and presents earnings (loss) per share in accordance with SFAS No. 128, Earnings Per Share. Basic earnings (loss) per share has 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:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2009			2008			2009			2008
Basic earnings (loss) per share:
Income (loss) applicable to common stock		$	933,921		$	(120,081	)	$	1,475,640		$	(374,517	)
Basic weighted average common shares outstanding		13,995,286			13,890,882			13,991,766			13,874,661
Basic earnings (loss) per share		$	0.07		$	(0.01	)	$	0.11		$	(0.03	)
Diluted earnings (loss) per share:
Income (loss) applicable to common stock		$	933,921		$	(120,081	)	$	1,475,640		$	(374,517	)
Basic weighted average common shares outstanding		13,995,286			13,890,882			13,991,766			13,874,661
Dilutive effect of stock options and restricted stock awards		142,953			—			135,684			—
Dilutive weighted average common shares outstanding		14,138,239			13,890,882			14,127,450			13,874,661
Diluted earnings (loss) per share		$	0.07		$	(0.01	)	$	0.10		$	(0.03	)

 

For the three and six months ended June 30, 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 options exercise price was greater than the average market price of the common shares. For the three and six months ended June 30, 2008, options outstanding were not included in the computation of diluted earnings (loss) per share as the Company reported a loss from continuing operations available to common stockholders.  Options outstanding as of June 30, 2009 expire between May 2010 and May 2012.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

4.              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):

 

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2009			2008			2009			2008
Comprehensive income (loss):
Net income (loss)		$	933,921		$	(120,081	)	$	1,475,640		$	(374,517	)
Other comprehensive income (loss):
Unrealized gain (loss) on investment in securities		—			96,375			—			(946,345		)
Foreign currency translation adjustment		252,054			30,576			171,270			(128,690		)
Total comprehensive income (loss)		$	1,185,975		$	6,870		$	1,646,910		$	(1,449,552	)

 

Included in unrealized gain (loss) on investment in securities are realized holding losses arising during the current period of approximately $1,142,000 less a reclassification adjustment for gains recorded on the settlement of the securities included in net income of approximately $1,142,000.

 

5.              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 and used 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 or when events dictate that additional accruals are necessary. The following table summarizes warranty activity for the periods indicated below:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2009			2008			2009			2008
Warranty accrual at beginning of period		$	509,776		$	392,159		$	491,556		$	381,710
Charged to expense		39,249			52,553			192,133			101,552
Amounts written off, net of recoveries		(103,202		)	(97,141		)	(237,866		)	(135,691		)
Warranty accrual at end of period		$	445,823		$	347,571		$	445,823		$	347,571

 

6.              Investment in Digital Link II Joint Venture

 

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 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. As of June 30, 2009, total current and non-current assets of the joint venture amounted to approximately $1.6 million and $13.2 million, respectively. Total liabilities and equity at June 30, 2009 amounted to $8.5 million and $6.3 million, respectively. As of December 31, 2008, total current and non-current assets of the joint venture amounted to approximately $0.9 million and $12.1 million, respectively. Total liabilities and equity at December 31, 2008 amounted to $5.7 million and $7.3 million, respectively.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

The joint venture operates on a March 31st fiscal year end. If the joint venture reported on a December 31st fiscal year end, the joint venture would have reported a net loss for the six months ended June 30, 2009 and 2008 of approximately $1.0 million and $0.5 million, respectively. The net losses primarily resulted from interest expense incurred on outstanding notes and depreciation expense related to projection equipment on consignment to third party customers.

 

The Company accounts for its investment by the equity method. Under this method, the Company records its proportionate share of Digital Link II’s net income or loss based on the most recently available financial statements.  The Company’s portion of losses of the LLC amounted to approximately $0.4 million and $0.3 million for the six months ended June 30, 2009 and 2008, respectively.

