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 distributor and service provider for the theatre exhibition industry on a worldwide basis. We also design, assemble, 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 98% of fiscal year 2011 sales were from theatre products and approximately 2% 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,
                                              2011      2010      2009      2008      2007
 Net revenue                                   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
 Cost of revenues                               83.6      81.9      79.6      84.0      81.6
 Gross profit                                   16.4      18.1      20.4      16.0      18.4
 Selling and administrative expenses(1)(2)       7.5       9.5      15.3      19.7      18.1
 Income (loss) from operations                   8.2       8.8       5.1      (7.4 )    (0.8 )
 Net earnings (loss)                             5.6       6.2       2.9      (5.5 )     0.4


--------------------------------------------------------------------------------
   º (1)

º (2)
º Amounts for the year ended December 31, 2011 exclude severance charges of $1.3 million.

Corporate-wide restructuring

In the fourth quarter of 2011, the Board of Directors and management of the Company approved a corporate-wide strategic initiative to refocus our worldwide digital equipment distribution business, services platform and cinema screen manufacturing business. The strategic initiative consists of selling our Omaha, NE-based analog projector facility and manufacturing equipment and relocating our corporate headquarters to a new, smaller location in Omaha, which will also house our Network Operations Center. It was determined that the best course of action for long-term success and future growth opportunities is a focus on our equipment distribution, cinema service and screen businesses while exiting the analog projector manufacturing business. The strategic initiative is expected to be completed by the end of 2012. In connection with the strategic initiative, we recorded a pre-tax severance charge of approximately $1.0 million in the fourth quarter pertaining to ongoing termination benefits, all of which will result in future cash expenditures in 2012.

2011 Compared to 2010

Revenues

    Net revenues during the twelve months ended December 31, 2011 rose 35.3% to
$184.4 million from $136.3 million in 2010.

                                              2011        2010
                                               $ in thousands
                   Theatre
                   Products                 $ 167,017   $ 125,044
                   Services                    14,157       7,882

                   Total theatre revenues     181,174     132,926
                   Lighting                     3,259       3,409

                   Total net revenues       $ 184,433   $ 136,335

Theatre Segment

Sales of theatre products and services increased 36.3% to $181.2 million in 2011 from $132.9 million in 2010.

Digital Product Sales

Sales of digital products rose 59.5% to $138.8 million from $87.0 million a year-ago due to the following:

º •
º A significant sale of digital equipment to a theatre customer which represented approximately 26% of digital product revenues during 2011.

º •
º A general increase in sales volume in the U.S as theatre exhibition companies continued to convert their theatre complexes to digital-based projection equipment.

º •
º Sales of lamps rose to $15.3 million from $5.8 million in 2010 while sales of servers rose to $14.3 million from $7.4 million a year-ago.

We also continued to integrate projection equipment in our Omaha plant for a large exhibition customer. Revenues generated from the accessories we sell with the integration services increased to $8.6 million in 2011 from $5.0 million in 2010. We do expect this integration business to substantially decline after fiscal 2012 due to the exhibition customer's digital conversion being substantially completed.

Screen Product Sales

Revenues from the sale of screens decreased 7.9% to $17.4 million in 2011 compared to $18.9 million a year-ago primarily due to lower demand for digital 3D screens. Sales were at record levels in 2010 as exhibition companies pushed to capture the relative new 3D movie Box Office during the 2010 period. 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.

Film Product Sales

The transition to digital cinema has impacted sales of film equipment, accessories and replacement parts and these products are expected to further decline in future periods. As expected, sales declined year-over-year as follows:

º •
º Sales of projection equipment declined to $5.7 million from $10.9 million.

º •
º Replacement part sales declined to $3.6 million from $4.7 million.

º •
º Sales of lamps declined to $1.5 million from $3.4 million.

Service Revenues

Service revenues increased 79.7% to $14.2 million from $7.9 million in 2010 resulting from increased demand for installation, maintenance and other services pertaining to the digital conversion. Digital service revenues rose to $13.1 million from $5.6 million in 2010 as the rollout is creating opportunities for our service group to sell a range of services including, but not limited to, installations, after-sale maintenance, repairs, cabling, wiring and NOC services.

The industry transition to digital is affecting revenues from servicing film equipment which declined to $1.1 million from $2.3 million in 2010.

Lighting Segment

Sales of lighting products declined slightly to $3.2 million from $3.4 million during 2010 due to lower demand for follow spotlights. Lighting products have been impacted by the effects of economic conditions as a significant portion of the business is dependent on the construction or improvements of stadiums and auditoriums around the world.

