BALLANTYNE OF OMAHA INC, 424B4, 1997-06-27

BALLANTYNE OF OMAHA INC
424B4, 1997-06-27
PHOTOGRAPHIC EQUIPMENT & SUPPLIES

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<PAGE>

RULE NO. 424(b)(4)
REGISTRATION NO. 333-27779

PROSPECTUS

2,224,860 Shares

[LOGO] BALLANTYNE OF OMAHA, INC.

Common Stock

-------------------

ARC Ice Corp., a Delaware corporation ("ARC Ice"), and certain other selling
stockholders herein named (collectively, the "Selling Stockholders") of
Ballantyne of Omaha, Inc., a Delaware corporation ("Ballantyne" or the
"Company"), hereby offer 2,224,860 shares (the "Offering") of the Company's
common stock, $0.01 par value (the "Common Stock"). See "Principal and Selling
Stockholders." The Company will not receive any portion of the proceeds from
the sale of the shares of Common Stock offered hereby and will not pay any of
the expenses of the Offering. The Common Stock is listed and traded on the
American Stock Exchange (the "AMEX") under the symbol "BTN." The last sale
price of the Common Stock on June 26, 1997, as reported by the AMEX, was
$17.00 per share. See "Price Range of Common Stock."

ARC Ice is a direct, wholly-owned subsidiary of ARC International
Corporation, an Ontario corporation ("ARC"). ARC intends to use the proceeds
realized by ARC Ice from the sale of 1,932,860 shares of Common Stock in the
Offering to further develop ARC's business and to repay certain indebtedness.

-------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.

-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions (1) Stockholders (2)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $16.875 $1.01 $15.865
Total (3)............................. $37,544,513 $2,247,109 $35,297,404
- -----------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) The Company, certain Selling Stockholders, ARC and Canrad of Delaware
Inc., a Delaware corporation and an indirect, wholly-owned subsidiary of
ARC ("Canrad Delaware"), have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2)Before deducting expenses, estimated to be $400,000, payable by ARC Ice.
(3) ARC Ice has granted the Underwriters an option, exercisable within 30 days
of the date hereof, to purchase an aggregate of up to 333,729 additional
shares of Common Stock at the Price to Public less Underwriting Discounts
and Commissions, to cover over-allotments, if any. If all such additional
shares are purchased, the total Price to Public, Underwriting Discounts
and Commissions and Proceeds to Selling Stockholders will be $43,176,189,
$2,584,175 and $40,592,014, respectively. See "Underwriting."

-------------------

The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York, on or about July 1, 1997.

-------------------

COWEN & COMPANY PRUDENTIAL SECURITIES INCORPORATED

June 26, 1997
<PAGE>

[PICTURE OF A PROJECTOR SURROUNDED BY PICTURES OF DOMESTIC AND INTERNATIONAL
MOVIE THEATRES.]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

"Strong(TM)," "Simplex(TM)," "Century(R)," "Optimax(R)," "Ballantyne(TM),"
"Super Trouper(R)," "Gladiator(TM)," "Roadie(TM)," "Britelights(R),"
"Xenotech(TM)," "Flavor Crisp(R)" and "Flavor Pit(R)" are trademarks of the
Company. ISCO-Optic is a trademark of ISCO-Optic GmbH.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements and the Notes thereto, appearing elsewhere in this Prospectus.
Except as otherwise noted, all information in this Prospectus: (i) gives effect
to the 10% stock distribution effected on March 8, 1996, (ii) gives effect to
the 3-for-2 stock split effected on March 5, 1997 and (iii) assumes no exercise
of the Underwriters' over-allotment option. Unless otherwise indicated, all
references in this Prospectus to the "Company" or "Ballantyne" mean Ballantyne
of Omaha, Inc., a Delaware corporation, and its consolidated subsidiaries.

THE COMPANY

Ballantyne is a leading developer, manufacturer and distributor of commercial
motion picture equipment and long-range follow spotlights in the U.S. and
abroad. The Company's product lines are distributed on a worldwide basis
through a network of over 200 domestic and international dealers to major movie
exhibitors, ride simulation operators, and sports arena and amusement park
operators. The Company's broad range of both standard and custom-made equipment
can completely outfit and automate a motion picture projection booth and is
currently being used by major motion picture exhibitors such as AMC
Entertainment, Inc., Regal Cinemas, Inc., Act III Theatres, Inc., Cinemark USA,
Inc. and Cineplex Odeon Corporation. As a major supplier of motion picture
equipment to the theatre exhibitors, Ballantyne has benefited directly from
both the domestic and international growth in motion picture screens.
Additionally, the Company has increased its profitability by maintaining
internal cost controls and achieving manufacturing and distribution
efficiencies.

Ballantyne believes that its position as a fully-integrated equipment
manufacturer enables it to be more responsive to its customers' specific design
requirements, thereby giving it a competitive advantage over other
manufacturers who rely more on outsourced components. In addition, the Company
believes its expertise in engineering and manufacturing high-quality, reliable
and innovative products, prompt order fulfillment and delivery, and after-sale
technical support and emergency service have allowed the Company to build and
maintain strong customer relationships.

The motion picture theatre industry has experienced competition from in-home
sources of entertainment in recent years, forcing theatre exhibitors to build
higher quality theatres with more screens per location in order to lure
consumers to theatres. More recently, domestic theatre exhibitors have
accelerated the addition of new screens and in many cases, have begun
developing "multiplex" or "megaplex" theatres which have an even larger number
of screens per location (sometimes as many as 30 screens). According to Global
Film Exhibition and Distribution ((C) 1996), published by the Baskerville
Communications Corporation ("Baskerville"), a media and communications market
research firm, there were more than 28,500 screens in the U.S. at the end of
1996 and this number is expected to increase by approximately 1,900 net new
screens through the year 2000. In addition, the international marketplace has
historically been underserved. According to Baskerville, in 1996 the number of
motion picture screens per million people was 107.9 for the U.S. as compared to
8.5 for Asia Pacific, 12.5 for Latin America and 43.5 for Europe. U.S.-based
theatre exhibitors are rapidly entering the international markets with plans to
build modern multiplexes and megaplexes in response to increased movie theatre
attendance. The Company believes that its leading market share in the U.S. and
its established international presence have positioned the Company to benefit
directly from these positive trends in the motion picture theatre industry.

3
<PAGE>

Walt Disney Company and Electrosonic Systems, Inc. The Company helped pioneer
the special venue market more than 20 years ago by working with its customers
to design and build customized projection systems featuring special effects.

Ballantyne's long-range follow spotlights are used for both permanent
installations and touring applications. In April 1997, Ballantyne complemented
its long-range follow spotlights product line with the acquisition of
substantially all of the net assets of Xenotech, Inc. ("Xenotech"). Xenotech is
a leading manufacturer and supplier of high intensity searchlights and
computer-based lighting systems for the motion picture production, television,
live entertainment, theme park and architectural industries. The Company also
manufactures commercial food service equipment, which is sold to convenience
store and fast food restaurant operators, and to equipment suppliers for resale
on a private label basis.

The Company's principal objective is to increase profitably its leading U.S.
market share and its established international presence. In order to achieve
this objective, the Company is pursuing a number of strategies including (i)
expanding its presence outside the U.S. by leveraging its relationships with
domestic customers who are aggressively expanding internationally and building
relationships with international theatre exhibitors, (ii) developing and
maintaining strong customer relationships through fully understanding customer
needs and furnishing value-added services and (iii) making strategic
acquisitions of complementary or related niche market products.

The Company was incorporated in 1976. The Company's principal executive
offices and manufacturing facility are located at 4350 McKinley Street, Omaha,
Nebraska 68112, and its telephone number is (402) 453-4444.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Selling Stock-
holders................................... 2,224,860 shares (1)
Common Stock outstanding after the Offer-
ing....................................... 8,892,519 shares (2)
Use of proceeds............................ The Company will not receive any proceeds from the
Offering.
AMEX symbol................................ BTN
</TABLE>
- --------
(1) Includes 280,750 shares of Common Stock issuable upon exercise of
outstanding options and a warrant held by certain Selling Stockholders,
which will be exercised concurrently with the Offering and included in the
Offering. See "Principal and Selling Stockholders" and "Description of
Capital Stock--Warrant and Options to Purchase Common Stock."
(2) Excludes 530,750 shares of Common Stock underlying outstanding options
issued under the Company's stock option plans, 48,750 shares of Common
Stock underlying outstanding stock options issued outside of the Company's
stock option plans and 215,400 shares of Common Stock underlying a warrant.
See "Management--Employee Benefit Plans."

4
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $18,214 $22,631 $28,758 $38,441 $51,754 $11,363 $14,725
Cost of sales........... 13,363 15,864 20,127 27,451 36,397 8,175 10,369
Gross profit............ 4,851 6,767 8,631 10,990 15,357 3,188 4,356
Income from operations.. 1,831 2,944 4,189 5,309 8,310 1,614 2,415
Net income.............. 876 1,500 2,355 3,040 5,037 862 1,568
Net income per share
(1).................... $ 0.30 $ 0.42 $ 0.62 $ 0.13 $ 0.17
Weighted average number
of shares outstanding
(1).................... 6,600 6,654 8,094 6,881 9,341
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------
AS
ACTUAL ADJUSTED(2)
------- -----------
BALANCE SHEET DATA:
<S> <C> <C>
Working capital............................................. $20,977 $22,123
Total assets................................................ 33,812 34,958
Total debt.................................................. -- --
Total stockholders' equity.................................. 25,597 26,743
</TABLE>
- --------
(1) See Note 13 of Notes to Consolidated Financial Statements.
(2) As adjusted data reflect the issuance of 280,750 shares of Common Stock
issuable upon exercise of outstanding options and a warrant held by certain
Selling Stockholders, which will be exercised concurrently with the
Offering and included in the Offering. See "Principal and Selling
Stockholders" and "Description of Capital Stock--Warrant and Options to
Purchase Common Stock."

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

STATEMENTS CONTAINED IN THIS PROSPECTUS OR IN ANY DOCUMENT INCORPORATED OR
DEEMED TO BE INCORPORATED BY REFERENCE HEREIN THAT RELATE TO THE COMPANY'S
BELIEFS OR EXPECTATIONS AS TO FUTURE EVENTS RELATING TO, AMONG OTHER THINGS,
THE GROWTH IN MOTION PICTURE SCREENS, THE COMPANY'S ABILITY TO EXPAND ITS
DOMESTIC AND INTERNATIONAL MARKET SHARES, MAINTAIN COST CONTROLS AND ACHIEVE
MANUFACTURING AND DISTRIBUTION EFFICIENCIES, MAKE FURTHER STRATEGIC
ACQUISITIONS, OBTAIN CERTAIN COMPONENTS IT DOES NOT MANUFACTURE, OFFSET
INFLATIONARY EFFECTS, AND BUILD AND MAINTAIN STRONG CUSTOMER RELATIONSHIPS ARE
NOT STATEMENTS OF HISTORICAL FACT AND ARE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), AND ARE SUBJECT TO THE "SAFE HARBOR" CREATED
THEREBY. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UPON WHICH SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ARE REASONABLE WITHIN THE BOUNDS OF ITS
KNOWLEDGE OF ITS BUSINESS AND OPERATIONS, IT CAN GIVE NO ASSURANCE THAT THE
ASSUMPTIONS WILL PROVE TO HAVE BEEN CORRECT. REFERENCE TO SECTIONS IN THIS
PROSPECTUS WHICH CONTAIN FORWARD-LOOKING STATEMENTS AND IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY AND ADVERSELY FROM THE
COMPANY'S EXPECTATIONS AND BELIEFS ARE SET OUT UNDER "RISK FACTORS." THESE
FACTORS SHOULD BE CAREFULLY CONSIDERED BY POTENTIAL INVESTORS.

5
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating an investment in the
Company before purchasing the shares of Common Stock offered hereby.

DEPENDENCE ON MOTION PICTURE SCREEN GROWTH

Because the Company's commercial motion picture projectors have an estimated
useful life of approximately 20 years, the Company's net sales and
profitability are dependent primarily upon growth in the number of motion
picture screens and the renovation and replacement of commercial motion
picture projection equipment in existing theatres. For 1994, 1995 and 1996,
approximately 80%, 87% and 91%, respectively, of the Company's total net sales
were derived from sales of its commercial motion picture projection equipment.
Although industry analysts foresee continued growth in the number of motion
picture screens as a result of the trend toward multiplexing and megaplexing
and the introduction of new forms of motion picture-based entertainment, there
can be no assurance that this expectation will prove accurate. In addition,
growth in the number of new motion picture screens may be adversely affected
by the availability of home entertainment systems and recent trends toward
industry consolidation, which may also have an adverse effect on the Company's
customer base. A lack of motion picture screen growth would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--The Company," "--Motion Picture Exhibition Industry
Overview" and "--Business Strategy."

UNCERTAINTIES REGARDING INTERNATIONAL SALES; FOREIGN CURRENCY FLUCTUATIONS

For 1994, 1995 and 1996, the Company generated net sales to foreign
customers of $6.4 million, $11.3 million and $14.1 million, respectively,
which accounted for approximately 22%, 29% and 27% of the Company's total net
sales for each of such years, respectively. These amounts include net sales of
Westrex Company, Asia ("Westrex") which was acquired in December 1994, but
exclude sales to domestic export dealers of both theatre and restaurant
products and domestic theatre chains of products which are ultimately
exported. The Company is seeking to expand its share of international sales,
which it expects will continue to account for a substantial portion of its
revenues. International sales may be subject to political and economic risks,
including political instability, currency controls, fluctuating exchange rates
with respect to sales not denominated in U.S. dollars and changes in
import/export regulations, tariffs and freight rates. To date, all of the
Company's international sales have been denominated in U.S. dollars, exclusive
of Westrex sales ($2.8 million in 1996) which are denominated in Hong Kong
dollars. A weakening in the value of foreign currencies relative to the U.S.
dollar could have an adverse impact on the Company by increasing the effective
price of the Company's products in its international markets. In addition,
there can be no assurance that the Company's international customers will
continue to accept orders denominated in U.S. dollars. To the extent that
orders are denominated in foreign currencies, the Company's reported sales and
earnings are more directly subject to foreign exchange fluctuations. There can
be no assurance that these factors will not adversely affect the Company's
international sales in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business--The Company" and
"--Business Strategy."

COMPETITION

The market for commercial motion picture projection equipment is highly
competitive. In the international market, where the Company has a smaller
market share than in the domestic market, the Company believes that its
largest competitor has significantly greater market share than the Company. In
addition to existing commercial motion picture projection equipment
manufacturers, the Company may also encounter competition from new
competitors, as well as from new types of equipment. No assurance can be given
that the commercial motion picture projection equipment manufactured by the
Company will not become obsolete as technology advances. In addition, the
markets for the Company's long-range follow spotlight and other illumination
and restaurant products are highly competitive. Competitors of the Company may
also have significantly greater financial resources than the Company which may
impede the ability of the Company to compete effectively. See "Business--
Business Strategy" and "--Competition."

6
<PAGE>

DEPENDENCE ON KEY MANAGEMENT

The Company's success depends, in substantial part, on the efforts and
abilities of John P. Wilmers, the Company's President and Chief Executive
Officer, and Ray F. Boegner, the Company's Senior Vice President. In January
1997, Mr. Wilmers entered into a new employment contract with the Company
which provides for an initial term of five years. In November 1996, Mr.
Boegner entered into a new employment contract with the Company which provides
for an initial term of five years. Failure to retain the services of Messrs.
Wilmers and Boegner could have a material adverse effect on the Company. The
Company does not maintain key man life insurance on the life of Mr. Wilmers or
Mr. Boegner. See "Management--Employment Contracts."

LIMITED SOURCES FOR CERTAIN COMPONENTS

The Company does not manufacture certain of its components, including film
platters, lenses and intermittent movement components for its commercial
motion picture projection equipment and the aluminum kettles for its pressure
fryers. Each such component is sourced by the Company from a single contract
manufacturer. Although to date the Company has not experienced any significant
difficulty in obtaining these components, there can be no assurance that
shortages will not arise in the future. The loss of one or more of the current
suppliers of any such components would have an adverse effect on the Company's
business until alternative supplies could be secured. See "Business--
Manufacturing."

ENVIRONMENTAL MATTERS

The Company's operations involve the handling and use of substances that are
subject to Federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the soil, air and water
and establish standards for their discharge and disposal. Although the Company
believes it is in material compliance with these laws, the violation of these
laws could have a material adverse effect on the Company. There can be no
assurance that additional environmental or remediation obligations will not be
incurred in the future, that existing or future environmental liabilities
could not have a material adverse effect on the Company, or that currently
unknown matters, new laws and regulations or stricter interpretations of
existing laws or regulations will not have a material adverse effect on the
Company's business. See "Business--Environmental Matters."

SIGNIFICANT STOCKHOLDER

Upon completion of the Offering, ARC, through its ownership of Canrad
Delaware, will be the beneficial owner of 26.9% of the outstanding shares of
Common Stock (23.1% if the Underwriters' over-allotment option is exercised in
full). As a result of the level of its beneficial ownership of the Common
Stock, ARC is in a position to exercise substantial influence over all
corporate matters requiring stockholder approval, including the election of
directors and merger and consolidation proposals. In addition, two members of
the Board of Directors (the "Board") of the Company are directors and
employees of ARC or its affiliates (other than the Company), and one of such
directors has substantial shareholdings in ARC. In connection with the
Company's initial public offering, Canrad Delaware, agreed with the managing
underwriters of such offering to vote, until September 12, 1997, all shares of
voting capital stock of the Company beneficially owned by it in the same
proportion as the votes cast by non-affiliates with respect to any
liquidation, and certain mergers or business combinations involving the
Company. See "Management--Directors and Executive Officers" and "Principal and
Selling Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE

7
<PAGE>

pursuant to the Company's employee stock purchase plan. Of the shares
outstanding or subject to outstanding options or the outstanding warrant, upon
completion of the Offering, 6,757,042 will be immediately eligible for resale
in the public market without restriction under the Securities Act and
substantially all of the remaining shares will be eligible for resale in the
public market subject to compliance with the applicable provisions of Rule 144
under the Securities Act. The Company is unable to predict the effect that
sales made under Rule 144, or otherwise, may have on the then prevailing
market price of the Common Stock.

All of the shares of Common Stock owned by Canrad Delaware, 89,564 shares
owned by certain officers and directors of the Company following the Offering,
304,000 shares issuable to certain officers and directors of the Company
pursuant to the Company's stock option plans following the Offering, and
264,150 shares issuable pursuant to an outstanding warrant and other options
to purchase Common Stock are subject to "lock-up" agreements under which the
holders thereof have agreed not to sell or otherwise dispose of such
securities without the prior written consent of Cowen & Company, on behalf of
the Underwriters, for a period of 90 days after the date of this Prospectus.