 

7.              Guarantees

 

During 2009, the Company provided guarantees to notes entered into by the LLC to finance digital projection equipment deployed in the normal course of business. The loans provided for borrowings of approximately $1.3 million and bear interest at a rate of 7.2% per annum. The Company’s portion of the guarantee of the notes at the time the notes were entered into was limited to its 44.4% ownership percentage, which amounted to approximately $0.6 million. RealD, who holds a membership interest of 55.6% in the joint venture, provided a guarantee for the remainder of the note outstanding, which amounted to approximately $0.7 million at the time the note was entered into.

 

During 2008, the Company provided guarantees to notes entered into by the LLC to finance digital projection equipment deployed in the normal course of business. The loans provided for borrowings of approximately $0.7 million and $2.5 million, respectively and bear interest at rates of 7.2% and 7.0% per annum. The Company’s portion of the guarantee of the notes at the time the notes were entered into was limited to its 44.4% ownership percentage, which amounts to approximately $1.4 million. RealD, who holds a membership interest of 55.6% in the joint venture, provided a guarantee for the remainder of the notes outstanding, which amounted to approximately $1.8 million at the time the note was entered into.

 

As of June 30, 2009, the Company’s guarantee on the remaining balance of the notes outstanding was approximately $1.6 million. The Company has recorded a liability for the fair value of the obligations undertaken by issuing the guarantees which amounted to approximately $0.07 million as of June 30, 2009. The guarantees will expire by the end of 2011. Under the terms of the guarantees, the Company and RealD would be required to fulfill the guarantees should the joint venture be in default of its loan or contract terms.

 

8.              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 has 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 provides for a provision on confidentiality and a release of the financial institution form 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.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

The Company previously recorded a temporary impairment as an unrealized loss on the outstanding ARS in other comprehensive income 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 the current period.

 

9.              Fair Value of Financial Instruments

 

In April 2009, the Company adopted the provisions of FSP 107-1 and APB 28-1. 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 cash equivalents, accounts receivable, accounts payable and accrued expenses are disclosed below.

 

SFAS 157 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 asset 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 June 30, 2009 follows:

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Investments in Auction-Rate Securities			Total
Beginning balance		$	8,883,420		$	8,883,420
Total gains or losses (realized/ unrealized)
Included in other comprehensive income (loss)		1,141,580			1,141,580
Sales and settlements		(10,025,000		)	(10,025,000		)
Transfers in and/or out of Level 3		—			—
Ending balance		$	—		$	—
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 June 30, 2009.		$	—		$	—

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

10.       Inventories

 

Inventories consist of the following:

 

 

The inventory balances are net of reserves of approximately $2,956,000 and $2,792,000 as of June 30, 2009 and December 31, 2008, respectively.

 

11.       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 Staff Accounting Bulletin 104, Revenue Recognition, 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, EITF 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, net of amortization of approximately $0.3 million and $1.0 million, amounted to approximately $0.2 million and $0.5 million at June 30, 2009 and December 31, 2008, respectively.

 

12.       Property, Plant and Equipment

 

Property, plant and equipment include the following:

 

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

Depreciation expense amounted to approximately $218,000 and $435,000 for the three and six months ended June 30, 2009, respectively as compared to approximately $232,000 and $452,000 for the three and six months ended June 30, 2008, respectively.

 

13.       Accrued Expenses

 

The major components of other accrued expenses are as follows:

 

 

14.       Income Taxes

 

Income taxes are accounted for under the asset and liability method. The Company uses an estimate of its annual effective rate based on the facts and circumstances at the time to record interim income tax expense. 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 and a related valuation allowance is deemed necessary. As of June 30, 2009, a valuation allowance has not been recorded. However, if the Company experiences difficulties in achieving its forecasts of taxable income in the current fiscal year, the Company may be required to record a valuation allowance against the deferred tax assets recorded which would impact the Company’s results of operations. The Company has recorded a receivable for the amount of an income tax refund due to the Company as a result of the carry back of certain net operating losses to previous year’s taxable income.