Foreign Revenues

Foreign revenues (primarily from the theatre segment) fell to $41.1 million from $60.1 million in 2010 resulting in large part to sales volume in Mainland China decreasing to $26.0 million from $34.9 million in 2010. The results out of China reflect increased competition and the shifting of scheduled installations due to changing theatre construction timelines. However, we believe there are future growth opportunities in China going forward and we continue to allocate resources to add sales and service offices throughout the Mainland. We also experienced lower sales volume in South America, Canada, Mexico and Europe. The results were primarily due to the timing of the digital cinema rollout in these countries coupled with lower sales of film equipment. Export sales are sensitive to worldwide economic and political conditions that can lead to volatility. 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 22.1% to $30.2 million from $24.7 million in 2010 but as a percent of total revenue decreased to 16.4% from 18.1% in 2010. Gross profit in the theatre segment increased to $29.2 million from $23.8 million in 2010 but as a percentage of theatre sales decreased to 16.1% from 17.9% a year-ago. The higher gross profit was due to the increase in sales volume while the decline in gross margin is reflective of:

º •
º Higher sales of digital products which carry substantially higher revenue price points but lower gross margins than our other products and services.

º •
º Lower screen revenues which carry higher manufacturing margins.

º •
º Lower revenues from film replacement parts which historically carry strong margins.

The gross profit in the lighting segment amounted to $1.0 million or a gross margin of 30.9% compared to $0.9 million or a gross margin of 27.4% during 2010. The results primarily reflect a favorable product mix during 2011.

Selling Expenses

Selling expenses increased 3.0% to $3.9 million from $3.8 million in 2010 but as a percent of total revenue declined to 2.1% from 2.8% a year-ago. The results principally reflect additional personnel and their associated costs to expand our domestic sales and service marketing efforts and to expand our sales offices in Mainland China.

Administrative Expenses

Administrative expenses rose 22.5% to $11.1 million in 2011 from $9.1 million in 2010 but as a percent of total revenue decreased to 6.0% from 6.7% in 2010. The increase in expenses was due to severance charges of $1.3 million during the year coupled with additional personnel and related costs necessary to manage the significant growth in revenue experienced during the year. Approximately

$1.0 million of the severance charges occurred in the fourth quarter and were a result of a strategic initiative to refocus certain key areas of our Company as discussed throughout this document.

Segment Operating Income

We generated operating income in the theatre segment of $22.8 million in 2011 compared to $17.8 million in 2010. The results reflect an increase in business where product revenues rose 33.6%. We also generated significantly higher operating profit from our service business which increased to $2.4 million from $0.6 million a year ago on a revenue increase of 79.6%.

Operating income from the lighting segment rose to $0.2 million from less than $0.1 million in 2010 due to a favorable product mix.

Other Financial Items

Our results for 2011 reflect a loss of $0.2 million pertaining to our 44.4% share of equity in the loss from Digital Link II, LLC compared to income of $0.6 million in 2010. The change from 2010 reflect less sales of equipment by the LLC to customers for projectors previously held in the LLC compared to 2010. The loss in the current year primarily is a result of depreciation expense.

Other income amounted to $0.1 million in 2011 compared to expense of $0.2 million in 2010. The results primarily reflect the impact of foreign exchange gains and losses due primarily to the U.S. dollar fluctuating against the Canadian dollar from year-to-year.

We recorded income tax expense of approximately $4.7 million in 2011 compared to $4.0 million in 2010. The effective tax rate (calculated as a ratio of income tax expense to pretax earnings, inclusive of equity method investment income (losses)) was approximately 31.3% for 2011 and 31.9% in 2010. The effective tax rate differs from the statutory rates primarily as a result of differing foreign and U.S. tax rates applied to respective pre-tax earnings by tax jurisdiction. In addition, our effective rate was lower than the prior year period in part due to estimates for certain Canadian tax credits.

For the reasons outlined herein, we generated net earnings of approximately $10.4 million and basic and diluted earnings per share of $0.72 and $0.71 in 2011, respectively compared to $8.4 million and basic and diluted earnings per share of $0.60 and $0.59 in 2010, respectively.

2010 Compared to 2009

Revenues

    Net revenues during the twelve months ended December 31, 2010 rose to
$136.3 million from $72.1 million in 2009.

                                               2010        2009
                                                $ in thousands
                    Theatre
                    Products                 $ 125,044   $ 65,186
                    Services                     7,882      3,811

                    Total theatre revenues     132,926     68,997
                    Lighting                     3,409      3,122
                    Other                            -         27

                    Total net revenues       $ 136,335   $ 72,146

Theatre Segment

Sales of theatre products and services increased to $132.9 million in 2010 from $69.0 million in 2009.