All of the shares of Common Stock owned by Canrad Delaware, as well as the
stock of certain other subsidiaries of ARC (including Cabletel Communications
Corp. ("Cabletel")), have been pledged to BNY Financial Corporation and BNY
Financial Corporation--Canada (collectively, "BNY") to secure indebtedness
incurred by certain subsidiaries of ARC, including Canrad Delaware and ARC
Ice, under two revolving credit facilities (collectively, the "BNY Credit
Facility"). The Company has been advised by ARC, Canrad Delaware and ARC Ice
that, as of June 26, 1997, the principal amount of indebtedness outstanding
under the BNY Credit Facility was approximately $10.5 million. In the event of
a default under the BNY Credit Facility, BNY has certain rights as a secured
creditor under the terms of the BNY Credit Facility to vote and to sell or
otherwise dispose of all or a portion of the pledged shares, including the
Common Stock pledged by Canrad Delaware. Although such shares of Common Stock
are subject to the "lock-up" agreements, Cowen & Company has agreed to consent
to sales thereof by BNY in the event of a default under the BNY Credit
Facility. See "Management--Employee Benefit Plans," "Description of Capital
Stock--Warrant and Options to Purchase Common Stock" and "Shares Eligible for
Future Sale."

UNCERTAINTY OF FUTURE ACQUISITIONS

Although the Company does not currently have any specific acquisition under
consideration, the Company may make acquisitions in the future. The
significant uncertainties which accompany any acquisition and its integration
into the Company's existing operations could have an adverse effect on the
Company. There can be no assurance that the Company will be able to locate
appropriate acquisition candidates, that any identified candidates will be
acquired or that acquired operations will be effectively integrated or prove
profitable. The Company's revolving credit facility (the "Norwest Facility")
with Norwest Bank Nebraska, N.A. ("Norwest Bank") currently prohibits the
Company from making acquisitions without the consent of Norwest Bank. See
"Business--The Company" and "--Business Strategy."

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation provides for, among other things,
the issuance of 1,000,000 shares of preferred stock, par value $0.01 per share
("Preferred Stock"). The Board is authorized, without stockholder approval, to
cause the Company to issue such preferred stock in one or more series and to
fix the voting powers and the designations, preferences and relative,
participating, optional or other rights and restrictions thereof. Accordingly,
the Company may issue a series of preferred stock in the future that will have
preference over the Common Stock with respect to the payment of dividends and
upon the Company's liquidation, dissolution or winding up or have voting or
conversion rights that could adversely affect the voting power and ownership
percentages of the holders of Common Stock. The Company's Certificate of
Incorporation also provides for the affirmative vote of at least 66 2/3% of
all outstanding shares of capital stock entitled to vote generally in the
election of directors, voting as a single class, to change certain provisions
of such Certificate of Incorporation and the Company's By-Laws, and to change
the authority of the Board, without further action by

8
<PAGE>

stockholders, to cause the Company to issue shares of preferred stock. The
Company's Certificate of Incorporation further provides for the division of
the Board into three classes. One class of directors is elected at each annual
meeting of stockholders for three-year terms. The Company's By-Laws contain
certain advance notice requirements relating to stockholder proposals and
stockholder nomination of directors. These provisions may have the effect of
making more difficult or discouraging transactions that could give
stockholders of the Company the opportunity to realize a premium over the then
prevailing market price for their shares of Common Stock. See "Principal and
Selling Stockholders" and "Description of Capital Stock--Preferred Stock" and
"--Certain Provisions of the Company's Certificate of Incorporation and By-
Laws."

POSSIBLE VOLATILITY OF STOCK PRICE; LIMITED TRADING VOLUME

The trading price of the Common Stock may be highly volatile and could be
subject to significant fluctuations in response to variations in the Company's
quarterly operating results, general conditions in the industries in which the
Company operates and other factors. In addition, the stock market is subject
to price and volume fluctuations affecting the market price for the stock of
many companies generally, which fluctuations often are unrelated to operating
performance. Although the Common Stock is listed on the AMEX, daily trading
volume of the Common Stock has generally been limited and accordingly the
trading price is more vulnerable to significant fluctuations. See "Price Range
of Common Stock."

9
<PAGE>

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of Common Stock
offered hereby. The Company will not pay any of the fees and expenses of the
Offering.

PRICE RANGE OF COMMON STOCK

The Common Stock is listed and traded on the AMEX under the symbol "BTN."
The following table sets forth the high and low per share sale prices for the
Common Stock as reported by the AMEX for the periods indicated (rounded to the
nearest 1/8):

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
Third Quarter (from September 6)....................... $ 4 5/8 $ 4 1/8
Fourth Quarter......................................... 4 7/8 4
1996
First Quarter.......................................... 6 1/8 4 5/8
Second Quarter......................................... 11 3/4 5 3/4
Third Quarter.......................................... 10 7/8 7 3/8
Fourth Quarter......................................... 13 1/4 9 1/4
1997
First Quarter.......................................... 16 3/8 12 1/4
Second Quarter (through June 26) ...................... 17 1/8 14 3/8
</TABLE>

On June 26, 1997, the last reported per share sale price for the Common
Stock was $17.00. At June 26, 1997, there were 105 holders of record of the
Common Stock.

DIVIDEND POLICY

The Company intends to retain its earnings to assist in financing its
business and does not anticipate paying any dividends on its Common Stock in
the foreseeable future. The Norwest Facility contains certain prohibitions on
the payment of cash dividends. In addition, the underwriting agreement
relating to the Company's initial public offering restricts the payment of
cash dividends until September 1997. The declaration and payment of dividends
by the Company are also subject to the discretion of the Board. Any
determination by the Board as to the payment of dividends in the future will
depend upon, among other things, business conditions and the Company's
financial condition and capital requirements, as well as any other factors
deemed relevant by the Board. The Company paid an $8.0 million dividend to
Canrad Delaware in September 1995 in connection with its initial public
offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

10
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at March
31, 1997. The table should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Total long-term debt................................... $ -- $ --
Stockholders' equity:
Preferred stock, $0.01 par value--1,000,000 shares
authorized,
none issued or outstanding.......................... -- --
Common stock, $0.01 par value--10,000,000 shares
authorized,
8,569,769 shares issued and outstanding
(8,850,519 shares as adjusted) (1)(2)............... 85,698 88,505
Additional paid-in capital........................... 18,906,556 20,050,074
Retained earnings...................................... 6,604,893 6,604,893
----------- -----------
Total stockholders' equity............................. 25,597,147 26,743,472
----------- -----------
Total capitalization................................... $25,597,147 $26,743,472
=========== ===========
</TABLE>
- --------
(1) In June 1997, the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of Common Stock to 25,000,000.
(2) Excludes 573,000 shares of Common Stock underlying outstanding options
issued under the Company's stock option plans, 48,750 shares of Common
Stock underlying outstanding stock options issued outside of the Company's
stock option plans and 215,400 shares of Common Stock underlying a
warrant. As adjusted data reflect the issuance of 280,750 shares of Common
Stock issuable upon exercise of outstanding options and a warrant held by
certain Selling Stockholders, which will be exercised concurrently with
the Offering and included in the Offering. See "Management--Employee
Benefit Plans," "Principal and Selling Stockholders" and "Description of
Capital Stock--Warrant and Options to Purchase Common Stock."

11
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data of the Company
as of December 31, 1992, 1993, 1994, 1995 and 1996, and for the years then
ended, have been derived from the Consolidated Financial Statements of the
Company which have been audited by KPMG Peat Marwick LLP, independent
accountants. The Consolidated Financial Statements as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31,
1996, and the report of the independent public accountants thereon, are
included elsewhere in the Prospectus. The selected consolidated financial data
presented as of March 31, 1997 and the three months ended March 31, 1996 and
1997 have been derived from the Company's unaudited consolidated financial
statements. In the opinion of management, the unaudited consolidated financial
statements for such periods include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the consolidated
financial position and results of operations for these periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the full year. The information should be read in conjunction with
the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $18,214 $22,631 $28,758 $38,441 $51,754 $11,363 $14,725
Cost of sales........... 13,363 15,864 20,127 27,451 36,397 8,175 10,369
------- ------- ------- ------- ------- ------- -------
Gross profit........... 4,851 6,767 8,631 10,990 15,357 3,188 4,356
Operating expenses...... 3,020 3,823 4,442 5,681 7,047 1,574 1,941
------- ------- ------- ------- ------- ------- -------
Income from
operations............ 1,831 2,944 4,189 5,309 8,310 1,614 2,415
Net interest (income)
expense................ 316 406 239 277 364 186 (53)
------- ------- ------- ------- ------- ------- -------
Income before income
taxes................. 1,515 2,538 3,950 5,032 7,946 1,428 2,468
Income taxes............ 639 1,038 1,595 1,992 2,909 566 900
------- ------- ------- ------- ------- ------- -------
Net income............. $ 876 $ 1,500 $ 2,355 $ 3,040 $ 5,037 $ 862 $ 1,568
======= ======= ======= ======= ======= ======= =======
Net income per share
(1).................... $ 0.30 $ 0.42 $ 0.62 $ 0.13 $ 0.17
Weighted average number
of shares
outstanding(1)......... 6,600 6,654 8,094 6,881 9,341
<CAPTION>
DECEMBER 31, MARCH 31, 1997
--------------------------------------- -------------------
AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(3)
------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 3,827 $ 4,773 $ 7,079 $ 8,625 $19,742 $20,977 $22,123
Total assets............ 11,127 15,919 16,674 19,828 32,462 33,812 34,958
Total debt (2).......... 1,160 2,317 1,607 8,059 458 -- --
Total stockholders'
equity (2)............. 6,160 7,660 10,015 5,055 24,029 25,597 26,743
</TABLE>
- --------
(1) See Note 13 of Notes to Consolidated Financial Statements.
(2) Total debt and total stockholders' equity at December 31, 1995 reflect the
Company's incurrence of $8.0 million of indebtedness under the Norwest
Facility and the payment by the Company of an $8.0 million dividend to
Canrad Delaware with the proceeds of such indebtedness in connection with
the Company's initial public offering in September 1995.
(3) As adjusted data reflect the issuance of 280,750 shares of Common Stock
issuable upon exercise of outstanding options and a warrant held by
certain Selling Stockholders, which will be exercised concurrently with
the Offering and included in the Offering. See "Principal and Selling
Stockholders" and "Description of Capital Stock--Warrant and Options to
Purchase Common Stock."

12
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. The following discussion and analysis contains certain
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from such forward-looking
statements, including, without limitation, a lack of continued growth in the
number of new motion picture screens, both domestically and internationally,
and political and economic factors associated with international sales, see
"Risk Factors."

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in the Company's statement of
income:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 73.4 70.1 70.0 71.4 70.3 71.9 70.4
Gross profit.............. 26.6 29.9 30.0 28.6 29.7 28.1 29.6
Operating expenses........ 16.6 16.9 15.4 14.8 13.6 13.9 13.2
Income from operations.... 10.0 13.0 14.6 13.8 16.1 14.2 16.4
Net income................ 4.8 6.6 8.2 7.9 9.7 7.6 10.7
</TABLE>

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996

Net sales for the three months ended March 31, 1997 (the "1997 Period")
increased $3.4 million or 29.6% to $14.7 million from $11.4 million for the
three months ended March 31, 1996 (the "1996 Period"). The following table
sets forth comparative consolidated net sales of theatre products and
restaurant products for the respective periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Theatre Products.................................. $10,882,300 $14,112,100
Restaurant Products............................... 480,400 612,700
----------- -----------
Total Net Sales................................... $11,362,700 $14,724,800
=========== ===========
</TABLE>

Net sales of theatre products increased $3.2 million or 29.7% for the 1997
Period as compared to the 1996 Period. Net sales of commercial motion picture
projection equipment increased $3.1 million or 30.0%, and net sales of follow
spotlights increased $114,000 or 23.4%. The majority of increase in net sales
of commercial motion picture projection equipment was attributable to
increased sales of such equipment to domestic customers. Net sales of
replacement parts increased $146,000 or 10.0% to $1.6 million for the 1997
Period from $1.5 million in the 1996 Period.

Net sales of restaurant products increased by $132,300 or 27.5%, mainly due
to an increase in sales of pressure fryers.

Gross profit as a percentage of net sales increased to 29.6% for the 1997
Period from 28.1% for the 1996 Period. The increase was attributable to
improved efficiencies realized by purchasing and manufacturing due to an
increase in production volume.

Operating expenses increased $367,100 for the 1997 Period as compared to the
1996 Period. As a percentage of net sales, operating expenses decreased to
13.2% for the 1997 Period from 13.9% for the 1996 Period, as a result of a
greater increase in net sales without a proportional significant increase in
selling costs (which includes advertising, travel and personnel expenses).

13
<PAGE>

Net interest income was $53,200 for the 1997 Period as compared to interest
expense of $186,100 for the 1996 Period. The decrease in interest expense
reflects the repayment of the Company's Industrial Development Revenue Bonds
(the "IDRBs") in March 1997 and the absence of borrowings under the Norwest
Facility.

The effective tax rate was 36.4% for the 1997 Period as compared to the
statutory rate of 34.0%. The difference relates to the effects of state income
taxes and the non-deductibility of certain intangible expenses, principally
goodwill.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995

Net sales for 1996 increased $13.3 million or 34.6% to $51.8 million from
$38.4 million for 1995. The following table shows comparative net sales of
theatre products and restaurant products for the respective periods:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Theatre Products.................................. $35,440,400 $49,387,700
Restaurant Products............................... 3,001,000 2,366,200
----------- -----------
Total Net Sales................................... $38,441,400 $51,753,900
=========== ===========
</TABLE>

Net sales of theatre products increased $13.9 million or 39.4% for 1996 as
compared to 1995. Net sales of commercial motion picture projection equipment
increased $13.8 million or 41.1% and follow spotlights increased $183,900 or
9.3%. The majority of the increase in net sales of commercial motion picture
projection equipment was attributable to increased sales of such equipment to
domestic customers. Net sales of replacement parts increased $1.2 million or
24.5% to $6.1 million for 1996 from $4.9 million in 1995.

Net sales of restaurant products decreased $634,800. This decrease was due
in part to the loss of two customer accounts.

Gross profit as a percentage of net sales increased to 29.7% in 1996 from
28.6% in 1995. The increase was attributable to improved efficiencies realized
by purchasing and manufacturing due to an increase in production volume.

Operating expenses increased $1.4 million or 24.1% for 1996 as compared to
1995. However, as a percentage of net sales, operating expenses decreased to
13.6% in 1996 from 14.8% in 1995, as a result of a greater increase in net
sales without a proportional significant increase in selling costs. In terms
of the dollar increase in such expenses, 1996 included amounts paid under the
Company's profit sharing plan which reflects increased operating income and
additional expenses incurred for a full year operating as a public company.
See Note 14 of Notes to Consolidated Financial Statements. Also included in
these amounts was a management fee paid by the Company to Canrad Inc., an
indirect, wholly-owned subsidiary of ARC, of $300,000 for 1996 and 1995.

Interest expense amounted to $363,500 for 1996 as compared to $277,300 for
1995. Included in interest expense was interest incurred from the Norwest
Facility.

The effective tax rate was 36.6% for 1996 as compared to the statutory rate
of 34.0%. The difference relates to the effects of state income taxes and the
non-deductibility of certain intangible expenses, principally goodwill.

14
<PAGE>

YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994

Net sales for 1995 increased 33.7% to $38.4 million from $28.8 million for
1994. The following table sets forth comparative consolidated net sales of
theatre products and restaurant products for the respective periods:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
----------- -----------
<S> <C> <C>
Theatre Products.................................. $25,731,200 $35,440,400
Restaurant Products............................... 3,027,200 3,001,000
----------- -----------
Total Net Sales................................... $28,758,400 $38,441,400
=========== ===========
</TABLE>

Net sales of theatre products increased $9.7 million or 37.7% for 1995 as
compared to 1994. Net sales of commercial motion picture projection equipment
increased $10.2 million or 43.8%, and net sales of follow spotlights decreased
$485,000 or 19.7%. The majority of the increase in sales of commercial motion
picture projection equipment was attributable to increased sales of such
equipment to domestic customers. Net sales of replacement parts increased from
$4.7 million in 1994 to $4.9 million in 1995. Net sales of theatre products in
1995 included a full year of net sales of Westrex, which was acquired on
December 2, 1994.

Net sales of restaurant products remained relatively consistent between the
respective periods, which was due in part to the Company's historical focus on
the growth of its theatre products business.

Gross profit as a percentage of net sales decreased to 28.6% in 1995 from
30.0% in 1994. The decrease was primarily due to a full year of net sales of
Westrex, whose products have a lower gross profit margin than the Company's
non-Westrex theatre products.

Operating expenses increased $1.2 million or 27.9% for 1995 as compared to
1994. However, as a percentage of net sales, such expenses decreased to 14.8%
in 1995 from 15.4% in 1994 as a result of an increase in net sales of theatre
products without a proportional significant increase in selling costs. In
terms of the dollar increase in such expenses, 1995 included a full twelve
months of operating expenses of Westrex, and also included amounts paid under
the Company's profit sharing plan which reflects increased operating income.
See Note 14 to Notes to Consolidated Financial Statements. Also included in
these amounts was a management fee paid by the Company to Canrad Inc. of
$300,000 for 1995 and $241,200 for 1994.

Interest expense was $227,300 for 1995 as compared to $238,700 for 1994.
Included in interest expense for 1994 was $129,700 of an allocation of
interest charged by Canrad Inc. relating to the collar agreement which expired
on October 2, 1994. See Note 9 of Notes to Consolidated Financial Statements.
Non-allocated interest expense increased to $277,300 for 1995 from $109,000
for 1994. This increase resulted from $8.0 million of indebtedness incurred in
September 1995 under the Norwest Facility in connection with the Company's
initial public offering.

The effective tax rate was 39.6% for 1995 as compared to the statutory rate
of 34.0%. The difference relates to the effect of state income taxes and the
non-deductibility of certain intangible expenses, principally goodwill.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1997, the Company had no outstanding borrowings. The principal
reason for the decrease in borrowings from December 31, 1996 relates to the
repayment of the IDRBs in March 1997 and a final payment of $100,000 pursuant
to a non-compete agreement with Optical Radiation Corporation ("ORC").

