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

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 lighting segment.

We have two primary reportable core operating segments: theatre and lighting. Approximately 95% of revenues for the nine months ended September 30, 2009 were from theatre products and approximately 5% were lighting products.

Results of Operations:

Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

Revenues



Net revenues during the three months ended September 30, 2009 increased to $16.6
million from $12.3 million in 2008.



                                             Three Months Ended
                                                September 30,
                                             2009           2008
                Theatre
                Products                 $ 14,638,102   $ 10,263,557
                Services                      886,690        833,215
                Total theatre revenues     15,524,792     11,096,772
                Lighting                    1,025,749      1,199,479
                Other                           1,495         12,858
                Total net revenues       $ 16,552,036   $ 12,309,109

Theatre Segment

Sales of theatre products and services increased to $15.5 million in 2009 from $11.1 million in 2008.

Digital Product Sales

Sales of digital products rose to $5.2 million during the quarter from $1.6 million in 2008 as the theatre industry's transition to digital cinema continued to accelerate during 2009. 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 ticket sales. The Hollywood studios have also increased the number of movies that can be shown in 3D. The full-scale rollout of digital cinema, however, has been slowed 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 decreased to $3.7 million in 2009 from $3.8 million a year-ago due to the transition to digital cinema coupled with significantly less new theatre construction resulting from the current economic and credit market conditions.

Sales of replacement parts decreased to $1.3 million from $1.7 million a year-ago. We do 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. However, we are unsure how the used equipment market will impact our replacement part sales when film equipment is being replaced during the full digital cinema roll-out.

Sales of xenon lamps declined slightly to $1.5 million compared to $1.6 million a year-ago while sales of film lenses were consistent at $0.1 million for both 2009 and 2008 periods.

Screen Product Sales

We generated sales of projection screens and related equipment of $2.8 million in 2009 compared to $1.5 million a year-ago due to higher demand for the special "silver" screens required for certain 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.

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 Real D that require a special "silver" screen that we manufacture and which, as discussed earlier, is driving the growth of our screen product sales.

Service Revenues

Service revenues rose to $0.9 million in 2009 compared to $0.8 million a year-ago. Revenues generated from servicing film equipment amounted to $0.6 million compared to $0.5 million in 2008 while revenues generated from servicing digital equipment were $0.3 million in both 2009 and 2008 periods.

Lighting Segment

Sales of lighting products fell to $1.0 million during 2009 from $1.2 million in 2008 due primarily to lower demand for replacement parts which fell to $0.1 from $0.2 million in 2008. Follow spotlight sales were flat at $0.7 million compared to a year-ago. Sales of all other lighting products, including but not limited to, xenon lamps, skytrackers and britelights amounted to $0.2 million in 2009 compared to $0.3 million in 2008. Lighting sales were impacted by the effects of the troubled credit markets as demand for these products is dependent on the construction of stadiums and auditoriums around the world.

Export Revenues

Sales outside the United States (mainly theatre sales) rose to $6.5 million in 2009 from $3.3 million a year-ago due to increased sales into South America, Mexico and China. Sales into Mexico and South America combined rose to $2.0 million from $0.2 million a year-ago due primarily to increased demand to show movies in 3D format. Sales into China rose to $3.3 million from $1.2 million a year-ago again reflecting an increase in demand for digital equipment for 3D application. 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 increased to $3.6 million in 2009 from $2.1 million a year-ago and as a percent of total revenue increased to 21.5% from 17.4% in 2008. Gross profit in the theatre segment increased to $3.3 million in 2009 from $1.8 million in 2008 and as a percentage of theatre sales increased to 21.4% from 16.6% a year-ago. We continued to generate strong margins from our screen business coupled with higher gross margins recognized within our theatre service subsidiary due to cost reductions coupled with higher service revenues. We are also experiencing the benefits of costs reductions at our manufacturing plant in Omaha.

The gross profit in the lighting segment amounted to $0.2 million or 23.1% as a percentage of lighting revenues in 2009 compared to $0.3 million or 24.5% as a percentage of lighting revenues in 2008. The margin increase resulted primarily from lower manufacturing costs.

Selling Expenses

Selling expenses declined to $0.5 million in 2009 compared to $0.8 million in 2008 and as a percent of total revenue declined to 3.1% from 6.8% a year-ago. The decrease from a year-ago relates to personnel reductions and the associated reductions in travel and tradeshow costs.

Administrative Expenses

Administrative costs decreased to $1.9 million in 2009 from $2.0 million in 2008 and as a percent of total revenue decreased to 11.6% from 16.2% in 2008 as higher revenues during the quarter covered consistent fixed costs. The decrease in costs primarily resulted from lower salaries and benefits coupled with lower audit and bank fee expenses.

Other Financial Items

Our results for 2009 reflect a loss of approximately $0.2 million in both 2009 and 2008 periods pertaining to our 44.4% share of the equity in the loss from our joint venture with Real D, Digital Link II, LLC.

Net interest income declined to negligible amounts in 2009 compared to approximately $0.1 million a year-ago due to investing our excess cash in very safe short-term investments which carry lower interest rates due to the current economic environment.