 

The effective tax rate (calculated as a ratio of income tax benefit (expense) to pretax income (loss), inclusive of equity method investment losses) was approximately 29.5% and 25.8% for the three and six months ended June 30, 2009 as compared to 4.9% and 34.0% for the three and six months ended June 30, 2008. The effective rate change from year to year is a result of differing foreign and U.S. tax rates applied to respective pre-tax income (loss) amounts by tax jurisdiction.

 

The Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes (as amended), effective January 1, 2007. 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 2007. 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

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

examinations in process.  As of June 30, 2009 and December 31, 2008, 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 expense in the consolidated statements of operations and were not material for the three and six months ended June 30, 2009. Amounts accrued for estimated underpayment of income taxes amounted to $0.1 million as of June 30, 2009 and December 31, 2008, respectively. The accruals largely related to state tax matters. Federal and state income taxes have not been provided on accumulated but undistributed earnings of foreign subsidiaries aggregating approximately $3.3 million and $0.8 million at June 30, 2009 and December 31, 2008, respectively, 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.

 

15.       Supplemental Cash Flow Information

 

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

 

 

16.       Stock Compensation

 

The Company accounts for awards of share-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment , (“SFAS No. 123(R)”) 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 $58,533 and $106,614 for the three and six months ended June 30, 2009, respectively as compared to $56,524 and $75,022 for the three and six months ended June 30, 2008, respectively.

 

Stock Options

 

The Company currently maintains a 2005 Outside Directors Stock Option Plan (“2005 Outside Directors 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. 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 (“2001 Directors Plan”) was discontinued in May 2009 by the Board of Directors.

 

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 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 six months ended June 30, 2009 and 2008, respectively.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

Earnings (loss) before income taxes included $7,312 and $18,280 of share-based compensation expense related to stock options, with associated tax benefits of $2,600 and $6,398 for the three and six months ended June 30, 2008. All stock options outstanding were fully vested as of January 1, 2009. Therefore, no share-based compensation expense was recorded during the three and six months ended June 30, 2009.

 

The following table summarizes the Company’s activities with respect to its stock options for six months ended June 30, 2009 as follows:

 

		Number of Options		Weighted Average Exercise Price Per Share			Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2008		278,125		$	2.29		2.69		$	113,250
Granted		—		—
Exercised		—		—
Forfeited		—		—
Outstanding at June 30, 2009		278,125		$	2.29		2.19		$	234,050
Exercisable at June 30, 2009		278,125		$	2.29		2.19		$	234,050

 

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 June 30, 2009.

 

No options were granted or exercised during the six months ended June 30, 2009 and 2008, respectively.

 

The following table summarizes information about stock options outstanding and exercisable at June 30, 2009:

 

		Options Outstanding at June 30, 2009							Exercisable at June 30, 2009
Range 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		2.83		$	0.62		160,000		2.83		$	0.62
4.25 to 4.75		118,125		1.32		4.55			118,125		1.32		4.55
$0.62 to 4.75		278,125		2.19		$	2.29		278,125		2.19		$	2.29

 

As of June 30, 2009, all stock option awards were fully vested. Therefore, no unrecognized compensation cost related to non-vested stock option awards remained at June 30, 2009.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

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 Short-Term Incentive Plan. At June 30, 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 at the election of the shareholders at the 2009 Annual Shareholder Meeting. During May 2009, the Company granted 27,000 restricted shares under the Non-Employee Plan to the Board of Directors for future services rendered. These shares vest the day after the Company’s 2010 Annual 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. These restricted shares vest on April 1, 2010.  During May 2008, the Company granted 15,000 restricted shares under the Non-Employee Plan to the Board of Directors for services rendered. These shares vested on May 21, 2009 at the 2009 Annual Shareholder Meeting. At June 30, 2009, 189,111 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 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 June 30, 2009, the total unrecognized compensation cost related to non-vested restricted stock awarded during 2008 and 2009 was approximately $171,826 and is expected to be recognized over a weighted average period of 13 months.