In September 1995, the Company entered into the Norwest Facility with
Norwest Bank. The Norwest Facility initially provided for a borrowing
commitment of up to $10.0 million. The commitment reduced by $500,000 on the
first anniversary date of such facility and will reduce by $500,000, $1.0
million and $1.0 million on the second, third and fourth anniversary dates
thereof, respectively. The entire amount outstanding under the

15
<PAGE>

Norwest Facility matures on August 30, 2000. At June 26, 1997, $9.5 million
was available for borrowing under the Norwest Facility. Amounts repaid under
the Norwest Facility will be available for reborrowing. Borrowings outstanding
under the Norwest Facility bear interest, payable monthly, at a rate equal to
Norwest Bank's National Money Market Rate, as announced from time to time
(8.5% at June 26, 1997). All of the Company's assets secure the Norwest
Facility. The Norwest Facility agreement contains certain restrictive
covenants which include, among other things, a prohibition on the payment of
cash dividends and requirements relating to current, debt service coverage and
total debt to tangible net worth ratios and tangible net worth.

Historically, the Company has funded its working capital requirements
through cash flow generated by its operations. Net cash provided by operating
activities for the years ended December 31, 1994, 1995 and 1996 was $3.4
million, $2.4 million and $944,200, respectively. For the three months ended
March 31, 1996 and 1997, net cash used by operating activities was $(936,600)
and $979,200, respectively. The increase in net cash provided by operating
activities for the three months ended March 31, 1997 was due primarily to
increases in net income and income taxes payable and a decrease in trade
receivables offset by an increase in inventories.

The Company anticipates that internally generated funds and borrowings under
the Norwest Facility will be sufficient to meet its working capital needs. The
Company expects that it will have capital expenditures of $1.7 million in 1997
which include manufacturing equipment and expansion of its current facility.

The Company does not engage in any currency hedging activities in connection
with its foreign sales and operations. To date, all of the Company's
international sales have been denominated in U.S. dollars, exclusive of
Westrex sales, which are denominated in Hong Kong dollars.

SEASONALITY

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

INFLATION

The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net sales or
profitability. Historically, the Company has been able to offset any
inflationary effects by either increasing prices or improving cost
efficiencies.

RECENTLY ISSUED ACCOUNTING STANDARDS

The FASB issued Statement No. 128, "Earnings Per Share," which revises the
calculation and presentation provisions of Accounting Principles Board Opinion
15 and related interpretations. Statement No. 128 is effective for the
Company's fiscal year ending December 31, 1997. Retroactive application will
be required. The Company believes that the adoption of Statement No. 128 will
not have a significant effect on its reported earnings per share.

16
<PAGE>

BUSINESS

THE COMPANY

The Company is a leading developer, manufacturer and distributor of
commercial motion picture equipment and long-range follow spotlights in the
U.S. and abroad. The Company's product lines are distributed on a worldwide
basis through a network of over 200 domestic and international dealers to
major movie exhibitors, ride simulation operators, and sports arena and
amusement park operators. The Company's broad range of both standard and
custom-made equipment can completely outfit and automate a motion picture
projection booth and is currently being used by major motion picture
exhibitors such as AMC Entertainment, Inc., Regal Cinemas, Inc., Act III
Theatres, Inc., Cinemark USA, Inc. and Cineplex Odeon Corporation. As a major
supplier of motion picture equipment to the theatre exhibitors, Ballantyne has
benefited directly from both the domestic and international growth in motion
picture screens. Additionally, the Company has increased its profitability by
maintaining internal cost controls and achieving manufacturing and
distribution efficiencies.

Ballantyne believes that its position as a fully-integrated equipment
manufacturer enables it to be more responsive to its customers' specific
design requirements, thereby giving it a competitive advantage over other
manufacturers who rely more on outsourced components. In addition, the Company
believes its expertise in engineering and manufacturing high-quality, reliable
and innovative products, prompt order fulfillment and delivery, and after-sale
technical support and emergency service have allowed the Company to build and
maintain strong customer relationships.

The motion picture theatre industry has experienced competition from in-home
sources of entertainment in recent years, forcing theatre exhibitors to build
higher quality theatres with more screens per location in order to lure
consumers to theatres. More recently, domestic theatre exhibitors have
accelerated the addition of new screens and in many cases, have begun
developing "multiplex" or "megaplex" theatres which have an even larger number
of screens per location (sometimes as many as 30 screens). According to Global
Film Exhibition and Distribution ((C) 1996), published by Baskerville, a media
and communications market research firm, there were more than 28,500 screens
in the U.S. at the end of 1996 and this number is expected to increase by
approximately 1,900 net new screens through the year 2000. In addition, the
international marketplace has historically been underserved. According to
Baskerville, in 1996 the number of motion picture screens per million people
was 107.9 for the U.S. as compared to 8.5 for Asia Pacific, 12.5 for Latin
America and 43.5 for Europe. U.S.-based theatre exhibitors are rapidly
entering the international markets with plans to build modern multiplexes and
megaplexes in response to increased movie theatre attendance. The Company
believes that its leading market share in the U.S. and its established
international presence have positioned the Company to benefit directly from
these positive trends in the motion picture theatre industry.

The Company also manufactures customized motion picture projection equipment
for use in special venues, such as motion simulation rides, large screen
format presentations and other forms of motion picture-based entertainment
requiring visual and multimedia special effects. These customers include Imax
Corporation, The Walt Disney Company and Electrosonic Systems, Inc. The
Company helped pioneer the special venue market more than 20 years ago by
working with its customers to design and build customized projection systems
featuring special effects.

Ballantyne's long-range follow spotlights are used for both permanent
installations and touring applications. In April 1997, Ballantyne complemented
its long-range follow spotlights product line with the acquisition of
substantially all of the net assets of Xenotech. Xenotech is a leading
manufacturer and supplier of high intensity searchlights and computer-based
lighting systems for the motion picture production, television, live
entertainment, theme park and architectural industries. The Company also
manufactures commercial food service equipment, which is sold to convenience
store and fast food restaurant operators, and to equipment suppliers for
resale on a private label basis.

17
<PAGE>

including (i) expanding its presence outside the U.S. by leveraging its
relationships with domestic customers who are aggressively expanding
internationally and building relationships with international theatre
exhibitors, (ii) developing and maintaining strong customer relationships
through fully understanding customer needs and furnishing value-added services
and (iii) making strategic acquisitions of complementary or related niche
market products.

The Company's business was founded in 1932. Since that time, the Company has
manufactured and supplied equipment and services to the commercial motion
picture projection industry. In 1983, the Company acquired the assets of the
Simplex Projector Division of the National Screen Services Corporation,
thereby expanding its commercial motion picture projection equipment business.
The Company further expanded its commercial motion picture projection
equipment business with the 1993 acquisition of the business of the Cinema
Products Division of ORC. This division designs, manufactures and sells
commercial motion picture projection equipment on a worldwide basis and
distributes ISCO-Optic lenses to the theatre and audio visual industries in
North America. In December 1994, the Company increased its presence in the
international marketplace with the acquisition of Westrex, which provides the
Company with a strategic Far Eastern location and greater access to the
expanding economies of the Pacific Rim. In April 1997, the Company
complemented its long-range follow spotlights product line with the
acquisition of substantially all of the net assets of Xenotech.

MOTION PICTURE EXHIBITION INDUSTRY OVERVIEW

The motion picture theatre industry has experienced competition from in-home
sources of entertainment in recent years, forcing theatre exhibitors to build
higher quality theatres with more screens per location in order to lure
consumers to theatres. As a result, U.S. theatre exhibitors have begun
developing multiple screen theatres to provide a more consumer friendly
destination and a wider range of film choices than traditional single screen
theatres. More recently, domestic theatre exhibitors have accelerated the
addition of new screens and in many cases, have begun developing "multiplex"
or "megaplex" theatres which have an even larger number of screens per
location (sometimes as many as 30 screens). Coupled with wide body seats and
stadium seating, these new generation theatres offer patrons a new and
invigorating moviegoing experience. The outlook for such multiplexing and
megaplexing remains promising as many domestic markets still lack modern, high
quality theatre complexes, and commercial real estate developers increasingly
view such facilities as attractive anchor tenants that enhance consumer
traffic. The success from the megaplexes opened to date confirms that
customers desire a quality, out-of-home entertainment experience.

Domestically, the theatre exhibitors' strategy is to focus on growth and
increased market share by building new, multiplex theatres in their key
markets, while expanding and refurbishing their existing high traffic
locations. According to Global Film Exhibition and Distribution ((C) 1996),
published by Baskerville, there were more than 28,500 screens in the U.S at
the end of 1996 and this number is expected to increase by approximately 1,900
net new screens through the year 2000. Internationally, as box office revenues
from abroad continue to grow at a rapid rate, domestic theatre exhibitors are
building multiplex theatres in strategic international markets. According to
Dodona Research, a U.K.-based media market research firm, there were more than
20,000 screens in Europe at the end of 1996 and the number of net new screens
is expected to increase by approximately 2,000 through the year 2000.

According to Baskerville, annual box office revenues outside of North
America now exceed box office revenues generated in the domestic marketplace.
Internationally, there are many markets which have either an undersupply of
screens or existing screens which are not consistent with today's high
standards of multiplex design and amenities. There are also emerging markets
with improving demographics and economic growth that present opportunities for
the development of theatrical exhibition. Theatre exhibitors are trying to
leverage their expertise as a premier film exhibition company and capitalize
on the vast opportunities for growth that exist in the global marketplace.

The trend toward multiplexing or megaplexing is also accelerating
internationally. The international marketplace is one which has historically
been underserved. According to Baskerville, in 1996 the number of motion
picture screens per million people was 107.9 for the U.S. as compared to 8.5
for Asia Pacific, 12.5 for

18
<PAGE>

Latin America and 43.5 for Europe. U.S.-based theatre exhibitors are rapidly
entering the international markets with plans to build modern multiplexes and
megaplexes in response to increased movie theatre attendance. According to
Screen Digest Limited, a U.K.-based media and consulting firm, the number of
multiplex theatres in Europe in 1997 will increase to approximately 3,900, as
compared to approximately 2,200 multiplexes in 1993, representing a four-year
compounded annual growth rate of 15.4%.

Special venue-based entertainment is an emerging market for exhibitors.
These special venues require sophisticated display equipment which provide
state-of-the-art visual and multimedia experiences. Special venues include
virtual reality motion simulation rides for sites such as location-based
entertainment centers, shopping malls, casinos, theme parks and expositions
and large screen formats for sites such as multiplexes and megaplexes,
museums, zoos, national parks and theme parks. See "Risk Factors--Dependence
on Motion Picture Screen Growth."

BUSINESS STRATEGY

The Company's principal objective is to increase profitably its leading U.S.
market share and its established international presence. The Company's
strategy combines the following key elements:

Expand International Presence. As rapid construction of new multiple screen
motion picture theatres has extended to the international market, sales of the
Company's products to international end users are becoming increasingly
important to the Company. Net sales to foreign customers, primarily of theatre
products, increased from $6.4 million in 1994 to $14.1 million in 1996
including sales by Westrex (excluding sales to domestic export dealers of both
theatre and restaurant products and domestic theatre chains of products which
are ultimately exported). The Company believes that its smaller international
market share represents an attractive growth opportunity, as the Company
intends to seek a greater market share for its products internationally by
working with its domestic dealers and U.S.-based motion picture exhibitor
customers as they expand abroad. In addition, the Company is seeking to
continue to strengthen and develop its international presence through its
international dealer network, and the Company's sales force will continue to
travel extensively worldwide to market the Company's products. The Company
believes that as a result of these efforts, it is well-positioned to expand
its brand name recognition and international market share.

Emphasize Customer Service. The Company seeks to develop and maintain strong
customer relationships by offering a wide variety of standardized commercial
theatre and restaurant equipment, working closely with its customers to fully
understand their needs and furnishing value-added services such as (i)
expertise in engineering and manufacturing high-quality, reliable and
innovative products (often designed to customer specifications), (ii) prompt
order fulfillment and delivery and (iii) after-sale technical support and
emergency service. The Company further supports its products through its
replacement parts business, which represents an additional source of recurring
income that is less dependent on new screen construction. The Company believes
that one of its competitive advantages is its superior customer service which
has resulted in strong, long-lasting customer relationships.

Leverage Manufacturing and Design Expertise. The Company's position as a
fully integrated manufacturer enables it to develop, design and customize its
products to meet customer specifications, and to respond quickly to customers'
requests for replacement parts and repair. The Company believes that its
integrated manufacturing capabilities allow it to rapidly increase its
manufacturing capacity, thereby providing it with a competitive advantage in
meeting its customers' accelerating delivery schedules. In addition, its
manufacturing capabilities, combined with its emphasis on customer service,
have contributed to retaining strong customer relationships and developing new
business opportunities and products in both the traditional theatre equipment
market and the special venue market.

Explore Strategic Acquisitions. The Company has historically been successful
in identifying and acquiring complementary businesses, which have been
profitable for its core operations. The Company plans to continue to explore
opportunities to acquire companies which complement its sales and marketing
and manufacturing expertise, as well as companies which provide opportunities
for geographical expansion of its dealer network and product line expansion.

19
<PAGE>

Expand Special Venue Business. The Company believes that there is increasing
consumer demand for motion simulation rides, large screen format presentations
and other forms of motion picture-based entertainment which use visual and
multimedia special effects. The Company is seeking to become a leading
provider of state-of-the-art special venue products by capitalizing on its
ability to customize such products as a result of its in-house design
capabilities and its integrated manufacturing operations. Although sales of
special venue products currently represent only a small percentage of the
Company's net sales, the Company believes that increasing public demand for
such products and the increased publicity generally associated with special
venue products create an attractive opportunity for future growth.

THEATRE AND RESTAURANT PRODUCTS

THEATRE PRODUCTS

Motion Picture Projection Equipment

The Company is a leading developer, manufacturer and distributor of
commercial motion picture projection equipment in the U.S. and abroad. The
Company's commercial motion picture projection equipment consists of 35mm and
70mm motion picture projectors, combination 35/70mm projectors, xenon
lamphouses and power supplies, a console system combining a lamphouse and
power supply into a single cabinet, soundhead reproducers and related products
such as film handling equipment and sound systems. The Company's commercial
motion picture projection equipment is marketed under the industrywide
recognized trademarks of Strong(TM), Simplex(TM), Century(R), Optimax(R) and
Ballantyne(TM). The Company's commercial motion picture projection equipment
may be sold individually or as an integrated system with other components
manufactured by the Company. The Company's commercial motion picture
projection equipment can fully outfit and automate a motion picture projection
booth.

The Company's lamphouse consoles are unique to the industry in that they
incorporate a solid state power supply which allows for a broader range of
wattages, thereby reducing operating costs, as compared to inefficient copper
and iron power transformers. The Company's lamphouse consoles incorporate all
elements required for quality film presentations while requiring minimum booth
floor space.

The Company's film handling equipment consists of either a three- or five-
deck platter and a make-up table which allow the reels of a full length motion
picture to be spliced together, thereby eliminating the need for an operator
to change reels during the showing of the motion picture.

Pursuant to a distribution agreement with ISCO-Optic GmbH of Germany, the
Company has the exclusive right to distribute ISCO-Optic lenses in North
America. Under the distribution agreement, the Company's exclusive right
continues through 2001, subject to the attainment of minimum sales quotas
(which the Company has historically exceeded), and thereafter is automatically
renewed for successive two-year periods until terminated by either party upon
12 months' prior notice. ISCO-Optic lenses have developed a reputation for
delivering high-image quality and resolution over the entire motion picture
screen. In addition to incorporating the ISCO-Optic lenses into its own
equipment, the Company distributes ISCO-Optic lenses to customers with
operations in the theatre and audio visual industries. ISCO-Optic lenses have
a leading market share in the U.S. commercial motion picture projector lens
market and have won two Academy Awards for technical achievement. The Company
does not have any similar right outside of North America.

In 1995 and 1996, National Cinema Supply accounted for more than 10% of the
Company's total net sales. No customer accounted for 10% of the Company's
total net sales in 1994.

20
<PAGE>

Replacement Parts

The Company has a significant installed base of motion picture projectors.
Although these projectors have an average useful life in excess of 20 years,
periodic replacement of components is required as a matter of routine
maintenance, in most cases with parts manufactured by the Company. The Company
believes that growth in the installed base of commercial motion picture
projectors should result in increased net sales of replacement parts for the
Company's commercial motion picture projection equipment. Replacement part
sales represent a recurring revenue source for the Company which is less
dependent on new screen construction. Net sales of the Company's replacement
parts were $4.7 million, $4.9 million, $6.1 million and $1.6 million for 1994,
1995, 1996 and the three months ended March 31, 1997, respectively.

Special Venue Products

The Company is becoming increasingly involved in the development of
commercial projection equipment for incorporation into special venue products
such as virtual reality motion simulation rides and large screen format
presentations. The Company has sold customized commercial motion picture
equipment directly to special venue customers such as Imax Corporation, The
Walt Disney Company and Electrosonic Systems, Inc. for use at special venue
sites such as the Magic Kingdom, EPCOT Center, IMAX Ridefilm Simulators,
Universal Studios and Busch Gardens. The Company works closely with its
customers to develop, design and engineer customized projection equipment to
accommodate various formats required for the special venue industry. The
Company manufactures 4, 5, 8 and 10 perforation 35mm and 70mm projection
systems for large-screen, simulation ride and planetarium applications and for
other venues that require special effects. The Company's ability as a fully
integrated manufacturer enables it to work closely with its customers from
initial concept and design through manufacturing to the customers'
specifications. The Company believes that its reputation for quality and
responsiveness provides a competitive advantage in these growing markets.

Spotlights and Other Illumination Products

The Company is a leading developer, manufacturer and distributor of long-
range follow spotlights in the U.S. and abroad. These spotlights are high-
intensity general use illumination products designed for both permanent
installations and touring applications. The Company's long-range follow
spotlights consist of eight basic models ranging in output from 400 watts to
3,000 watts. The Company's 400 watt spotlight model, which has a range of 20
to 150 feet, is compact, portable and appropriate for small venues and truss
mounting. The Company's 3,000 watt spotlight model, which has a range of 300
to 600 feet, is a high-intensity xenon light spotlight appropriate for large
theatres, arenas and stadiums. All of the Company's long-range follow
spotlights employ a variable focal length lens system which increases the
intensity of the light beam as it is narrowed from flood to spot. The
Company's long-range follow spotlights are marketed under the Strong(TM)
trademark under recognized brand names such as Super Trouper(R), Gladiator(TM)
and Roadie(TM).