We recorded income tax expense of approximately $0.2 million in 2009 compared to an income tax benefit of approximately $0.3 million in 2008. 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 28.1% for 2009. This compares to 45.5% a year-ago.

The effective rate change from year to year resulted from differing foreign and U.S. tax rates applied to respective pre-tax income (loss) amounts by tax jurisdiction.

For the reasons outlined herein, we experienced net income of $0.5 million compared to a net loss of $0.3 million in 2008. Basic earnings per share amounted to $0.04 in 2009 compared to a loss of $0.02 a year-ago. Diluted earnings per share was $0.04 per share in 2009 compared to a loss of $0.02 per share in 2008.

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Revenues



Net revenues during the nine months ended September 30, 2009 increased to $53.3
million from $40.1 million in 2008.



                                              Nine Months Ended
                                                September 30,
                                             2009           2008
                Theatre
                Products                 $ 48,091,369   $ 34,086,965
                Services                    2,770,319      2,353,829
                Total theatre revenues     50,861,688     36,440,794
                Lighting                    2,411,151      3,510,431
                Other                          25,357        198,160
                Total net revenues       $ 53,298,196   $ 40,149,385

Theatre Segment

Sales of theatre products and services increased to $50.9 million in 2009 from $36.4 million in 2008.

Digital Product Sales

Sales of digital products rose to $21.0 million from $8.7 million in 2008 as the theatre industry transition to digital projection accelerated during 2009. We believe that much of this increased demand is a result of our customers wanting to show movies in 3D digital format as they believe that 3D movies result in higher ticket sales. The Hollywood studios have also increased the number of movies that can be shown in 3D. The full-scale rollout of digital cinema, however, has been slowed 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 decreased to $8.4 million in 2009 from $11.4 million a year-ago due to a combination of the digital rollout coupled with significantly less new theatre construction due to the current economic and credit market conditions.

Sales of replacement parts were flat at $5.0 million compared to a a year-ago. We do 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. However, we are unsure how the used equipment market will impact our replacement part sales when film equipment is being replaced during the digital cinema roll-out.

Sales of xenon lamps declined slightly to $4.4 million compared to $4.6 million a year-ago. Sales of film lenses decreased to $0.2 million from $0.3 million in 2008.

Screen Product Sales

We generated sales of projection screens and related equipment of $9.1 million in 2009 compared to $4.0 million a year-ago due to higher demand for the special "silver" screens needed for certain 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.

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 Real D that require a special "silver" screen that we manufacture and which, as discussed earlier, are driving the growth of our screen product sales.

Service Revenues

Service revenues rose to $2.8 million in 2009 compared to $2.4 million a year-ago. Revenues generated from servicing film equipment amounted to $1.9 million in 2009 compared to $1.7 million in 2008 while revenues generated from servicing digital equipment were $0.9 million in 2009 compared to $0.7 million a year-ago.

Lighting Segment

Sales of lighting products fell to $2.4 million from $3.5 million a year-ago due to in large part to lower demand for follow spotlights where sales fell to $1.4 million from $2.1 million a year-ago. Spotlight sales were impacted by 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 unclear if other projects will be delayed or canceled during the rest of 2009 and beyond. Sales of Skytrackers fell from $0.3 million in 2008 to $0.1 million in 2009 which management believes is also attributable to current credit markets. Sales of replacement parts also declined to $0.4 million during 2009 from $0.6 million in 2008. Sales of all other lighting products, including but not limited to, xenon lamps and britelights amounted to $0.5 million in 2009 compared to $0.5 million in 2008.

Export Revenues

Sales outside the United States (mainly theatre sales) rose to $22.8 million in 2009 from $12.2 million a year-ago due to increased sales into South America, Mexico and China. Sales into Mexico and South America combined rose to $9.1 million from $3.1 million a year-ago due primarily to increased demand to show movies in 3D format. Sales into China rose to $8.6 million from $3.5 million a year-ago again reflecting an increase in demand for digital equipment for 3D application. 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 increased to $11.2 million in 2009 from $6.5 million a year-ago and as a percent of total revenue increased to 21.0% from 16.2% in 2008. Gross profit in the theatre segment increased to $10.5 million in 2009 from $5.5 million in 2008 and as a percentage of theatre sales increased to 20.6% from 15.2 % a year-ago. During 2009, we continue to generate strong margins from our screen business coupled with higher gross margins recognized within our theatre service subsidiary due to cost reductions coupled with higher service revenues. We also are experiencing the benefits of costs reductions at our manufacturing plant in Omaha.

The gross profit in the lighting segment amounted to $0.7 million or 28.5% as a percentage of lighting revenues in 2009 compared to $0.9 million or 25.5% as a percentage of lighting revenues in 2008. The margin increase resulted from profits from a long-term construction project currently in process which is being recognized based on the percentage of completion.

Selling Expenses

Selling expenses fell to $2.0 million in 2009 from $2.4 million a year-ago, and as a percent of total revenue declined to 3.7% from 5.9% a year-ago due to cuts in payroll which also resulted in lower travel and tradeshow expenditures.