 

The following table summarizes restricted stock activity for the six months ended June 30, 2009:

 

 

As of June 30, 2008, total restricted stock awards outstanding amounted 69,000 shares.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

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 June 30, 2009, 104,104 shares of common stock remained available for issuance under the Plan. The Plan expires in October 2010.

 

At June 30, 2009, the total unrecognized estimated compensation cost was $7,306 which is expected to be recognized over a period of 4 months.

 

17.       Related Party Transactions

 

The Company sold digital theatre projection equipment, in the normal course of business, to its joint venture, Digital Link II, LLC (“DL II”) of approximately $1.9 million during the six months ended June 30, 2009. DL II in turn provides the digital theatre projection equipment to third party customers under lease agreements. 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. There were no sales during the six months ended June 30, 2008.

 

On April 1, 2009, the Company entered into a consulting agreement (the “agreement”) with Christopher Beach, a Director, to assist senior management on matters such as strategic planning, mergers and acquisitions and succession planning. The agreement is to provide services on a part-time basis for one year as an independent contractor in exchange for a consulting fee of $85,000, paid in equal amounts of cash and restricted stock (See Note 16 for further detail on restricted stock granted) plus out-of-pocket expenses.

 

18.       Bonus Plans

 

During 2007, the Board of Directors approved the Short-Term Incentive Plan (the “Plan”), to replace the Company’s previous Profit Sharing Plans. 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 certain financial goals. Each payout is further subject to the achievement of certain individual goals, as defined. Total expense recorded in conjunction with the Plan amounted to approximately $144,000 and $70,000 for the periods ended June 30, 2009 and 2008, respectively.

 

19.       Subsequent Events

 

The Company performed an evaluation of the Company’s activity and has concluded that as of August 7, 2009, the date these financial statements were issued, there are no material subsequent events requiring additional disclosure or recognition in these financial statements, as required by SFAS No. 165, Subsequent Events.

 

20.       Debt

The Company is party to a revolving credit facility (the "Original Credit Facility") with First National Bank of Omaha expiring August 30, 2009. The credit facility provides for borrowings up to the lesser of $4.0 million or amounts determined by an asset-based lending formula, as defined. Borrowings available under the credit facility amounted to $4.0 million at June 30, 2009. The Company pays interest on outstanding amounts equal to the Prime Rate plus 0.25% (3.5% at June 30, 2009) and pay a fee of 0.125% on the unused portion. The credit facility contains certain restrictions primarily related to restrictions on acquisitions and dividends. All of the Company’s personal property and certain stock in its subsidiaries secure the credit facility. No amounts are currently outstanding . The Company intends to obtain similar credit financing prior to the expiration of its current line of credit.

During 2008, the Company amended its Original Credit Facility to allow an interim extension of credit (the "Interim Credit Facility") in the amount of $10.4 million in addition to the $4.0 million allowed under the Original Credit Facility. Effective September 26, 2008, the Company entered into a Ninth Amendment to its Original Credit Facility to extend the maturity date of its interim extension of credit (the "Interim Credit Facility") to August 30, 2009 and to reduce the available borrowings to the lesser of $9.4 million or 80% of the par value of the auction-rate securities held in the pledged account. Now that the Company has liquidated all of the securities, no amounts currently remain available under this facility and the Company therefore does not intend to renew the credit facility after its expiration.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

21.       Concentrations

 

The Company’s top ten customers accounted for approximately 55% of consolidated net revenues for the six months ended June 30, 2009. The top ten customers were primarily from the theatre segment. Trade accounts receivable from these customers represented approximately 63% of net consolidated receivables at June 30, 2009. Sales to Vari International and Regal Cinemas each represented approximately 15% and 11% of consolidated sales. Additionally, receivables from Vari International and China Film Group represented approximately 15% and 27% of net consolidated receivables at June 30, 2009. 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.