The Company sells its long-range follow spotlights through dealers to
equipment rental companies, arenas, stadiums, theme parks, theatres and
auditoriums. The Company's spotlight products are used in, among other venues,
the Toronto SkyDome, the United Center in Chicago, the RCA Dome in
Indianapolis, the Continental Airlines Arena in the New Jersey Meadowlands and
the Sheffield Arena in the United Kingdom, as well as at special venue sites
such as the 1996 Summer Olympics in Atlanta, Georgia and in world tours by,
among others, the Rolling Stones, R.E.M. and Pink Floyd.

In April 1997, the Company complemented its long-range follow spotlights
product line with the acquisition of substantially all of the net assets of
Xenotech. Xenotech is a leading manufacturer and supplier (through both rental
and outright sale) of high intensity searchlights and computer-based lighting
systems for the motion picture production, television, live entertainment,
theme park and architectural industries.

Since its founding in 1986, Xenotech's specialty illumination products have
been used in numerous feature films including Batman, Terminator I, Terminator
II and Independence Day. Xenotech's products have also been

21
<PAGE>

used at live performances such as the 1993 and 1994 Super Bowl half-time shows
and are currently illuminating such venues as the Luxor Hotel and Casino and
the Stratosphere Hotel and Casino in Las Vegas, Nevada. Xenotech markets its
products directly to customers in North America, Europe, South America and the
Pacific Rim. Although there can be no assurance, the Company believes that it
can expand Xenotech's sales without incurring significant additional expense
by utilizing the Company's existing international dealer network to sell
Xenotech products. In addition, certain previously outsourced components for
Xenotech products are expected to be manufactured by the Company at its
facility in Omaha, Nebraska beginning in the third quarter of 1997. The
Company's Xenotech products are marketed under the Xenotech(TM) and
Britelights(R) trademarks.

RESTAURANT PRODUCTS

The Company's restaurant product line consists of commercial food service
equipment, principally pressure fryers, barbecue/slow roast ovens and
rotisserie ovens. The Company's pressure fryers account for the majority of
its commercial food service equipment net sales. The Company's restaurant
product line is marketed under the Flavor Crisp(R) and Flavor Pit(R)
trademarks. The Company's commercial food service equipment is supplemented by
seasonings, marinades and barbecue sauces manufactured to the Company's
specifications by The Golden Dipt Company and other food product contractors,
and by mesquite and hickory woods, paper serving products and point of
purchase displays.

The Company sells its restaurant product line through dealers primarily to
independent convenience store/fast food restaurant operators. The Company also
sells its pressure fryers to equipment suppliers directly, on a private label
basis, for resale to major chains such as Pathmark and Wal-Mart for use in
their delicatessens and sit-down eateries.

SALES, MARKETING AND CUSTOMER SERVICE

The Company markets and sell its products primarily through a network of
over 200 domestic and international dealers to major movie exhibitors, ride
simulation operators, and sports arena and amusement park operators. The
Company also sells directly to end users. The Company employs seven sales and
marketing professionals, six customer service personnel and two technical
support personnel, based in the U.S., and two sales and marketing
professionals and six customer service/technical support personnel based at
Westrex in Hong Kong. The Company also services its customers in large part
through its dealer network. Sales and marketing professionals principally
develop business by maintaining regular, personal customer contact, including
conducting site visits, while customer service and technical support functions
are primarily centralized and dispatched when needed. The Company anticipates
that it will add one to two sales and marketing professionals as it executes
its international sales plan. In addition, the Company also markets its
products in trade publications such as Film Journal and Box Office and by
participating in annual major industry trade shows such as ShowWest in Las
Vegas, ShowEast in Atlantic City, CineAsia in Singapore and Cinema Expo in
Europe.

The Company's sales and marketing professionals have extensive experience
with the Company's product lines. Each of the Company's U.S.-based commercial
motion picture projection equipment sales and marketing professionals have at
least 15 years of industry experience and have long-term relationships with
many current and potential customers. By virtue of these relationships, the
Company can anticipate marketplace demand, and alter its production schedule
accordingly. The Company believes that its continuing sales and marketing
focus on anticipating and addressing customer needs and providing consistent,
high-level service has enabled it to become the industry market leader.

The Company provides a warranty to end users of substantially all of its
products, which generally covers a period of twelve months, but may be
extended under certain circumstances and for certain products. Under the
Company's warranty policy, the Company will repair or replace defective
products or components at its election. Costs of warranty service and product
replacements have not been material to the Company's financial results.

BACKLOG

At December 31, 1995 and 1996, the Company had backlogs of $4.9 million and
$10.0 million, respectively. At March 31, 1996 and 1997, the Company had a
backlog of $6.3 million and $16.4 million, respectively. Such

22
<PAGE>

backlogs consisted of orders received with a definite shipping date. The
Company believes that its backlog is not seasonal in nature. Backlog figures
are not necessarily indicative of sales or income for any full twelve-month
period.

MANUFACTURING

All of the Company's manufacturing operations, except for those relating to
Xenotech products, are conducted at its Omaha, Nebraska manufacturing
facility. The Company recently converted 10,000 square feet of its Omaha,
Nebraska manufacturing facility which was unusable for manufacturing into
usable space and added 20,000 square feet of manufacturing space to such
facility. The Company's manufacturing operations consist primarily of
engineering, quality control, testing, material planning, machining,
fabricating, assembly, and packaging and shipping. The Company believes that
Omaha's central location has served to reduce the Company's transportation
costs and delivery times of products to the East and West Coasts of the U.S.
The Company's manufacturing strategy is to (i) minimize costs through
manufacturing efficiencies, (ii) employ flexible assembly processes that allow
the Company to customize certain of its products and adjust the relative mix
of theatre and restaurant products to meet demand, (iii) reduce labor costs
through the increased use of computerized numerical control machines for the
machining of products and (iv) use outside contractors as necessary to meet
increased customer demand. In order to react effectively to customer demand
and to avoid shipment delays, the Company seeks to maintain an inventory of
components, materials and assembled products in quantities sufficient to meet
approximately four months of expected sales.

The Company currently manufactures the majority of the components used in
its products. The Company believes that its integrated manufacturing
operations help maintain the high quality of its products and its ability to
customize products to customer specifications. The principal raw materials and
components used in the Company's manufacturing processes include aluminum,
solid state electronic sub-assemblies and sheet metal. The Company utilizes a
single contract manufacturer for each of its film platters, intermittent
movement components and lenses for its commercial motion picture projection
equipment and aluminum kettles for its pressure fryers. See "Risk Factors--
Limited Sources for Certain Components."

QUALITY CONTROL

The Company believes that its design standards, quality control procedures,
and the quality standards for the materials and components used in its
products have contributed significantly to the reputation of its products for
high performance and reliability. The Company has implemented a quality
control program for its theatre and restaurant product lines which is designed
to ensure compliance with the Company's manufacturing and assembly
specifications and the requirements of its customers. Essential elements of
this program are the inspection of materials and components received from
suppliers and the monitoring and testing of all of the Company's products
during various stages of production and assembly.

RESEARCH AND DEVELOPMENT

The Company's ability to compete successfully depends, in part, upon its
continued close work with its existing and new customers. The Company focuses
its research and development efforts on the development of new products based
on its customers' requirements, including the development of products used for
special venues. The Company believes that the introduction of more special
venue products will provide opportunity for further growth, both domestically
and internationally.

COMPETITION

Although the Company has a leading position in the domestic motion picture
projection equipment market, the domestic and international markets for
commercial motion picture projection equipment are highly competitive. Major
competitors for the Company's motion picture projection equipment include
Christie Electric Corporation, Cinemeccanica SpA and Kinoton GmbH. In addition
to existing motion picture equipment

23
<PAGE>

manufacturers, the Company may also encounter competition from new
competitors, as well as from new types of equipment. No assurance can be given
that the equipment manufactured by the Company will not become obsolete as
technology advances. Certain of the Company's competitors for its motion
picture projection equipment have significantly greater resources than the
Company. The Company competes in the commercial motion picture projection
equipment industry primarily on the basis of quality, fulfillment and
delivery, price, after-sale technical support and product customization
capabilities.

The markets for the Company's long-range follow spotlight, other
illumination and restaurant products are highly competitive. The Company
competes in the illumination industry primarily on the basis of quality, price
and product line variety. The Company competes in the restaurant products
industry primarily on the basis of price and equipment design. Certain of the
Company's competitors for its long-range follow spotlights, other illumination
and restaurant products have significantly greater resources than the Company.
Competitors for the Company's long-range follow spotlight products include
Lycian, Ushio, Pani and Kupo.

PATENTS AND TRADEMARKS

The Company owns or otherwise has rights to trademarks used in conjunction
with the sale of its products. The following trademarks are considered
significant in terms of the current and contemplated operations of the
Company: "Strong(TM)," "Simplex(TM)," "Century(R)," "Optimax(R),"
"Ballantyne(TM)," "Super Trouper(R)," "Gladiator(TM)," "Roadie(TM),"
"Britelights(R)," "Xenotech(TM)," "Flavor Crisp(R)" and "Flavor Pit(R)." These
trademarks are protected by registration or common law in the U.S.The
"Century(R)" trademark is also protected by registration and common law in the
People's Republic of China, the United Kingdom and Australia. The Company's
registered trademarks expire between the years 1997 and 2008. ISCO-Optic is a
trademark of ISCO-Optic GmbH.

The Company believes that its success will not be dependent upon patent
protection, but rather upon its scientific and engineering "know-how" and
research and production techniques. To the knowledge of the Company, there are
no claims or suits threatened, pending or contemplated against it for
infringement of any patents or trademarks.

PROPERTIES

The Company's headquarters and main manufacturing facility are located at
4350 McKinley Street, Omaha, Nebraska, where it owns a building consisting of
approximately 160,000 square feet on approximately 10.5 acres. The premises
are used for offices and for the manufacture, assembly and distribution of its
products, other than those included within the Xenotech product line. The
Company recently converted 10,000 square feet of such facility which was
unusable for manufacturing into usable space and added 20,000 square feet of
manufacturing space to such facility. The Company's manufacturing facility for
Xenotech products is located at 7348 Bellaire Avenue, North Hollywood,
California, where it leases a building consisting of approximately 24,500
square feet on approximately one acre. The Company also leases a sales office
in San Dimas, California and a marketing, distribution and service facility in
Hong Kong.

EMPLOYEES

At June 24, 1997, the Company had a total of 275 employees of which three
were executive officers, 20 were managerial or supervisory personnel, 146 were
manufacturing or production personnel, 19 were product engineering, design and
development personnel, and 87 were administrative, sales, service or
warehousing and shipping employees. The Company is not a party to any
collective bargaining agreement and believes that its relationship with its
employees is good.

24
<PAGE>

LEGAL PROCEEDINGS

The Company is involved from time to time in litigation arising out of its
operations in the normal course of business. As of the date of this
Prospectus, there were no material pending legal proceedings to which the
Company was a party or to which any of its properties were subject.

ENVIRONMENTAL MATTERS

The Company's operations involve the handling and use of substances that are
subject to Federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the soil, air and water
and establish standards for their storage and disposal. A risk of
environmental liabilities is inherent in manufacturing activities. The Company
believes that it is in material compliance with environmental laws, but there
can be no assurance that future additional environmental compliance or
remediation obligations will not arise or that such operations could not have
material adverse effect on the Company. The Company does not anticipate any
material capital expenditures for environmental control facilities during
1997. See "Risk Factors--Environmental Matters."

25
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company at June 26, 1997 are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Arnold S. Tenney (1)................ 54 Chairman of the Board and Director
Ronald H. Echtenkamp (1)............ 63 Vice Chairman of the Board and Director
John P. Wilmers..................... 52 President, Chief Executive Officer and
Director
Ray F. Boegner...................... 47 Senior Vice President
Brad J. French...................... 44 Chief Financial Officer, Secretary and
Treasurer
Colin G. Campbell (1)(2)............ 41 Director
Jeffrey D. Chelin (2)............... 46 Director
Marshall S. Geller.................. 58 Director
Yale Richards (1)(2)................ 75 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

Arnold S. Tenney has been a director of the Company since 1988 and its
Chairman of the Board since 1992. Mr. Tenney has been a director, the
President and Chairman of the Board of ARC since 1978 and a director and the
Chairman of the Board of Cabletel since 1985. Cabletel is a leading broadline
supplier of equipment for the cable television industry in Canada and a
subsidiary of ARC. ARC and Cabletel are both publicly-traded companies. Mr.
Tenney is also Chairman of the Board of Canrad Inc., ARC Ice and Canrad
Delaware.

Ronald H. Echtenkamp has been a director of the Company since 1993, its
President from 1981 until February 28, 1997 and its Chief Executive Officer
from 1991 until February 28, 1997. Mr. Echtenkamp resigned as President and
Chief Executive Officer of the Company on February 28, 1997 and terminated his
full-time employment with the Company on May 1, 1997. In connection with his
resignation as President and Chief Executive Officer of the Company, Mr.
Echtenkamp was elected Vice Chairman of the Board. Mr. Echtenkamp joined the
Company as National Sales Manager for Restaurant Products in 1969 and was
appointed Vice President of Marketing for Restaurant and Theatre Products in
1979. Mr. Echtenkamp is a member of the Society of Motion Picture and
Television Engineers, Motion Picture Pioneers, Nebraska Variety Club, Theatre
Equipment Association, National Restaurant Association and National Food
Equipment Manufacturers.

John P. Wilmers has been a director of the Company since September 1995 and
served as Executive Vice President, Sales from 1992 until February 28, 1997.
On March 1, 1997, Mr. Wilmers was elected President and Chief Executive
Officer of the Company. Mr. Wilmers joined the Company in 1981 as National
Sales Manager for Theatre Products. He was promoted to Vice President in 1988.
He is the past President of the Theatre Equipment Association, a member of the
Nebraska Variety Club and a sustaining member of the Society of Motion Picture
and Television Engineers.

Ray F. Boegner has held various sales and marketing positions with the
Company since January 1985. In November 1996, Mr. Boegner was elected Senior
Vice President of the Company. He is responsible for and supervises the
Company's global sales and marketing activities. Mr. Boegner became an
executive officer of the Company on May 22, 1997.

Brad J. French joined the Company in 1990 as Controller and was named
Secretary and Treasurer in 1992. Mr. French was named Chief Financial Officer
of the Company in January 1996. Prior to joining the Company, Mr. French held
several accounting positions with UTBHL, Inc. (f/k/a Hanovia Lamp Inc.), a
subsidiary of Canrad Inc.

Colin G. Campbell has been a director of the Company since August 1995. Mr.
Campbell is a self-employed businessman based in Toronto, Ontario who has
provided financial advisory and consulting services through his company, The
Castlestone Company, to corporate clients since September 1993. From August
1990 to August

26
<PAGE>

1993, Mr. Campbell provided similar services through another consulting firm,
The Highbridge Group, a company of which Mr. Campbell was an owner. Prior to
becoming self-employed in August 1990, Mr. Campbell spent eleven years in
various commercial and investment banking positions with several Canadian
financial institutions, including Citibank Canada's venture capital
subsidiary.

Jeffrey D. Chelin has been a director of the Company since June 1995. Mr.
Chelin is the Vice President-Finance and Chief Financial Officer of ARC and
has served in that capacity since March 1992. From 1986 until February 1992,
Mr. Chelin served as Controller and Assistant Secretary of ARC. Mr. Chelin has
been a member of the board of directors of ARC since October 1986. He is
responsible for the overall financial management of ARC and its subsidiaries.
Mr. Chelin also serves as (i) a director and the Treasurer and Secretary of
Cabletel and (ii) a director, Vice President and the Secretary of Canrad Inc.,
ARC Ice and Canrad Delaware.

Marshall S. Geller has been a director of the Company since January 1996.
Mr. Geller is Chairman and Chief Executive Officer of Geller & Friend Capital
Partners, Inc. ("Geller & Friend"), a merchant banking firm, and has served in
such capacity since 1995. Mr. Geller was managing partner of Golenberg &
Geller, Inc. from 1991 through 1995. On May 31, 1995, Las Vegas Major League
Sports, Inc., a corporation of which Mr. Geller was a director and a
controlling shareholder, filed a petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code. Mr. Geller currently serves as a director of
Hexcel Corp., Players International, Inc., Styles on Video, Inc., Dycam, Inc.
and Value Vision, International, Inc.

Yale Richards has been a director of the Company since September 1995. Since
October 1994, Mr. Richards has been a senior partner in the law firm of Marks
Clare & Richards located in Omaha, Nebraska. From 1979 to September 1994, Mr.
Richards was a partner in the law firm of Richards Riekes & Zabin located in
Omaha, Nebraska. Mr. Richards has been engaged in the private practice of law
in Nebraska since 1947. Mr. Richards also has served as counsel to the Theatre
Equipment Association since 1971.

Under the Company's Certificate of Incorporation, the Board is divided into
three classes. Messrs. Tenney and Geller are Class I directors, Messrs.
Echtenkamp, Chelin and Richards are Class II directors, and Messrs. Wilmers
and Campbell are Class III directors. The terms of the Class I, Class II and
Class III directors expire at the annual meeting of stockholders to be held in
1999, 2000 and 1998, respectively. Officers are elected annually by the Board
and serve at the discretion of the Board.

BOARD POLICY REGARDING RELATED PARTY TRANSACTIONS

The Board has adopted a policy providing that (i) any contract or
transaction material to the Company, between the Company or any of its
subsidiaries and ARC or any of its Affiliates, or in which ARC or any of its
Affiliates has a financial interest, and any decisions regarding the
modification, renewal or enforcement of the terms of any such contract or
transaction, to the extent such contract or transaction is executed or such
modification, renewal or enforcement is effected subsequent to July 10, 1996
or (ii) the declaration of any dividend on the Common Stock of the Company
subsequent to July 10, 1996, must be approved by a majority of the Company's
Independent Directors. For the purpose of such policy, an "Affiliate" of ARC
means (a) any individual, corporation, partnership, association, trust, estate
or other entity or organization that directly or indirectly controls, is
controlled by or is under direct or indirect common control with ARC
(excluding the Company or any of its subsidiaries) or (b) any officer,
director or employee of ARC or any of its Affiliates (excluding the Company or
any of its subsidiaries), and "Independent Director" means a director of the
Company who is not an Affiliate of ARC.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company or ARC are not compensated for
serving as directors. Directors who are not employees of the Company or ARC
are paid $600 for attendance at meetings of the Board and $300 for all
meetings of the Board held by teleconference. Directors of the Company are
reimbursed for out-of-pocket expenses incurred in carrying out their duties as
directors. Outside directors are entitled to participate in the Company's
Outside Directors Stock Option Plan. See "--Employee Benefit Plans--Outside
Directors Plan."