Administrative Expenses

Administrative costs rose to $5.9 million from $5.6 million a year-ago but as a percent of total revenue decreased to 11.0% in 2009 from 14.1% in 2008 as the higher revenues during the year covered certain fixed expenses. The increase in expenses primarily resulted from a $0.2 million severance charge during the first quarter. We also incurred more outside consulting fees for a couple of special projects during 2009. We also incurred $0.1 million of costs pertaining to our office in Beijing, China which was not open a year-ago.

Other Financial Items

Our results for 2009 reflect a loss of $0.6 million pertaining to our 44.4% share of the equity in the loss from our joint venture with Real D, Digital Link II, LLC. This loss compares to $0.5 million a year-ago and was higher due to more depreciation and interest costs resulting from additional deployments.

Net interest income declined to less than $0.1 million from approximately $0.4 million a year-ago as we are investing our cash in very short-term securities which are carrying lower interest rates than prior years due to the current economic environment.

We recorded income tax expense of approximately $0.7 million in 2009 compared to an income tax benefit of $0.5 million in 2008. 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 26.4% for 2009 compared to 40.0% a year-ago. The effective tax rate change from year to year resulted from differing foreign and U.S. tax rates applied to respective pre-tax income (loss) amounts by tax jurisdiction.

For the reasons outlined herein, we generated net income of $2.0 million compared to a net loss of $0.7 million a year-ago. We generated basic earnings per share of $0.14 during 2009 compared to a loss of $0.05 in 2008. Diluted earnings per share was $0.14 in 2009 compared to a diluted loss per share of $0.05 in 2008.

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 the third quarter with total cash and cash equivalents of $23.3 million compared to $11.4 million at December 31, 2008. The increase was primarily due to the liquidation of all of our investments in auction-rate securities at par during the year which previously had been recorded as a long-term investment. In addition we generated operating cash flow of $2.3 million during the year. 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 though 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.

We are party to a revolving credit facility with First National Bank of Omaha expiring November 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 September 30, 2009. We pay interest on outstanding amounts equal to the Prime Rate plus 0.25% (3.5% at September 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 our personal property and certain stock in our subsidiaries secure the credit facility. No amounts are currently outstanding. We intend to obtain similar credit financing prior to the expiration of the current line of credit.

Net cash generated from operating activities amounted to $2.3 million in 2009 compared to $1.3 million in 2008. The improved cash flow in 2009 was the result of higher earnings coupled with increased customer deposits. These increases were offset by higher working capital needs. Accounts receivable turnover was lower during 2009, resulting in balances increasing $2.3 million since the end of the prior fiscal year. Inventory levels also rose $3.2 million during 2009 while accounts payable balances increased $2.3 million which offset the impact of higher accounts receivable levels.

Net cash provided by investing activities amounted to $9.3 million in 2009 compared to $0.8 million in 2008. During 2009 we purchased $0.8 million of capital equipment and liquidated, at par, 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 whom we have a banking relationship, while the remaining amounts were redeemed through other means. Investing activities during 2008 consisted of capital expenditures of $0.6 million. In addition we received $0.3 million of proceeds from the sale of our coater and marinade product line and liquidated, at par, $1.3 million of our auction-rate securities during 2008.

Net cash provided by financing activities amounted to $0.2 million in 2008 resulting from transactions in our stock plans. We did not experience any financing activities during the nine months ended September 30, 2009.

Transactions with Related and Certain Other Parties

We sold digital theatre projection equipment, in the normal course of business, to our joint venture, Digital Link II, LLC ("DL II") of approximately $2.3 million during the nine months ended September 30, 2009. DL II in turn provides the digital theatre projection equipment to third party customers under lease agreements. Revenue recognized by us 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 by DLII to third parties. There were no sales made by DLII to third parties during the nine months ended September 30, 2009.

On April 1, 2009, we entered into a consulting agreement with Christopher Beach, a Director, to assist our senior management on matters such as strategic planning, mergers and acquisitions and succession planning. The consulting agreement provided for Mr. Beach to render 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, plus out-of-pocket expenses. On September 4, 2009, the agreement was mutually terminated as the objectives of the agreement were achieved. Total compensation received by Mr. Beach under the agreement in the form of cash and restricted stock was $18,144 and $18,279, respectively (See Note 16 to the notes to the Condensed Consolidated Financial Statements for further detail on restricted stock awarded).

Financial Instruments and Credit Risk Concentrations

Our top ten customers accounted for approximately 52% of 2009 consolidated net revenues. The top ten customers were primarily from the theatre segment. Trade accounts receivable from these customers represented approximately 39% of net consolidated receivables at September 30, 2009. Sales to Vari International and Regal Cinemas each represented approximately 12% of consolidated sales. Receivables from Vari International and Regal Cinemas represented approximately 9% and 8% respectively, of net consolidated receivables at September 30, 2009. 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 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.

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.

Through master reseller agreements with NEC, we distribute 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 that we distribute to the Theatre Industry. If we were unable to maintain our relationship with

NEC or NEC is unable to supply products in a timely manner, 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. The principal raw materials and components used in our manufacturing processes include aluminum, reflectors, electronic subassemblies and sheet metal. We use a single manufacturer for each of our intermittent . . .