 

Through master reseller 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 that are not perpetual and could 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 or NEC is unable to ship products in a timely manner, 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 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.

 

22.       Commitments and Contingencies

 

Ballantyne is currently a defendant in an asbestos case entitled Larry 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 , filed December 8, 2006 in the Superior Court of the State of California, County of San Francisco. While the Company believes that it has strong defenses and intends to defend the suit vigorously, the ultimate resolution of the matter could result in a loss in excess of the amount accrued. It is possible that an adverse resolution of this case could have a material adverse effect on the Company’s financial position. The case is scheduled for trial to commence on August 24, 2009.

 

In conjunction with the purchase of Strong / MDI Screen Systems, Inc. in October 2007, a portion of the purchase price was restricted and placed in escrow to secure certain indemnification and other obligation contingencies. As of June 30, 2009, $469,940 remains in escrow and are recorded in accrued expenses with the Condensed Consolidated Balance Sheet.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

23.       Business Segment Information

 

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

 

As of June 30, 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, cinema screens, 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 gross profit. However, certain key operations of a particular segment are tracked on the basis of operating profit. All intercompany sales are eliminated in consolidation.

 

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Ballantyne Strong, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Six Months Ended June 30, 2009 and 2008

(Unaudited)

 

Summary by Business Segments

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2009			2008			2009			2008
Net revenue
Theatre
Products		$	17,741,106		$	11,610,471		$	33,453,267		$	23,823,408
Services		1,087,104			753,853			1,883,629			1,520,614
Total theatre		18,828,210			12,364,324			35,336,896			25,344,022
Lighting		762,732			1,235,735			1,385,402			2,310,952
Other		11,765			43,045			23,862			185,302
Total revenue		$	19,602,707		$	13,643,104		$	36,746,160		$	27,840,276
Gross profit
Theatre
Products		$	3,892,843		$	2,326,435		$	7,027,363		$	4,541,535
Services		57,047			(599,177		)	142,321			(864,791		)
Total theatre		3,949,890			1,727,258			7,169,684			3,676,744
Lighting		297,082			302,599			449,845			602,172
Other		5,621			19,998			12,134			80,820
Total gross profit		4,252,593			2,049,855			7,631,663			4,359,736
Selling and administrative expenses:
Selling		(767,791		)	(742,718		)	(1,436,190		)	(1,530,520		)
Administrative		(1,875,652		)	(1,634,972		)	(3,952,312		)	(3,660,268		)
Gain on sale of assets		—			258,170			—			258,170
Loss on disposal of fixed assets		(1,943		)	—			(1,943		)	(1,285		)
Operating income (loss)		1,607,207			(69,665		)	2,241,218			(574,167		)
Net interest income		20,076			120,187			53,093			257,838
Equity in loss of joint venture		(233,625		)	(184,909		)	(418,137		)	(297,900		)
Other income (expense), net		(68,333		)	19,882			112,904			46,674
Income (loss) before income taxes		$	1,325,325		$	(114,505	)	$	1,989,078		$	(567,555	)
Expenditures on capital equipment
Theatre
Products		$	180,122		$	141,462		$	453,066		$	316,636
Services		—			46,778			—			161,097
Total theatre		180,122			188,240			453,066			477,733
Lighting		2,177			4,695			4,080			14,382
Total		$	182,299		$	192,935		$	457,146		$	492,115
Depreciation and amortization
Theatre
Products		$	393,983		$	555,667		$	771,018		$	1,110,838
Services		62,325			62,860			130,137			120,478
Total theatre		456,308			618,527			901,155			1,231,316
Lighting		7,532			17,299			22,051			34,285
Total		$	463,840		$	635,826		$	923,206		$	1,265,601

 

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