27
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

There are no reportable compensation committee interlocks or insider
participation transactions.

EXECUTIVE COMPENSATION

The following table sets forth a summary of the compensation paid to the
Chief Executive Officer and three other executive officers of the Company
whose total compensation exceeded $100,000 for each of the fiscal years ended
December 31, 1996, 1995 and 1994.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- ------------------------------
AWARDS PAYOUTS
--------------------- -------
SECURITIES
OTHER RESTRICTED UNDERLYING ALL
NAME AND PRINCIPAL ANNUAL STOCK OPTIONS/ LTIP OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
------------------ ---- -------- -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald H. Echtenkamp,... 1996 $178,500(1) $320,676 $ -- $ -- 123,750 $ -- $ --
President, Chief Execu- 1995 202,500(1) 215,000 -- -- 123,750 -- --
tive 1994 202,500(1) 175,000 -- -- 25,000(4) -- --
Officer and Direc-
tor(2)(3)
John P. Wilmers,........ 1996 152,269 215,000 -- -- 66,000 -- --
Executive Vice 1995 139,050 100,786 -- -- 66,000 -- --
President, Sales and 1994 131,325 85,000 -- -- -- -- --
Director(2)(5)
Ray F. Boegner,......... 1996 95,275 80,000 -- -- 33,000 -- --
Senior Vice President 1995 88,065 50,000 -- -- 33,000 -- --
(2)(6)
1994 83,430 35,000 -- -- -- -- --
Brad J. French,......... 1996 88,065 60,000 -- -- 33,000 -- --
Chief Financial 1995 81,370 40,000 -- -- 33,000 -- --
Officer,
Secretary and Treasur- 1994 77,250 35,000 -- -- -- -- --
er(2)
</TABLE>
- --------
(1) Salary includes $24,000 for 1996 and $48,000 for 1995 and 1994 which has
been deferred pursuant to Mr. Echtenkamp's employment contract.
(2) Salary includes amounts paid by the Company pursuant to the Retirement and
Savings Plan equal to $4,500 per annum for Mr. Echtenkamp, $4,269, $4,050
and $3,825 in 1996, 1995 and 1994, respectively, for Mr. Wilmers, $2,775,
$2,565 and $2,430 in 1996, 1995 and 1994, respectively, for Mr. Boegner
and $2,565, $2,370 and $2,250 in 1996, 1995 and 1994, respectively, for
Mr. French. See "--Employee Benefit Plans--Retirement and Savings Plan."
(3) Mr. Echtenkamp served as President and Chief Executive Officer of the
Company during the fiscal years ended December 31, 1994, 1995 and 1996.
Mr. Echtenkamp continued to serve as President and Chief Executive Officer
of the Company until his resignation on February 28, 1997. In connection
with his resignation, Mr. Echtenkamp was elected to the office of Vice
Chairman of the Board and remains as a part-time consultant of the
Company.
(4) Award consists of an option to purchase common shares of ARC at an
exercise price of $3.00 per share through February 14, 1998.
(5) Mr. Wilmers served as Executive Vice President, Sales of the Company
during the fiscal years ended December 31, 1994, 1995 and 1996. Mr.
Wilmers continued to serve as Executive Vice President, Sales of the
Company until February 28, 1997. On March 1, 1997, Mr. Wilmers was elected
President and Chief Executive Officer of the Company.
(6) Mr. Boegner served as Vice President of Sales of the Company during the
fiscal years ended December 31, 1994 and 1995 and from January 1, 1996
until November 19, 1996. On November 20, 1996, Mr. Boegner became Senior
Vice President of the Company. On May 22, 1997, Mr. Boegner became an
executive officer of the Company.

There were no stock options granted during fiscal year 1996.

28
<PAGE>

The following table sets forth information with respect to exercised and
unexercised options and SARs, if any, during 1996.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
ACQUIRED FISCAL YEAR END (#) AT FISCAL YEAR END ($)
ON VALUE ---------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
- ------------------------ -------- -------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
Ronald H. Echtenkamp.... 0 0 25,000(1) 18,750(1)
123,750 1,152,113
John P. Wilmers......... 0 0 66,000 614,460
Ray F. Boegner.......... 0 0 33,000 307,230
Brad J. French.......... 0 0 33,000 307,230
</TABLE>
- --------
(1) Award consists of option to purchase common shares of ARC at an exercise
price of $3.00 per share through February 14, 1998.

There were no awards granted during 1996 under any long term incentive plan.
The Company does not maintain any defined benefit or actuarial plan.

Employment Contracts

Mr. Echtenkamp's employment agreement with the Company expired on March 31,
1997. This agreement entitles Mr. Echtenkamp to receive deferred compensation
in the amount of $5,000 per month for twenty-four months ending May 1, 1999.
The agreement restricts Mr. Echtenkamp from competing against the Company in
the U.S. until March 31, 2000 and further contains certain anti-solicitation
and confidentiality provisions.

Mr. Echtenkamp resigned as President and Chief Executive Officer of the
Company on February 28, 1997 and terminated his full-time employment with the
Company on May 1, 1997. In connection with his resignation as President and
Chief Executive Officer of the Company, Mr. Echtenkamp was elected Vice
Chairman of the Board and entered into a part-time consulting agreement with
the Company on March 3, 1997. Mr. Echtenkamp is required under the consulting
agreement to devote forty days of his time toward identifying potential
acquisition targets for the Company. As compensation for his services, Mr.
Echtenkamp receives $4,500 per month plus reimbursement for all out-of-pocket
expenses incurred on behalf of the Company. In the event that Mr. Echtenkamp
devotes more than forty days of his time under the consulting agreement, he
will receive additional compensation at the rate of $700 per day. Mr.
Echtenkamp's consulting agreement expires on December 31, 1997.

Mr. Wilmers entered into an employment agreement in January 1997, whereby he
became employed full-time as President and Chief Executive Officer of the
Company. The agreement is for a term of five years, subject to automatic
renewal for successive one-year periods and to earlier termination as provided
therein. The agreement, among other things, provides for an annual base salary
of $165,000 and entitles Mr. Wilmers to receive up to 40% of the annual bonus
pool established pursuant to the Profit Sharing Plan. The agreement also
contains a salary continuation provision in the event of a sale of the
Company, whether by a sale of stock or assets. Under the salary continuation
provision, if at the time of such sale the remaining term of the agreement is
less than three years, the purchaser of the Company has ninety days from the
closing date of the sale of the Company to elect to extend the term of the
agreement for a period of three years measured from the closing date of such
sale. In the event such election is not timely made, Mr. Wilmers is entitled
to receive his base salary following the termination of the agreement until
the expiration of three years following the closing date of the sale of the
Company.

29
<PAGE>

Mr. Boegner entered into an employment agreement in November 1996, whereby
he became employed full-time as Senior Vice President of the Company. The
agreement is for a term of five years, subject to automatic renewal for
successive one-year periods and to earlier termination as provided therein.
The agreement provides for, among other things, an annual base salary of
$105,000 beginning in 1997 and participation in the Profit Sharing Plan. The
agreement restricts Mr. Boegner from competing against the Company in the U.S.
for a period of three years following the termination or expiration of such
agreement and further contains certain anti-solicitation and confidentiality
provisions.

EMPLOYEE BENEFIT PLANS

Profit Sharing Plan

Mr. Echtenkamp participated during 1996 and Messrs. Wilmers, Boegner and
French participate in a management and sales bonus plan (the "Profit Sharing
Plan") pursuant to which such employees are entitled to earn annual cash
bonuses if the Company achieves specific levels of operating profit that are
established by the Board. The Profit Sharing Plan is calculated at 14% of
operating income (income before income taxes, but after management fees,
amortization of goodwill, other costs associated with acquisitions, and
interest on debt incurred with respect to acquisitions of businesses or of
plant and capital equipment) in excess of the Equity Threshold. For purposes
of the Profit Sharing Plan, the term "Equity Threshold" is defined as 20% of
the Company's book value at the beginning of the year for which the bonuses
are calculated. The calculation of the annual bonus pool is subject to the
approval of the Compensation Committee of the Board. The distribution of the
pool among members of management is determined by Mr. Wilmers subject to
approval by the Compensation Committee. The Chief Executive Officer, currently
Mr. Wilmers, is entitled to receive no more than 40% of the pool. The
restriction that no participant may receive an amount in excess of 150% of
such participant's base salary was eliminated retroactive to January 1, 1996
and Mr. Echtenkamp's employment contract was also revised to eliminate this
provision retroactive to January 1, 1996. Amounts paid to Messrs. Echtenkamp,
Wilmers, Boegner and French pursuant to the Profit Sharing Plan are included
in the Summary Compensation Table.

Retirement and Savings Plan

The Company has adopted a Retirement and Savings Plan (the "Retirement and
Savings Plan"), which is a combination savings and profit sharing plan
designed to qualify under Section 401 of the U.S. Internal Revenue Code of
1986, as amended (the "Code"), including the provisions of Section 401(k). All
full-time employees of the Company who are at least twenty-one years old and
who have completed one year of service are eligible to participate in the
Retirement and Savings Plan.

Each participant may contribute an amount up to 6% of such participant's
salary to the matching portion of the Retirement and Savings Plan, and such
participant may make supplemental contributions up to an additional 9% of such
participant's salary. These supplemental contributions are not eligible for
matching contributions from the Company. The Company's matching contribution
is $0.50 for each dollar contributed by the participant to the matching
portion of the Retirement and Savings Plan. In addition, the Company may
elect, in the discretion of the Board, to contribute an additional amount. All
contributions to the Retirement and Savings Plan are nonforfeitable. For 1996,
no participant was permitted to contribute more than $9,500 to the Retirement
and Savings Plan.

Benefits may be distributed to participants or their beneficiaries, as the
case may be, in the event of a participant's death, retirement or other
termination of service, or, if the participant so requests, on reaching age 59
1/2. Participants may be eligible to withdraw benefits in case of hardship.

Contributions to the Retirement and Savings Plan made by the Company on
behalf of Messrs. Echtenkamp, Wilmers, Boegner and French are included in the
Summary Compensation Table.

30
<PAGE>

Stock Option Plan

In September 1995, the Company adopted a stock option plan which provides
for the granting of incentive stock options ("ISOs") within the meaning of
Section 422 of the Code and for the granting of non-qualified stock options
("NQSOs") to employees, officers and directors and such other persons
rendering substantial services to the Company and its subsidiaries (the "Stock
Option Plan"). Only employees of the Company or any of its subsidiaries are
eligible to receive ISOs. The maximum aggregate number of shares of Common
Stock that may be issued under the Stock Option Plan is 1,060,000 (subject to
adjustment as described below). At June 26, 1997, the number of shares of
Common Stock which remained available for issuance under the Stock Option
Plan, after giving effect to the options to be exercised in connection with
the Offering, was 905,750, of which 480,500 were subject to outstanding
options.

The Stock Option Plan is administered by a committee (the "Stock Option Plan
Committee") consisting of not less than a number of "disinterested persons"
(as such term is defined in Rule 16b-3 under the Exchange Act) who are also
"outside directors" (within the meaning of Section 162(m) of the Code) so as
to qualify the Stock Option Committee to administer the Stock Option Plan as
contemplated by Rule 16b-3 and Section 162(m), respectively. The members of
the Stock Option Plan Committee are not permitted to participate in the Stock
Option Plan.

Subject to the express terms of the Stock Option Plan, the Stock Option Plan
Committee has the authority to administer the Stock Option Plan in its sole
and absolute discretion, including, but not limited to, the authority to
construe and interpret the Stock Option Plan and the authority to determine
the eligible individuals who shall be granted options and the number of
options to be granted (up to a maximum of 75,000 per participant in any
calendar year), the vesting period, if any, for all options granted, the date
on which any option becomes first exercisable, the number of shares of Common
Stock subject to each option, the exercise price for the shares of Common
Stock subject to each option and whether the option to be granted is an ISO or
a NQSO.

The per share exercise price of ISOs granted under the Stock Option Plan
cannot be less than the fair market value of a share of Common Stock on the
date of grant (110% of fair market value in the case of an ISO granted to any
person who, at the time the ISO is granted, owns (or is considered as owning
within the meaning of Section 424(d) of the Code) stock possessing more than
10% of the total combined voting powers of all classes of stock of the Company
or any parent or subsidiary (a "10% Owner")). With respect to NQSOs, the per
share exercise price will be determined by the Stock Option Plan Committee on
the date of grant, but will not be less than 85% of the fair market value of a
share of Common Stock on the date of grant. Each option shall vest and become
first exercisable as determined by the Stock Option Plan Committee. The terms
of options granted under the Stock Option Plan may not exceed ten years (or
five years for any incentive stock option granted to a 10% Owner).

In the event of a Change of Control (as defined in the Stock Option Plan),
unless otherwise determined by the Stock Option Plan Committee at the time of
grant or by amendment (with the holder's consent) of such grant, all options
not vested on or prior to the effective time of any such Change of Control
shall immediately vest as of such effective time. The Stock Option Plan
Committee in its discretion may make provisions for the assumption of
outstanding options, or the substitution for outstanding options of new
incentive awards covering the stock of a successor corporation or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices so as to prevent dilution or enlargement of rights. The
Stock Option Plan contains customary anti-dilution provisions which provide
that in the event of a recapitalization, a change in the outstanding capital
stock of the Company or certain other events, an adjustment shall be made, as
determined by the Stock Option Plan Committee in its sole discretion, in the
aggregate number of shares of Common Stock available for issuance under the
Stock Option Plan, the number of shares of Common Stock available for any
individual awards, and the number and exercise price of shares of Common Stock
subject to outstanding options under the Stock Option Plan.

Options granted under the Stock Option Plan are not assignable or
transferable except by will or the laws of descent and distribution. The Stock
Option Plan may be amended, suspended or terminated by the Board, except that:
(i) any revision or amendment that would cause the Stock Option Plan to fail
to comply with Rule 16b-3 of

31
<PAGE>

the Exchange Act, Sections 422 or 162(m) of the Code or any other requirement
of applicable law or regulation if not approved by stockholders shall not be
effective until such stockholder approval is obtained and (ii) no such action
may impair rights under a previously granted option unless consented to in
writing by such option holder. No options may be granted under the Stock
Option Plan after its tenth anniversary but options theretofore granted may
extend beyond such date.

Outside Directors Plan

In September 1995, the Company adopted an outside directors stock option
plan (the "Outside Directors Plan") which provides for the granting of NQSOs
to each director of the Company who: (i) is neither an employee nor an officer
of the Company or any subsidiary or affiliate of the Company on the date of
the grant of an option and (ii) has not elected to decline to participate in
the Outside Directors Plan pursuant to an irrevocable one-time election made
within 30 days after first becoming a director. Three directors currently
qualify as participants under the Outside Directors Plan. The maximum
aggregate number of shares of Common Stock that may be issued under the
Outside Directors Plan is 165,000 (subject to adjustment as described below).
At June 26, 1997, the number of shares of Common Stock which remained
available for issuance under the Outside Directors Plan, after giving effect
to the options to be exercised in connection with the Offering, was 141,000,
of which 50,250 were subject to outstanding options.

The Outside Directors Plan is administered by a committee (the "Outside
Directors Plan Committee") currently consisting of two individuals, Messrs.
Chelin and French. Members of the Outside Directors Plan Committee are not
entitled to participate in the Outside Directors Plan. Subject to the limits
imposed by the terms of the Outside Directors Plan, the Outside Directors Plan
Committee has the power to administer the Outside Directors Plan in its sole
and absolute discretion; provided, however, that the Outside Directors Plan
Committee has no authority to grant NQSOs, to determine the number of shares
of Common Stock subject to NQSOs or the price at which each share of Common
Stock covered by a NQSO may be purchased pursuant to the Outside Directors
Plan.

Pursuant to the terms of the Outside Directors Plan, amendments to which
were approved June 11, 1996, any person who is a non-employee director after
the effective date of the Outside Directors Plan shall be granted NQSOs to
purchase 24,750 shares of Common Stock (subject to adjustment as described
below) on the business day following such effective date. With respect to any
non-employee director who first becomes a member of the Board after the
effective date of the Outside Directors Plan, NQSOs shall be granted to
purchase 24,750 shares of Common Stock on the business day following his
election to the Board. Additional NQSOs to purchase 24,750 shares of Common
Stock will be granted automatically to each non-employee director on the next
business day after the third consecutive Annual Meeting of the Company's
Stockholders ("Annual Meeting") following his initial election to the Board
and on the next business day after every third Annual Meeting thereafter,
provided that the non-employee director is a member of the Board on the date
of such grant. NQSOs shall be granted in the aforesaid manner until the date
on which shares of Common Stock available for grant shall no longer be
sufficient to permit grants of NQSOs covering 24,750 shares of Common Stock to
be made to each non-employee director entitled to a grant as of such date, in
which event the shares of Common Stock then available for grant shall be
allocated on a pro rata basis among the non-employee directors entitled to a
grant of NQSOs as of such date. All NQSOs granted to non-employee directors
vest and become first exercisable at the rate of (i) 8,250 shares of Common
Stock on the next succeeding business day following such non-employee
director's initial election to the Board and (ii) 8,250 at the next business
day after each Annual Meeting thereafter. Each NQSO will have a term of five
years from the date of grant and will have a per share exercise price equal to
the fair market value of a share of Common Stock on the date of grant. This
provision may not be amended more than once every six months, other than to
comply with changes in the Code or the Employee Retirement Income Security Act
of 1974, as amended.

In the event of a Change of Control (as defined in the Outside Directors
Plan), unless otherwise determined by the Outside Directors Plan Committee at
the time of grant or by amendment (with the holder's consent) of such grant,
all NQSOs not vested on or prior to the effective time of any such Change of
Control shall immediately vest as of such effective time. The Outside
Directors Plan Committee in its discretion may make provisions for the
assumption of outstanding NQSOs, or the substitution for outstanding NQSOs of
new incentive

32
<PAGE>

awards covering the stock of a successor corporation or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices so as to prevent dilution or enlargement of rights; provided, however,
that no such adjustment shall be made if the adjustment would cause the
Outside Directors Plan to fail to comply with the "formula award" exception,
as set forth in Rule 16b-3(c)(2)(ii) under the Exchange Act, for grants of
NQSOs to non-employee directors. The Outside Directors Plan contains customary
anti-dilution provisions which provide that in the event of any
recapitalization, change in the Company's outstanding capital stock, or
certain other events, an adjustment shall be made, as determined by the
Outside Directors Plan Committee in its sole discretion, in the aggregate
number of shares of Common Stock available for issuance under the Outside
Directors Plan, the number of shares of Common Stock available for any
individual awards, and the number and exercise price of shares of Common Stock
subject to outstanding NQSOs under the Outside Directors Plan, provided,
however, that no such adjustment shall be made if the adjustment would cause
the Outside Directors Plan to fail to comply with the "formula award"
exception, as set forth in Rule 16b-3(c)(2)(ii) under the Exchange Act.