Digital Product Sales

Sales of digital products rose to $87.0 million in 2010 from $27.9 million in 2009 as the industry change from analog to digital projection increased during 2010, primarily in the U.S. and China. The growth in business in the U.S. was primarily driven by customers taking advantage of the opportunities that digital technology offers such as the ability to show 3D movies among other items. The growth in China resulted not only from converting analog equipment to digital but also due to the construction of new theatre complexes in China. The majority of the increase in digital sales resulted from sales of digital projectors and certain accessories; however, sales of digital lamps also rose from $3.0 million in 2009 to $5.8 million in 2010 while sales of digital servers rose to $7.4 million from $1.2 million in 2009. We also began to integrate projection equipment in our Omaha plant where we consolidate and test digital equipment. Revenues generated from the product sold as part of this business was $5.0 million during 2010.

Film Product Sales

The transition to digital cinema has negatively impacted sales of film equipment, accessories and replacement parts. The following is a summary of the year-over-year results:

º •
º Sales of projection equipment declined to $10.9 million in 2010 from 12.0 million in 2009.

º •
º Replacement part sales declined to $4.7 in 2010 million from $6.8 million in 2009.

º •
º Sales of lamps declined to $3.4 million in 2010 from $6.0 million in 2009.

Screen Product Sales

Revenues from the sale of screens rose to $18.9 million in 2010 compared to $12.2 million in 2009 due to the substantial demand for digital 3D screens as theatres expanded the number of screens that can project 3D images. Sales were at record levels for this product line during 2010 due to the higher demand for special "silver" screens needed for certain digital 3D applications. This demand is the result of both our customers wanting to show more movies in digital 3D coupled with more 3D movies being available from the Hollywood studios. In addition, sales of large format screens to IMAX were also higher in 2010 than 2009.

Service Revenues

Service revenues increased to $7.9 million during 2010 from $3.8 million in 2009. Revenues generated from servicing film equipment were $2.3 million during 2010 compared to $2.6 million during 2009 while revenues generated from servicing digital equipment increased to $5.6 million in 2010 compared to $1.2 million in 2009. The results reflect increased demand for installation and maintenance services pertaining to the conversion from analog to digital projectors by our customers primarily in the U.S. As discussed in relation to digital product sales, we recognized service revenues of $0.3 million associated with the integration of digital projection equipment in the Omaha plant during 2010.

Lighting Segment

Sales of lighting products rose to $3.4 million during 2010 from $3.1 million in 2009. Sales of follow spotlights rose to $2.0 million from $1.8 million in 2009. Sale of skytrackers rose to $0.2 million

from $0.1 million in 2009, while replacement part sales rose from $0.6 million in 2009 to $0.7 million in 2010. Sales of all other lighting products, including but not limited to xenon lamps, britelights and LED products amounted to $0.5 million in 2010 compared to $0.7 million in 2009.

Foreign Revenues

Sales outside the United States increased to $60.1 million in 2010 from $33.2 million in 2009 resulting primarily from increased demand in China and South America where sales increased by $23.4 million and $5.6 million, respectively. The increased demand in China resulted from theatres chains retrofitting their current operations with digital equipment as well as the growth of new theatre complexes. Sales in South America were driven primarily by existing theatre complexes retrofitting their equipment to digital in order to take advantage of the 3D technology. These sales were partially offset by a decrease in sales in Mexico of $2.6 million year over year. Sales in all other regions including Canada, Europe, Asia (excluding China) and all other regions were relatively flat year over year all together driving a net increase of $0.5 million in sales. Export sales are sensitive to worldwide economic and political conditions that can lead to volatility. 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 67.9% to $24.7 million in 2010 from $14.7 million in 2009 but as a percent of total revenue decreased to 18.1% in 2010 from 20.4% in 2009. Gross profit in the theatre segment increased to $23.8 million in 2010 from $13.8 million in 2009 but as a percentage of theatre sales decreased to 17.9% in 2010 from 20.0% in 2009. The decrease in gross margin resulted from increased sales of digital projection equipment which carry lower margins but substantially higher revenue price points than our other products. The lower digital projection margins were offset to a degree by improved margins from our screen and service business due primarily to the increased volume of sales from these businesses due the conversion to digital cinema.

The gross profit in the lighting segment amounted to $0.9 million or 27.4% of lighting revenues in 2010 compared to $0.9 million or 28.5% of lighting revenues in 2009. The results reflect relatively flat sales year over year.