NQSOs are not assignable or transferable except by will or the laws of
descent and distribution. The Outside Directors Plan may be amended, suspended
or terminated by the Board, except that: (i) any revision or amendment that
would cause the Outside Directors Plan to fail to comply with Rule 16b-3 of
the Exchange Act or any other requirement of applicable law or regulation if
not approved by stockholders shall not be effective until stockholder approval
is obtained and (ii) no such action may impair rights under a previously
granted NQSO unless consented to in writing by such option holder. No options
may be granted under the Outside Directors Plan after its tenth anniversary
but NQSOs theretofore granted may extend beyond such date.

Employee Stock Purchase Plan

In October 1995, the Company adopted an employee stock purchase plan (the
"Employee Stock Purchase Plan") which qualifies as an "employee stock purchase
plan" under Section 423 of the Code. The purpose of the Employee Stock
Purchase Plan is to provide a method by which employees may purchase shares of
Common Stock on a discounted basis through payroll deductions. The Company has
reserved for issuance 150,000 shares of Common Stock under the Employee Stock
Purchase Plan (subject to adjustment as described below), of which 9,695
shares have been issued thereunder. All employees of the Company whose
customary employment is twenty hours or more per week and who have been in the
continuous employ of the Company for at least ninety days are eligible to
participate in the Employee Stock Purchase Plan. Notwithstanding the
foregoing, employees who own 5% or more of the Common Stock of the Company are
not eligible to participate in the Employee Stock Purchase Plan.

The Employee Stock Purchase Plan will be comprised of five consecutive
twelve-month offering periods (each, an "Offering Period"), each commencing on
the first business day in November for each of the years 1995 through 1999 and
ending on the last business day in October for each of the years 1996 through
2000. At the end of each Offering Period, each eligible employee who has
elected to participate in the Employee Stock Purchase Plan shall receive
shares of Common Stock in an amount determined by dividing the employee's
accumulated payroll deductions made during the Offering Period (which
deductions are restricted to a maximum of ten percent (10%) of an employee's
salary) by 85% of the average high and low market prices of a share of Common
Stock on the AMEX on the first day or the last day of the Offering Period,
whichever is lower. The maximum number of shares that may be purchased by an
employee in any Offering Period is 1,000 (subject to adjustment as described
below).

The Employee Stock Purchase Plan is administered by a committee (the
"Employee Stock Purchase Plan Committee") consisting of no less than two
members of the Board. Members of the Employee Stock Purchase Plan Committee
who are eligible employees will be permitted to participate in the Employee
Stock Purchase Plan. The Employee Stock Purchase Plan contains customary anti-
dilution provisions which provide that in the event of a recapitalization, a
change in the outstanding capital stock of the Company and certain other
events, an adjustment shall be made, as determined by the Employee Stock
Purchase Plan Committee, in the number and/or kind of shares which are subject
to purchase under outstanding options, the stock price applicable to such
outstanding options, and the number and/or kind of shares which may be offered
in each subsequent Offering Period.

33
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership at June 26, 1997, and as adjusted to reflect the sale of the Common
Stock offered hereby, by: (i) all persons known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each director and
executive officer of the Company, (iii) all directors and executive officers
of the Company as a group and (iv) each Selling Stockholder. Except as
otherwise noted, the Company believes that the persons listed below have sole
investment and voting power with respect to the Common Stock owned by them.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING OFFERING
(1)(2) (1)(2)(3)
OFFICERS, DIRECTORS AND --------------------- SHARES BEING -----------------
5% STOCKHOLDERS NUMBER PERCENT OFFERED (4) NUMBER PERCENT
- ----------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
ARC International Corpo-
ration................. 4,323,000(4) 50.2% 1,932,860 2,390,140 26.9%
4000 Chesswood Drive
Downsview, Ontario
Canada M3J 2B9
Arnold S. Tenney........ 183,975(5) 2.1 83,000(6) 100,975 1.1
Ronald H. Echtenkamp.... 146,673(7) 1.7 -- 146,673 1.6
John P. Wilmers......... 105,989(8) 1.2 -- 105,989 1.2
Ray F. Boegner.......... 61,989(9) * -- 61,989 *
Brad J. French.......... 43,971(10) * -- 43,971 *
Colin G. Campbell....... 24,750(11) * 12,000 12,750 *
Jeffrey D. Chelin....... 24,750(12) * 12,000 12,750 *
Marshall S. Geller...... 87,304(13) * 12,000(14) 28,590 *
Yale Richards........... 26,550(15) * -- 26,550 *
All Directors and Execu-
tive Officers as a
group (9 persons)...... 705,951(16) 7.7 119,000 540,237 5.8
<CAPTION>
OTHER SELLING
STOCKHOLDERS
- -------------
<S> <C> <C> <C> <C> <C>
Merita Bank Ltd......... 323,400(17) 3.6 108,000 215,400 2.4
Geller & Friend Capital
Partners, Inc.......... 46,714(18) * 46,714 -- --
Anthony Mazzarella...... 17,500(19) * 10,000 7,500 --
Steve Weinress.......... 1,130(20) * 1,130 -- --
Carl Frankson........... 3,503(21) * 3,503 -- --
Greg Presson............ 3,503(22) * 3,503 -- --
Kenneth Fader........... 75(23) * 75 -- --
Marge Goddard........... 75(24) * 75 -- --
</TABLE>
- --------
* Less than 1%
(1) Based upon 8,611,769 shares of Common Stock outstanding prior to the
Offering and 8,892,519 shares of Common Stock outstanding after the
Offering. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date of this
Prospectus upon exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person and that are exercisable within 60 days from
the date of this Prospectus have been exercised. However, the shares of
Common Stock so issuable upon such exercise by any such person are not
included in calculating the percentage of Common Stock beneficially owned
by any other stockholder.
(2) In connection with the Company's initial public offering, Canrad Delaware
and Messrs. Tenney, Echtenkamp, Wilmers, Campbell, Chelin and Richards
entered into an agreement with the managing underwriters of such offering
to vote, during the two-year period ending September 12, 1997, all shares
of voting capital stock of the Company beneficially owned by him or it in
the same proportion as the votes cast by persons other than such named
person's voting shares of the same class or series with respect to any
liquidation, merger or business combination in which the Company is not
the surviving entity, or the sale by the Company of all or substantially
all of its assets.
(3) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, the number of Shares Being
Offered, the number of Shares Beneficially Owned After the Offering and
the percentage of Shares Beneficially Owned After the Offering for ARC
would be 2,266,589, 2,056,411 and 23.1%, respectively. In the event the
Underwriters' over-allotment option is exercised in full, an additional
333,729 shares of Common Stock (the "Over-Allotment Shares") will be sold
by ARC Ice. The Over-Allotment Shares will be borrowed by ARC Ice from,
and will be sold under authority granted by, Canrad Delaware.

34
<PAGE>

(4) Consists of 1,932,860 shares of Common Stock (the "ARC Ice Shares") to be
sold by ARC Ice, a direct, wholly-owned subsidiary of ARC, pursuant to
the Offering and 2,618,000 shares of Common Stock owned directly by
Canrad Delaware, an indirect, wholly-owned subsidiary of ARC. The ARC Ice
Shares were borrowed from, and will be sold under authority granted by,
Canrad Delaware.
(5) Consists of 41,250 shares of Common Stock held indirectly by Mr. Tenney
through Arnmart Investments Limited ("Arnmart"), a corporation controlled
by Mr. Tenney and members of his family, 16,500 shares of Common Stock
owned directly by Mr. Tenney, 2,475 shares of Common Stock owned
indirectly by Mr. Tenney through his wife and 123,750 shares of Common
Stock underlying presently exercisable options. Does not include
4,323,000 shares of Common Stock owned beneficially by ARC.
(6) Consists of 71,750 shares of Common Stock underlying presently
exercisable options and 11,250 shares of Common Stock owned by Arnmart.
(7) Consists of 22,923 shares of Common Stock owned directly by Mr.
Echtenkamp and 123,750 shares of Common Stock underlying presently
exercisable options.
(8) Consists of 5,989 shares of Common Stock owned directly by Mr. Wilmers
and 100,000 shares of Common Stock underlying presently exercisable
options.
(9) Consists of 11,989 shares of Common Stock owned directly by Mr. Boegner
and 50,000 shares of Common Stock underlying presently exercisable
options.
(10) Consists of 4,971 shares of Common Stock owned directly by Mr. French and
39,000 shares of Common Stock underlying presently exercisable options.
(11) Consists of 24,750 shares of Common Stock underlying presently
exercisable options.
(12) Consists of 24,750 shares of Common Stock underlying presently
exercisable options.
(13) Consists of 15,840 shares of Common Stock held directly by Mr. Geller,
46,714 shares of Common Stock underlying presently exercisable option
granted to Geller & Friend, of which Mr. Geller is the Chief Executive
Officer and Chairman and 24,750 shares of Common Stock underlying
presently exercisable options.
(14) Consists of 12,000 shares of Common Stock underlying presently
exercisable options.
(15) Consists of 1,800 shares of Common Stock owned directly by Mr. Richards
and 24,750 shares of Common Stock underlying presently exercisable
options.
(16) Consists of 123,737 shares of Common Stock owned by directors and
executive officers and 582,214 shares of Common Stock underlying
presently exercisable options.
(17) Consists of 323,400 shares of Common Stock underlying a presently
exercisable warrant.
(18) Consists of 46,714 shares of Common Stock underlying a presently
exercisable option.
(19) Consists of 17,500 shares of Common Stock underlying a presently
exercisable option originally granted to Geller & Friend.
(20) Consists of 1,130 shares of Common Stock underlying a presently
exercisable option originally granted to Geller & Friend.
(21) Consists of 3,503 shares of Common Stock underlying a presently
exercisable option originally granted to Geller & Friend.
(22) Consists of 3,503 shares of Common Stock underlying a presently
exercisable option originally granted to Geller & Friend.
(23) Consists of 75 shares of Common Stock underlying a presently exercisable
option originally granted to Geller & Friend.
(24) Consists of 75 shares of Common Stock underlying a presently exercisable
option originally granted to Geller & Friend.

35
<PAGE>

CERTAIN TRANSACTIONS

MANAGEMENT AGREEMENT

The Company is a party to a management agreement (the "Management
Agreement") with Canrad Inc., pursuant to which Canrad Inc. provides services
to the Company relating to overall management and strategic planning and
direction, banking negotiations, treasury functions, investor relations,
securities regulatory compliance, employee and general business insurance
programs and asset acquisitions and sales. Pursuant to the Management
Agreement, Canrad Inc. makes available to the Company the services of Arnold
S. Tenney, as Chairman of the Board. Mr. Tenney shares primary responsibility
with the Company's Chief Executive Officer with respect to overall management
and strategic planning and direction, the identification, analysis and
consummation of acquisitions and investor relations. As compensation for its
services, Canrad Inc. receives a monthly fee of $25,000 and reimbursement for
its identifiable reasonable out-of-pocket expenses incurred in connection with
the performance of services under the Management Agreement. The Management
Agreement provides for an initial term of five years and thereafter is
automatically renewed for successive one-year periods until terminated by
either party upon 90 days' prior notice. During the initial term of the
Management Agreement, which expires on September 12, 2000, the payment terms
thereof may not be amended without the consent of the managing underwriters of
the Company's initial public offering. See Note 9 of Notes to Consolidated
Financial Statements. In the event that the Offering is consummated, the
Management Agreement will be amended, effective as of July 1, 1997, to reduce
the monthly fee due thereunder from $25,000 to $12,500.

CANRAD DIVIDEND

Concurrently with the Company's initial public offering in September 1995,
the Company paid a cash dividend of $8.0 million to Canrad Delaware, the
Company's former sole stockholder, which amount was used to repay Canrad
Inc.'s outstanding indebtedness under its revolving credit facility with
Merita Bank Ltd.

THE GELLER OPTION

The Company granted to Geller & Friend an option on December 22, 1995,
expiring on December 22, 2000, to purchase 82,500 shares of Common Stock at a
per share exercise price of $4.39 as consideration for strategic financial
services provided to the Company by Geller & Friend. A portion of this option
has been assigned to certain employees of Geller & Friend. A registration
statement filed under the Securities Act registering the resale of the 82,500
shares of Common Stock underlying the option was declared effective on March
6, 1997. The option has been exercised to the extent of 10,000 shares of
Common Stock. A portion of the shares of Common Stock underlying the option
granted to Geller & Friend are being sold in the Offering. Marshall S. Geller,
a director of the Company, is Chief Executive Officer and Chairman of Geller &
Friend. See "Principal and Selling Stockholders" and "Description of Capital
Stock--Warrant and Options to Purchase Common Stock."

INSURANCE COVERAGE

The Company is included in group health and business insurance programs
maintained by ARC and Canrad Inc. for all companies controlled by ARC and
Canrad Inc. The group health insurance plan is a self-insured minimum premium
plan that is administered through the Connecticut General Life Insurance
Company. The group health insurance plan provides for specific stop loss
coverage in the amount of $75,000 per employee per plan year and aggregate
stop loss based upon the head count of those covered under the plan, including
the Company's employees and certain ARC retirees. The aggregate stop loss
level for the group health insurance plan for the May 1, 1997 to April 30,
1998 plan year is approximately $933,000. The Company is charged premiums
which are a set dollar amount based on its monthly head count for the minimum
premium, stop loss and plan administration portions of the program and its
aggregate salary for long-term disability and term life coverage. The Company
is also charged for its claims incurred pursuant to the program.

The business insurance program provides coverage for workers' compensation
and employers liability, general liability, including products and completed
operations, property, automobile, umbrella and directors and officers
liability. The Company's portion of the business insurance premium is
calculated and charged to

36
<PAGE>

operations based upon its allocated share of the coverage provided to that of
the entire Canrad Inc. group. Such allocations are based primarily upon
aggregate payrolls, net sales, asset values and number of automobiles. Most of
the policies require annual audit and adjustment of deposit premiums for
differences between estimated values upon which deposit premiums have been
calculated and actual results. An additional premium is assessed in
circumstances where actual values exceed estimated values and a premium credit
is issued for instances where the estimated values exceed the actual values.

INTERCOMPANY PAYABLE

The Company, has been charged, for certain allocated expenses, including,
management fees, interest expense and income taxes, totalling approximately
$1.9 million, $1.5 million and $0.3 million for 1994, 1995 and 1996,
respectively. The Company reimburses these items using cash generated from its
operations.

OTHER

Yale Richards, a director of the Company, is a senior partner of Marks Clare
& Richards, a law firm which performs legal services for the Company from time
to time.

DESCRIPTION OF CAPITAL STOCK

The total number of shares the Company is authorized to issue is 26,000,000,
consisting of 25,000,000 shares of Common Stock, par value $0.01 per share,
and 1,000,000 shares of Preferred Stock, par value $0.01 per share. At June
26, 1997, there were 8,611,769 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by the stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of a majority of the shares of Common Stock voting for the
election of directors can elect all of the directors then up for election. The
holders of Common Stock are entitled to receive dividends, subject to the
senior rights of preferred stockholders, when, as and if declared by the Board
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining which are available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock having preference over the Common Stock. Holders
of shares of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are, and, upon
completion of the Offering, all shares of Common Stock offered hereby will be,
duly authorized, fully paid and nonassessable.

The Delaware General Corporation Law provides that stockholders may take
action without the holding of a meeting by written consent or consents signed
by the holders of a majority of the outstanding shares of the capital stock of
the Company entitled to vote thereon. Prompt notice of the taking of any
action without a meeting by less than unanimous consent of the stockholders
will be given to those stockholders who do not consent in writing to the
action. The purposes of this provision are to facilitate action by
stockholders and to reduce the corporate expense associated with annual and
special meetings of stockholders. Pursuant to the rules and regulations of the
Commission, if stockholder action is taken by written consent, the Company
will be required to send each stockholder entitled to vote on the matter acted
on, but whose consent was not solicited, an information statement containing
information substantially similar to that which would have been contained in a
proxy statement.

37
<PAGE>

WARRANT AND OPTIONS TO PURCHASE COMMON STOCK

As partial consideration for providing certain financial assistance in
connection with the Company's acquisition of the Cinema Products Division of
ORC, on September 12, 1995, the Company issued to Merita Bank Ltd a warrant
(the "Merita Warrant") to purchase up to 323,400 shares of Common Stock at a
per share exercise price equal to $3.94. The Merita Warrant first became
exercisable on October 12, 1996 and expires on September 12, 2000. The Company
has granted Geller & Friend an option, expiring on December 22, 2000, to
purchase 82,500 shares of Common Stock at an exercise price of $4.39 per share
as consideration for strategic financial services provided to the Company by
Geller & Friend. At June 26, 1997, the option had been exercised to the extent
of 10,000 shares of Common Stock. The Company has granted to Jaffoni & Collins
Incorporated an option to purchase 41,250 shares of Common Stock at an
exercise price of $4.24 per share as consideration for investor relations and
financial relations services provided to the Company. The option is currently
exercisable and terminates on October 7, 1999. A registration statement filed
under the Securities Act registering the resale of all of the shares of Common
Stock underlying the Merita Warrant and each of the aforesaid options was
declared effective on March 6, 1997. A portion of the shares of Common Stock
underlying the Merita Warrant and the option granted to Geller & Friend are
being sold in the Offering. See "Certain Transactions--The Geller Option,"
"Principal and Selling Stockholders" and "Shares Eligible for Future Sale."

PREFERRED STOCK

The Board is authorized, without further approval or action by the
stockholders, to issue shares of Preferred Stock in one or more series and to
determine the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and number of shares
constituting any series of Preferred Stock or the designation of such series.

The rights of the holders of Common Stock will generally be subject to the
prior rights of the holders of any outstanding shares of Preferred Stock with
respect to dividends, liquidation preferences and other matters. Among other
things, the Preferred Stock could be issued by the Company to raise capital or
finance acquisitions. The Preferred Stock could have certain anti-takeover
effects under certain circumstances. The issuance of shares of Preferred Stock
could enable the Board to render more difficult or discourage an attempt to
obtain control of the Company by means of a merger, tender offer or other
business combination transaction directed at the Company by, among other
things, placing shares of Preferred Stock with investors who might align
themselves with the Board, issuing new shares to dilute stock ownership of a
person or entity seeking control of the Company or creating a class or series
of Preferred Stock with class voting rights.