Selling Expenses

Selling expenses increased 31.2% to $3.8 million in 2010 from $2.9 million in 2009 but as a percent of total revenue declined to 2.8% in 2010 from 4.0% in 2009. The results reflect an increase in personnel and associated costs coupled with increases in commission expenses due to the increase in product and services demand.

Administrative Expenses

Administrative costs rose to $9.1 million in 2010 from $8.1 million in 2009 but as a percent of total revenue decreased to 6.7% in 2010 from 11.3% in 2009. The increase in expenses is primarily due to the growth in personnel and related costs necessary to manage the significant growth in revenue experienced during the year.

Other Financial Items

Our results for 2010 reflect a gain of $0.6 million pertaining to our 44.4% share of equity in the income from Digital Link II, LLC. This gain compares to the loss of $0.9 million in 2009 and was due to the sale of equipment by the LLC to customers for projectors previously held in the LLC.

Other expense amounted to $0.2 million in 2010 compared to $0.1 million in 2009. The results primarily reflect the impact of transaction losses arising from foreign exchange fluctuations during the year due to the U.S. dollar weakening against the Canadian dollar.

We recorded income tax expense of approximately $4.0 million in 2010 compared to $0.7 million in 2009. The effective tax rate (calculated as a ratio of income tax expense to pretax earnings, inclusive of equity method investment earnings (losses)) was approximately 31.9% in 2010 and 24.7% in 2009. The effective tax rate change from year to year results primarily from differing foreign and U.S. tax rates applied to respective pre-tax earnings amounts by tax jurisdiction.

For the reasons outlined herein, we generated net earnings of approximately $8.4 million and basic and diluted earnings per share of $0.60 and $0.59 in 2010, respectively, compared to net earnings of $2.1 million and basic and diluted earnings per share of $0.15 in 2009.

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 2011 with total cash and cash equivalents of $39.9 million compared to $22.3 million at December 31, 2010.

We are a party to a $20 million Revolving Credit Agreement and Note (collectively, the "Credit Agreement") with Wells Fargo Bank, N.A. ("Wells Fargo"). We may request an increase in the Credit Agreement of up to an additional $5 million; however, any advances on the additional $5 million are subject to approval of Wells Fargo. The borrowings from the Credit Agreement are to be used for working capital purposes and for other general corporate purposes. Our accounts receivable, general intangibles and inventory secure the Credit Agreement. We plan to renew the credit facility prior to its expiration.

Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR plus 125 basis points (1.625% at December 31, 2011). Interest is paid on a monthly basis. We pay a fee of 0.15% per annum on any unused portion. The Credit Agreement expires on June 30, 2012 at which time all unpaid principal and interest would be due. Borrowings available under the Credit Agreement were temporarily reduced to $18.2 million at December 31, 2011 due to outstanding standby letters of credit of $1.8 million.

The Credit Agreement contains certain covenants, including those relating to our financial condition. The primary financial condition covenants pertain to maintaining a ratio of total liabilities to tangible net worth of less than 2 to 1 and net income before taxes of $1 on a rolling 4-quarter basis, as defined in the Credit Agreement. Other covenants pertain to items such as certain limits on incurring additional debt or lease obligations, certain limits on issuing guarantees and certain limits on loans, advances and investments with third parties. Upon the occurrence of any event of default specified in the Credit Agreement, including a change in control of the Company, as defined, all amounts due there under may be declared to be immediately due and payable. Since the inception of the Revolving Credit Agreement, no amounts have been borrowed.

In connection with the strategic initiative discussed in this document, we reclassified our Nebraska-based analog projector facility, corporate headquarters and manufacturing equipment to being held for sale. The assets were recorded at their carrying value of $1.8 million at December 31, 2011 as it was lower than the assets fair value, less costs to sell. The Company expects the net financial impact of the

sale of the real estate and equipment to result in a gain to the Company at the time these assets are ultimately sold.

Net cash provided by operating activities amounted to $20.1 million during 2011 compared to $3.6 million during the same period a year-ago. The results reflect a $1.9 million increase in net earnings coupled with changes in certain working capital items. A decrease in inventory balances during 2011 of $13.7 million represented the largest source of cash during the year compared to a $15.3 million use of cash a year-ago. The other primary source of cash from working capital was an increase in accruals for income taxes of $2.1 million during the year. The primary uses of cash during 2011 came from accounts, notes and unbilled receivables increasing $12.0 million resulting primarily from the substantial increase in revenue this year coupled with the issuance of $2.1 million in long-term notes receivables during the year.

Net cash provided by operating activities amounted to $3.6 million in 2010 compared to $2.4 million in 2009. The increase in operating cash primarily . . .