The Company has no current plans to issue any shares of its Preferred Stock.

DELAWARE ANTI-TAKEOVER LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 provides, with certain exceptions, that a
Delaware corporation may not engage in certain business combinations with a
person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless: (i) the transaction resulting in the acquiring
person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person
becomes an interested stockholder, (ii) the interested stockholder acquires
85% or more of the outstanding voting stock of the corporation in the same
transaction which makes it an interested stockholder (excluding shares owned
by directors who are also officers, and excluding certain employee stock
option plans) and (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Except as otherwise
specified in Section 203, an "interested stockholder" is defined as (a) any
person that is the owner of 15% or more of the outstanding voting stock of the
corporation, (b) any person that is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three year period immediately prior
to the date on which it is sought to be determined whether such person is an
interested stockholder or (c) the affiliates and associates of any such
person. By restricting the ability of the Company to engage in business

38
<PAGE>

combinations with an interested person, the application of Section 203 to the
Company may provide a barrier to hostile or unwanted takeovers. Under Delaware
law, the Company could have opted out of Section 203 but elected to be subject
to its provisions.

CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS

Classified Board of Directors. The Company's Certificate of Incorporation
and By-Laws provide that the Board shall be divided into three classes of
directors serving staggered terms. One class of directors will be elected at
each annual meeting of stockholders for a three-year term. See "Management--
Directors and Executive Officers." Thus, at least two annual meetings of
stockholders, instead of one, generally will be required to change the
majority of the Board. Directors can be removed from office only for cause and
only by the affirmative vote of at least 66 2/3% of the then outstanding
shares of capital stock entitled to vote generally in the election of
directors, voting as a single class. Vacancies on the Board may be filled only
by the remaining directors and not the stockholders. The foregoing provisions
may have the effect of making it more difficult to acquire control of the
Company by means of a hostile tender offer, open market purchases, a proxy
contest or otherwise.

Requirements for Advance Notification of Stockholder Nomination and
Proposals. The Company's By-Laws require 60 to 90 days' notice to the Company
with regard to stockholder proposals and the nomination, other than by or at
the direction of the Board or a committee thereof, of candidates for election
as directors. Such notice must provide specified information, including
information regarding the ownership of Common Stock by the person giving the
notice, information regarding the proposal or the nominees and information
regarding the interest of the proponent in the proposal or the nominations.

Special Meetings of Stockholders. The Company's Certificate of Incorporation
and By-Laws provide that special meetings of stockholders of the Company may
only be called by the Chairman of the Board, the President or a majority of
the then authorized number of directors. This provision precludes stockholders
from calling a special meeting and taking actions opposed by the Board.

Limitation of Director Liability. The Company's Certificate of Incorporation
limits the liability of directors to the Company or its stockholders to the
fullest extent permitted by Delaware law. Specifically, under current Delaware
law, a director will not be personally liable for monetary damages for breach
of the director's fiduciary duty of care as a director, except liability (i)
for a breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions by a director not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
liability arising under Section 174 of the Delaware General Corporation Law
(relating to the declaration of dividends and purchase or redemption of shares
in violation of the Delaware General Corporation Law) or (iv) for any
transaction from which the director derived an improper personal benefit. The
inclusion of this provision in the Company's Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care.

Supermajority Provisions. The Company's Certificate of Incorporation
provides that the vote of the Board or the affirmative vote of at least 66
2/3% of the then outstanding shares of capital stock entitled to vote
generally in the election of directors, voting as a single class, is required
to amend, repeal or alter any of the Company's By-Laws or the foregoing
provisions contained in the Company's Certificate of Incorporation.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC whose address is 85 Challenger Road, Overpeck
Center, Ridgefield Park, New Jersey 07660.

39
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock or the Company's ability to raise additional capital through sales of
its equity securities. Upon completion of this Offering, the Company will
have: (i) 2,390,140 shares owned by Canrad Delaware, (ii) 6,502,379 shares of
Common Stock outstanding owned by others, (iii) 1,046,750 shares of Common
Stock reserved for issuance upon the exercise of options under the Stock
Option Plan and the Outside Directors Plan, of which 530,750 are subject to
options outstanding as of the date of this Prospectus, (iv) an aggregate of
264,150 shares of Common Stock issuable pursuant to the Merita Warrant, the
option held by Geller & Friend and the option held by Jaffoni & Collins
Incorporated and (v) 140,305 shares of Common Stock reserved for issuance
pursuant to the Employee Stock Purchase Plan. Of the shares outstanding or
subject to outstanding options or the outstanding warrant, upon completion of
the Offering, 6,757,042 will be immediately eligible for resale in the public
market without restriction under the Securities Act, and substantially all of
the remaining shares will be eligible for resale in the public market subject
to compliance with the applicable provisions of Rule 144 under the Securities
Act.

All of the shares owned by Canrad Delaware, 89,564 shares owned by certain
officers and directors of the Company following the Offering, 304,000 shares
issuable to certain officers and directors of the Company pursuant to the
Company's stock option plans following the Offering and 264,150 shares
issuable pursuant to an outstanding warrant and other options to purchase
Common Stock are subject to "lock-up" agreements under which the holders
thereof have agreed not, directly or indirectly, to offer, sell, pledge,
contract to sell or otherwise dispose of such securities without the prior
written consent of Cowen & Company, on behalf of the Underwriters, for a
period of 90 days after the date of this Prospectus.

In general, under Rule 144 as currently in effect, a stockholder, including
an "affiliate" of the Company as that term is defined in Rule 144
("Affiliate"), who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least one year from the later of the
date such securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock (88,925 shares
immediately after this Offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the date on which notice
of such sale was filed under Rule 144, provided certain requirements
concerning availability of public information, manner of sale and notice of
sale are satisfied. In addition, under Rule 144(k), if a period of at least
two years has elapsed between the later of the date restricted securities were
acquired from the Company or (if applicable) the date they were acquired from
an Affiliate of the Company, a stockholder who is not an Affiliate of the
Company at the time of sale and has not been an Affiliate of the Company for
at least three months prior to the sale is entitled to sell the shares
immediately without compliance with the foregoing requirements under Rule 144.

A Form S-8 registration statement filed under the Securities Act registering
all shares of Common Stock issuable under the Stock Option Plan, Outside
Directors Plan and Stock Purchase Plan has been declared effective. A Form S-3
registration statement filed under the Securities Act registering the resale
of the shares of Common Stock issuable under the Merita Warrant and the
options granted to Geller & Friend and Jaffoni & Collins Incorporated has been
declared effective. Shares issued upon the exercise of the Merita Warrant and
the aforesaid options will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to Affiliates and the
"lock-up" agreements noted above.

All of the shares of Common Stock owned by Canrad Delaware, as well as the
stock of certain other subsidiaries of ARC (including Cabletel) have been
pledged to BNY to secure outstanding indebtedness under the BNY Facility. The
Company has been advised by ARC Ice and Canrad Delaware that, as of June 26,
1997, the principal amount of indebtedness outstanding under the BNY Facility
was approximately $10.5 million. In the event of a default under the BNY
Facility, BNY has certain rights as a secured creditor under the terms of the
BNY Facility to vote and to sell or otherwise dispose of the pledged shares,
including all or a portion of the shares of Common Stock. Although such shares
are subject to the "lock-up" agreements, Cowen & Company has agreed to consent
to sales thereof by BNY in the event of a default under the BNY Facility.

The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of the Common Stock in the public market could adversely affect the
market price of the Common Stock and could impair the Company's future ability
to raise capital or make acquisitions through an offering of its equity
securities.

40
<PAGE>

UNDERWRITING

Subject to the terms and conditions of an underwriting agreement dated as of
the date hereof (the "Underwriting Agreement"), the Selling Stockholders have
agreed to sell to each of the Underwriters named below, for whom Cowen &
Company and Prudential Securities Incorporated are acting as representatives
(the "Representatives"), and each of the Underwriters has severally agreed to
purchase from the Selling Stockholders the respective number of shares of
Common Stock set forth opposite the name of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
---- ------------
<S> <C>
Cowen & Company.............................................. 696,123
Prudential Securities Incorporated........................... 696,122
Donaldson, Lufkin & Jenrette Securities Corporation.......... 62,305
A.G. Edwards & Sons, Inc. ................................... 62,305
Hambrecht & Quist LLC........................................ 62,305
Lehman Brothers Inc. ........................................ 62,305
Oppenheimer & Co., Inc. ..................................... 62,305
PaineWebber Incorporated..................................... 62,305
Wasserstein Perella Securities, Inc. ........................ 62,305
Robert W. Baird & Co. Incorporated........................... 28,320
J.C. Bradford & Co. ......................................... 28,320
Crowell, Weedon & Co. ....................................... 28,320
L.H. Friend, Weinress & Frankson, Inc. ...................... 28,320
Furman Selz LLC.............................................. 28,320
Gerard Klauer Mattison & Co., LLC............................ 28,320
Edward D. Jones & Co., LLC................................... 28,320
J.W. Charles Securities, Inc. ............................... 28,320
C.L. King & Associates, Inc. ................................ 28,320
Kirkpatrick, Pettis, Smith, Polian Inc. ..................... 28,320
Nesbitt Burns Securities Inc. ............................... 28,320
Pennsylvania Merchant Group Ltd.............................. 28,320
Piper Jaffray Inc. .......................................... 28,320
Raymond James & Associates, Inc. ............................ 28,320
---------
Total...................................................... 2,224,860
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock offered hereby (other
than those covered by the over-allotment option described below), if any of
such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to the
public at the price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $0.57 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 per share to certain brokers and dealers. After the
shares of Common Stock are released for sale to the public, the offering price
and other selling terms may from time to time be varied by the
Representatives.

ARC Ice has granted the Underwriters an option, exercisable for up to 30
days after the date of this Prospectus, to purchase up to an aggregate of
333,729 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally

41
<PAGE>

agreed, subject to certain conditions, to purchase approximately the same
percentage thereof that the number of shares to be purchased by each of them
as shown in the foregoing table bears to the 2,224,860 shares of Common Stock
offered hereby. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the 2,224,860 shares of Common
Stock offered hereby.

The Company, ARC Ice, Canrad Delaware, ARC and Messrs. Tenney and Chelin
have, jointly and severally, agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
and to contribute to payments that the Underwriters may be required to make in
respect thereof.

The Company, the Selling Stockholders, certain of the Company's officers and
directors and certain stockholders and option holders have agreed not,
directly or indirectly, to offer, sell, pledge, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any right to acquire Common
Stock for a period of 90 days after the date of this Prospectus without the
prior written consent (which consent may be given without notice to the
Company's shareholders or other public announcement) of Cowen & Company.
Except as described with respect to shares of Common Stock pledged in
connection with the BNY Facility, Cowen & Company has advised the Company and
the Selling Stockholders that it has no present intention of releasing any of
the Company's stockholders or option holders from such lock-up agreements
until the expiration of such 90-day period. See "Shares Eligible for Future
Sale."

In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Stock
for their own account. In addition, to cover overallotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of the Common Stock in the open market. The Underwriters may also
reclaim selling concessions allowed to an underwriter or a dealer for
distributing the Common Stock in the Offering, if the Underwriters repurchase
previously distributed Common Stock in transactions to cover their short
positions, in stabilization transactions or otherwise. Finally, the
Underwriters may bid for, and purchase, shares of the Common Stock in market
making transactions and impose penalty bids. These activities may stabilize or
maintain the market price of the Common Stock above market levels that may
otherwise prevail. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.

LEGAL MATTERS

The legality of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Gordon Altman Butowsky
Weitzen Shalov & Wein, New York, New York. Certain legal matters in connection
with the Offering will be passed upon for the Underwriters by Willkie Farr &
Gallagher, New York, New York.

EXPERTS

The consolidated financial statements and schedule of Ballantyne of Omaha,
Inc. as of December 31, 1995 and 1996 and for each of the years in the three-
year period ended December 31, 1996, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

42
<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Incorporated herein by reference are the following documents on file with
the Securities and Exchange Commission (the "Commission"):

(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996;

(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;

(c) All other reports filed by the Company with the Commission pursuant
to Sections 13(a) or 15(d) of the Exchange Act since the end of the fiscal
year covered by the Annual Report referred to above; and

(d) The description of the Company's Common Stock contained in the
Company's registration statement filed with the Commission pursuant to
Section 12 of the Exchange Act and all amendments or reports thereto filed
for the purpose of updating such description.

All reports and other documents hereafter filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the filing of
a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities then remaining unsold,
shall hereby be deemed to be incorporated in and to be a part of this
Prospectus by reference from the date of filing of such documents. Any
statement contained herein or in a document or report incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for all purposes to the extent that a statement contained herein or
in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.

The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered upon the written or oral request
of any such person, a copy of any or all of the documents that have been or
may be incorporated by reference into this Prospectus, other than exhibits to
such documents (unless such exhibits are specifically incorporated by
reference in such documents). Requests for such copies should be directed to
Brad J. French, c/o the Company, 4350 McKinley Street, Omaha, Nebraska 68112,
Telephone No.: (402) 453-4444.

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith, is required to file reports, proxy statements and
other information with the Commission. Copies of such reports and other
information as filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
regional offices of the Commission: Midwest Regional Office, Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Northeastern
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov. The Common Stock
is listed on the AMEX. Reports, proxy statements and other information
concerning the Company may be inspected at the AMEX, 86 Trinity Place, New
York, New York 10006.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement"), of which this Prospectus forms a part,
covering the Common Stock to be sold pursuant to this Offering. As permitted
by the rules and regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the Registration
Statement. Such additional information, exhibits and undertakings can be
inspected at and obtained from the Commission at the above-referenced address.
For additional information with respect to the Company, the Common Stock and
related matters and documents, reference is made to the Registration
Statement. Statements contained herein concerning any such document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.

43
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and
(unaudited) March 31, 1997.............................................. F-3
Consolidated Statements of Income for the years ended December 31, 1994,
1995 and 1996 and (unaudited) three months ended March 31, 1996 and
1997.................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and (unaudited) three months ended
March 31, 1997.......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and (unaudited) three months ended March 31, 1996
and 1997................................................................ F-6
Notes to Consolidated Financial Statements for the years ended December
31, 1994, 1995 and 1996 and (unaudited) three months ended March 31,
1996 and 1997........................................................... F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Ballantyne of Omaha, Inc.

We have audited the accompanying consolidated balance sheets of Ballantyne
of Omaha, Inc. and subsidiaries as of December 31, 1995 and 1996 and the
related statements of income, stockholders' equity and cash flows for the
years ended December 31, 1994, 1995 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ballantyne
of Omaha, Inc. and subsidiaries at December 31, 1995 and 1996, and the results
of their operations and their cash flows for the years ended December 31,
1994, 1995 and 1996, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Omaha, Nebraska
January 10, 1997

F-2
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 204,172 $ 6,042,593 $ 6,258,708
Trade receivables, less allowance for
doubtful receivables of $118,003 in
1995, $143,000 in 1996 and $150,461 in
1997.................................... 5,713,141 9,090,616 8,343,123
Inventories.............................. 9,306,157 11,901,123 13,670,586
Deferred income taxes.................... 515,926 501,025 501,025
Other current assets..................... 51,873 103,702 32,210
----------- ----------- -----------
Total current assets................. 15,791,269 27,639,059 28,805,652
----------- ----------- -----------
Property, plant and equipment, at cost:
Land..................................... 313,500 313,500 313,500
Buildings and improvements............... 1,596,281 1,958,772 2,195,315
Machinery and equipment.................. 3,193,963 4,230,702 4,321,702
----------- ----------- -----------
5,103,744 6,502,974 6,830,517
Less accumulated depreciation............ 2,169,125 2,639,165 2,764,505
----------- ----------- -----------
Net property, plant and equipment.... 2,934,619 3,863,809 4,066,012
Goodwill, other intangibles and other as-
sets, net............................... 1,102,314 959,352 940,800
----------- ----------- -----------
$19,828,202 $32,462,220 $33,812,464
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Intercompany payable to parent........... $ 135,588 $ 93,140 $ 141,566
Current installments of long-term debt... 839,508 308,107 --
Accounts payable......................... 3,680,020 5,759,722 5,447,882
Accrued expenses......................... 1,444,937 1,655,883 1,330,141
Income taxes payable..................... 1,066,532 79,754 909,256
----------- ----------- -----------
Total current liabilities............ 7,166,585 7,896,606 7,828,845
----------- ----------- -----------
Deferred income taxes...................... 386,472 386,472 386,472
Long-term debt, excluding current install-
ments..................................... 7,219,930 150,195 --
Stockholders' equity:
Preferred stock, par value $0.01 per
share; authorized 1,000,000 shares...... -- -- --
Common stock, par value $0.01 per share;
authorized 10,000,000 shares; issued and
outstanding--6,599,993 shares in 1995,
8,569,785 shares in 1996 and 1997....... 66,000 85,698 85,698
Additional paid-in capital............... 4,989,215 18,906,556 18,906,556
Retained earnings........................ -- 5,036,693 6,604,893
----------- ----------- -----------
Total stockholders' equity........... 5,055,215 24,028,947 25,597,147
----------- ----------- -----------
Commitments and contingencies.............. -- -- --
----------- ----------- -----------
$19,828,202 $32,462,220 $33,812,464
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $28,758,446 $38,441,396 $51,753,864 $11,362,637 $14,724,814
Cost of sales........... 20,127,039 27,450,688 36,396,527 8,174,415 10,368,767
----------- ----------- ----------- ----------- -----------
8,631,407 10,990,708 15,357,337 3,188,222 4,356,047
Selling expenses........ 2,298,961 2,401,337 2,711,744 652,936 563,544
General and
administrative
expenses............... 1,902,137 2,979,738 4,035,709 845,744 1,302,224
Management fee charged
by affiliate........... 241,188 300,000 300,000 75,000 75,000
----------- ----------- ----------- ----------- -----------
Income from
operations........... 4,189,121 5,309,633 8,309,884 1,614,542 2,415,279
Net interest income
(expense).............. (108,977) (277,323) (363,508) (186,105) 53,180
Interest expense charged
by affiliate........... (129,690) -- -- -- --
----------- ----------- ----------- ----------- -----------
Income before income
taxes................ 3,950,454 5,032,310 7,946,376 1,428,437 2,468,459
Income taxes............ 1,595,614 1,991,985 2,909,683 566,263 900,259
----------- ----------- ----------- ----------- -----------
Net income............ $ 2,354,840 $ 3,040,325 $ 5,036,693 $ 862,174 $ 1,568,200
=========== =========== =========== =========== ===========
Net income per share.... $ 0.30 $ 0.42 $ 0.62 $ 0.13 $ 0.17
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... -- $60,000 $ 3,602,714 $3,997,336 $ 7,660,050
Net income.............. -- -- -- 2,354,840 2,354,840
----- ------- ----------- ---------- -----------
Balance at December 31,
1994................... -- 60,000 3,602,714 6,352,176 10,014,890
Cash dividend paid...... -- -- -- (8,000,000) (8,000,000)
Net income.............. -- -- -- 3,040,325 3,040,325
Issuance of 10% stock
distribution declared
January 23, 1996, pay-
able March 8, 1996..... -- 6,000 1,386,501 (1,392,501) --
----- ------- ----------- ---------- -----------
Balance at December 31,
1995................... -- 66,000 4,989,215 -- 5,055,215
Issuance of 1,897,500
shares of common stock
August 1, 1996, net of
offering expenses...... -- 18,975 13,631,812 -- 13,650,787
Issuance of 57,750
shares of common stock
upon exercise of stock
options................ -- 578 226,922 -- 227,500
Issuance of 14,543
shares of Common Stock
under the Employees
Stock Purchase Plan.... -- 145 58,607 -- 58,752
Net income.............. -- -- -- 5,036,693 5,036,693
----- ------- ----------- ---------- -----------
Balance at December 31,
1996 .................. -- 85,698 18,906,556 5,036,693 24,028,947
Net Income.............. -- -- -- 1,568,200 1,568,200
----- ------- ----------- ---------- -----------
Balance at March 31,
1997................... -- $85,698 $18,906,556 $6,604,893 $25,597,147
===== ======= =========== ========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $2,354,840 $3,040,325 $5,036,693 $ 862,174 $1,568,200
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation of
plant and
equipment.......... 344,434 371,818 470,040 110,875 150,997
Other amortization.. 186,909 139,919 137,080 33,926 37,175
Deferred income
taxes.............. (86,821) (172,189) 14,901 -- --
Changes in assets and
liabilities of net
assets acquired:
Trade receivables... 276,012 (1,720,755) (3,377,475) (1,578,462) 747,493
Inventories......... (175,335) (1,443,621) (2,594,966) (1,325,736) (1,769,463)
Other current
assets............. 9,502 2,499 (51,829) 16,786 71,492
Accounts payable.... 21,135 1,210,988 2,083,256 1,632,728 (311,840)
Accrued expenses.... 492,813 118,227 207,392 (325,086) (325,742)
Income taxes
payable............ 10,076 882,015 (986,778) (345,295) 829,502
Other assets........ (15,918) (7,039) 5,882 (18,468) (18,623)
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities......... 3,417,647 2,422,187 944,196 (936,558) 979,191
---------- ---------- ---------- ---------- ----------
Cash flows from
investing activities:
Purchase of net
assets............... (100,000) -- -- -- --
Capital expenditures.. (246,784) (244,108) (1,016,930) (34,596) (353,200)
---------- ---------- ---------- ---------- ----------
Net cash used in
investing
activities......... (346,784) (244,108) (1,016,930) (34,596) (353,200)
---------- ---------- ---------- ---------- ----------
Cash flows from
financing activities:
Repayments of long-
term debt and
revolving credit
facility............. (1,282,960) (1,676,635) (7,983,436) 1,118,587 (458,302)
Cash dividend paid.... -- (8,000,000) -- -- --
Proceeds from
revolving credit
facility............. -- 8,000,000 -- -- --
Net proceeds from
equity offering...... -- -- 13,650,787 -- --
Proceeds from employee
stock purchase....... -- -- 58,752 -- --
Proceeds from exercise
of options........... -- -- 227,500 -- --
Change in intercompany
payable to parent.... (1,555,048) (557,278) (42,448) (11,532) 48,426
---------- ---------- ---------- ---------- ----------
Net cash used in
financing
activities......... (2,838,008) (2,233,913) 5,911,155 1,107,055 (409,876)
Net increase (decrease)
in cash................ 232,855 (55,834) 5,838,421 135,901 216,115
Cash at beginning of
period................. 27,151 260,006 204,172 204,172 6,042,593
---------- ---------- ---------- ---------- ----------
Cash at end of period... $ 260,006 $ 204,172 $6,042,593 $ 340,073 $6,258,708
========== ========== ========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1997 IS UNAUDITED)

1. THE COMPANY

Ballantyne of Omaha, Inc., a Delaware corporation ("Ballantyne" or the
"Company"), and its wholly-owned subsidiaries Strong International Inc.,
Ballantyne Fabricators, Inc., Xenotech Rental Corp. and Flavor Crisp of
America Inc., develop, manufacture and distribute commercial motion picture
equipment, follow spotlights and restaurant equipment. The Company's products
are distributed worldwide through a domestic and international dealer network
and are sold to major movie exhibition companies, sports arenas, auditoriums,
amusement parks, special venues, restaurants, supermarkets and convenience
food stores. A majority (50.4%) of the Company's common stock is owned by
Canrad of Delaware Inc. ("Canrad"), which is an indirect wholly owned
subsidiary of ARC International Corporation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

a. Basis of Presentation

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

The unaudited information as of March 31, 1997 and for the three months
ended March 31, 1996 and 1997 have been prepared in conformity with generally
accepted accounting principles and include all adjustments which are, in the
opinion of management, necessary to a fair presentation of the results for the
interim periods presented. All such adjustments are, in the opinion of
management, of a normal, recurring nature.

b. Inventories

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

c. Goodwill and Other Intangibles

The excess of cost over the fair value of assets of business acquired is
stated at cost less accumulated amortization and is being amortized on a
straight-line basis over the expected periods to be benefited, 5 to 25 years.
Accumulated amortization as of December 31, 1995 and 1996 amounted to $584,875
and $632,983, respectively, and $645,010 as of March 31, 1997. The Company
assesses and would recognize any deficiency of the recoverability of this
intangible asset by determining whether the amortization of the asset balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operations.

Other intangibles, including a noncompete agreement, are stated at cost less
accumulated amortization and are amortized on a straight-line basis over the
estimated useful lives or stated contract terms which include periods ranging
from 4 to 17 years. Accumulated amortization as of December 31, 1995 and 1996
amounted to $324,705 and $419,559, respectively, and $444,707 as of March 31,
1997.

d. Depreciation

Depreciation of plant and equipment is provided over the estimated useful
lives of the respective assets using the straight-line method. Charges are
made to operations in amounts sufficient to write off the cost of such assets
over their estimated useful lives.

e. Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying

F-7
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

f. Revenue Recognition

The Company recognizes revenue from product sales upon shipment to the
customer.

g. Research and Development

Research and development costs are charged to operations in the period
incurred. Such costs charged to operations amounted to $326,338, $362,690 and
$484,527 for the years ended December 31, 1994, 1995 and 1996, respectively,
and $103,925 and $143,651 for the three months ended March 31, 1996 and 1997,
respectively.

h. Fair Value of Financial Instruments

Statement of Financial Accounting Standards SFAS No. 107 "Disclosure about
Fair Value of Financial Instruments," defines the fair value of a financial
instrument as the amount at which the instruments could be exchanged into a
current transaction between willing parties. Cash, trade receivables,
intercompany payable to parent, debt and accounts payable reported in the
consolidated balance sheet equal or approximate fair values.

i. Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

3. COMMON STOCK

a. Equity Offering

On August 1, 1996, the Company completed an offering of its shares of
capital stock pursuant to a Registration Statement on Form S-1 ("the
Offering"). Pursuant to the Offering, the Company sold 1,100,000 shares of
Common Stock to the public at the price of $12.125 per share. In addition, the
Company granted the Underwriters an option, exercisable until August 31, 1996
to purchase an aggregate of up to 165,000 additional shares of Common Stock at
$12.125 price per share less underwriting discounts and commissions, to cover
over-allotments, if any. The underwriters purchased all 165,000 shares on
August 16, 1996. The net proceeds to the Company from the Offering were
$13,650,787.

b. Initial Public Offering

On September 6, 1995, the Company completed the initial public offering of
its shares of capital stock pursuant to its Registration Statement on Form S-1
(the "IPO"). Pursuant to the IPO, Canrad, the holder of record of all of the
outstanding shares of capital stock of Ballantyne, sold 1,200,000 shares of
Ballantyne common stock to the public at an IPO price of $6.50. In connection
with the IPO, on June 30, 1995, the Company effected a 400,000-to-1 stock
exchange which has been given retroactive effect in the accompanying
consolidated statements of stockholders' equity. The authorized common stock
of Ballantyne was increased from 100,000 shares to 10,000,000 shares and the
10 issued shares increased to 4,000,000 shares. As a result, $40,000 was
transferred from additional paid-in capital to common stock. In addition, the
Company is authorized to issue up to 1,000,000 shares of preferred stock,
$0.01 par value.

F-8
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On October 2, 1995, an additional 180,000 shares of Ballantyne were sold by
Canrad at the IPO price of $6.50.

Share information and per share prices have not been adjusted for the stock
distribution or stock split for the above offerings.

4. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies............ $6,708,016 $ 8,888,123 $10,220,419
Work in process....................... 1,167,433 2,184,945 1,981,160
Finished goods........................ 1,430,708 828,055 1,469,007
---------- ----------- -----------
$9,306,157 $11,901,123 $13,670,586
========== =========== ===========
</TABLE>

5. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Industrial Development Revenue Bonds, bearing
interest at 7.9%, due in monthly installments
of $19,336 including principal and interest,
maturing October 1998. The bonds are secured
by the Company's facility and letters of
credit paid in full at March 31, 1997......... $ 556,194 $361,193 --
$10,000,000 revolving credit facility with
Norwest Bank Nebraska, N.A., bearing interest
at prime (8.25% at December 31, 1996) due
September 30, 2000. The credit facility is
secured by all of the Company's assets. Paid
in full....................................... 7,090,000 -- --
Capital lease obligations bearing interest
rates ranging from 8.125% to 8.9%. Paid in
full.......................................... 225,229 -- --
Note payable to Optical Radiation Corporation,
with imputed interest of 10%, payable in
annual installments of $100,000 including
principal and interest, matured March 1997.... 188,015 97,109 --
---------- -------- ----
Total long-term debt....................... 8,059,438 458,302 --
Less current installments of long-term debt.... 839,508 308,107 --
---------- -------- ----
Long-term debt, excluding current
installments.................................. $7,219,930 $150,195 --
========== ======== ====
</TABLE>

The Norwest Bank Nebraska, N.A. revolving credit facility (the "Norwest
Facility") initially provides for a borrowing commitment of up to $10,000,000.
The commitment will reduce by $500,000 on the first and second anniversary
dates of such facility and $1,000,000 on the third and fourth anniversary
dates thereof. The entire amount outstanding under the Norwest Facility will
mature on August 30, 2000. At December 31, 1996 and March 31, 1997, $9,500,000
was available for borrowing under the Norwest Facility. Amounts repaid under
the Norwest Facility are available for reborrowing. The Company initially
borrowed $8,000,000 under the Norwest Facility for a dividend payment to
Canrad. The Norwest Facility contains certain restrictive covenants which
include, among other matters, a prohibition on the payment of dividends and
requirements relating to working capital, current ratios, debt service ratios,
total debt to tangible net worth ratios and tangible net worth. At December
31, 1996, the Company was in compliance with the covenants.

F-9
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Industrial Development Revenue Bonds agreement and the letter of credit
securing the agreement contain certain restrictive covenants which include,
among other matters, requirements relating to working capital, net worth,
maintenance of debt-to-equity, interest coverage and current ratios and a
restriction on the payment of cash dividends. The Company was in compliance
with such covenants. The letter of credit is for $603,324 at December 31,
1996. Such amount reduces as monthly payments are made. The annual commission
with respect to the letter of credit is 1.375% of the average outstanding
balance.

Annual maturities of long-term debt at December 31, 1996 are as follows:
1997--$308,107 and 1998--$150,195.

6. INCOME TAXES

The provision for income taxes consists of:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -----------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $1,350,460 $1,846,255 $2,623,375 $496,557 $834,996
State................. 331,975 292,639 267,400 66,850 74,054
Foreign............... -- 25,280 4,007 2,856 (8,791)
Deferred--Federal..... (86,821) (172,189) 14,901 -- --
---------- ---------- ---------- -------- --------
$1,595,614 $1,991,985 $2,909,683 $566,263 $900,259
========== ========== ========== ======== ========

Actual tax expense differs from the "expected" tax expense (computed by
applying the U.S. Federal corporate tax rate of 34% to income before income
taxes) as follows:

<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -----------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
expense................ $1,343,154 $1,710,985 $2,701,768 $485,669 $839,276
State income taxes, net
of Federal benefit..... 219,105 193,142 176,484 44,121 48,876
Goodwill and other non-
deductible
amortization........... 33,355 16,356 16,356 4,089 4,089
Other................... -- 71,502 15,075 32,384 8,018
---------- ---------- ---------- -------- --------
$1,595,614 $1,991,985 $2,909,683 $566,263 $900,259
========== ========== ========== ======== ========
</TABLE>
The deferred tax liability and deferred tax assets were comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax liability--Depreciation.............. $386,472 $386,472 $386,472
Deferred tax assets:
Inventory reserves.............................. 326,641 299,025 299,025
Accounts receivable reserve..................... 40,131 48,620 48,620
Other........................................... 149,154 153,380 153,380
-------- -------- --------
515,926 501,025 501,025
-------- -------- --------
Net deferred tax asset............................ $129,454 $114,553 $114,553
======== ======== ========
</TABLE>

F-10
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

There was no valuation allowance for deferred tax assets of December 31,
1995, 1996 or March 31, 1997. Based upon the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax planning strategies,
management believes it is more likely than not the Company will realize the
benefits of deferred tax assets as of December 31, 1996.

7. SUPPLEMENTAL CASH FLOW INFORMATION

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

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- --------- ---------
(UNAUDITED)
Interest paid........... $ 238,667 $ 225,773 $ 353,039 $ 186,105 $ 11,182
========== ========== ========== ========= ========
Income taxes paid....... $1,578,104 $1,282,159 $3,878,500 $ 908,500 $ 70,757
========== ========== ========== ========= ========

Other noncash activities in 1994 included the incurrence of approximately
$476,200 of long-term debt for the purchase of Westrex Company, Asia
("Westrex"). In addition, the Company incurred approximately $96,000 of
additional capital lease obligations in exchange for equipment. Other noncash
activities in 1995 included approximately $129,400 of additional capital lease
obligations in exchange for equipment. Other noncash activities in 1996
included approximately $382,300 of additional capital lease obligations in
exchange for equipment.

8. RETIREMENT PLANS

The Company sponsors a defined contribution plan (the "Plan") for all
employees. Pursuant to the provisions of the Plan, employees may defer up to
6% of their compensation. The Company will match 50% of the amount deferred.
An additional amount of up to 9% of the employee's compensation for the year
may also be deferred with no matching contribution by the Company. The
contributions made to the Plan by the Company for the years ended December 31,
1994, 1995 and 1996 amounted to $83,625, $91,984 and $99,826, respectively,
and $22,493 and $27,355 for the three months ended March 31, 1996 and 1997,
respectively.

9. RELATED PARTY TRANSACTIONS

The following amounts were charged to operations of Ballantyne by Canrad:

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- --------- ---------
(UNAUDITED)
Management fees......... $ 241,188 $ 300,000 $ 300,000 75,000 75,000
Interest expense........ 129,690 -- -- -- --
Federal and Nebraska
state income taxes..... 1,553,639 1,225,211 -- -- --

One of the Board of Directors, who was appointed during 1995, serves as
General Counsel for the Company. Fees paid to the Board member's firm in 1995
and 1996 were not significant.

10. ACQUISITIONS

a. Purchase of Westrex Company, Asia

On December 2, 1994, the Company acquired certain assets, primarily accounts
receivable and inventories, of Westrex, a wholly owned subsidiary of Litton
Systems Inc. ("Litton"), for a purchase price of approximately $576,200. The
purchase was made for $100,000 in cash and a note in the amount of
approximately $476,200 to Litton. From its Hong Kong location, Westrex sells
and services theater equipment in Hong Kong and other

F-11
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

countries of the Pacific Rim. Annual revenues of Westrex are approximately
$2,800,000. No goodwill was recorded in connection with the acquisition. This
acquisition has been treated as a purchase and, accordingly, the Company's
consolidated financial statements reflect the operations of Westrex beginning
December 1, 1994.

b. Purchase of Xenotech, Inc. (Unaudited)

On April 30, 1997, the Company purchased certain net assets, primarily
accounts receivable, inventories and fixed assets of Xenotech, Inc.
("Xenotech") for a purchase price of approximately $1,000,000. The purchase,
which was effective as of April 1, 1997, was paid for through cash flow from
operations. The purchase price has been assigned to the assets acquired based
upon the fair market value of such assets. No goodwill was recorded in
connection with the acquisition. Xenotech produces, sells and rents a complete
line of stationary searchlights and computer operated lighting systems for the
motion picture production, television, live entertainment, theme parks and
architectural industries.

In addition, the Company entered into a five-year non-compete agreement with
Richard Hart, Xenotech's founder and sole proprietor. The agreement is for a
total of $250,000 payable by the Company in equal installments of $50,000. The
present value of the noncompete payments has been included as part of the
total purchase price.

11. INDUSTRY SEGMENT INFORMATION

The Company's operations are conducted principally through two segments:
Theatre and Restaurant. Theatre operations include the design, manufacture,
assembly and sale of motion picture projectors, xenon lamphouses and power
supplies, sound systems, follow spotlights and the sale of film handling
equipment and lenses. Restaurant includes the design, manufacture, assembly
and sale of pressure fryers, smoke ovens and rotisseries and sale of
seasonings, marinades and barbeques sauces, mesquite and hickory woods and
point of purchase displays.

Export sales principally to customers in Mexico, Canada, Europe and Asia
were $6,150,800, $8,390,200 and $11,304,800 for 1994, 1995 and 1996,
respectively, and $1,851,800 and $3,309,000 for the three months ended March
31, 1996 and 1997, respectively. No one customer represented more than 10% of
consolidated net sales for the year ended December 31, 1994. For the year
ended December 31, 1995, sales to one customer represented approximately ten
percent (10%) of consolidated net sales. The balance in trade accounts
receivables owed by this customer was $957,000 at December 31, 1995. Sales to
one customer represented approximately sixteen percent (16%) of consolidated
net sales in the year ended December 31, 1996. The balance in trade accounts
receivable owed by this customer was $1,062,100 at December 31, 1996.
Financial instruments which potentially expose the Company to a concentration
of credit risk principally consist of accounts receivable. The Company sells
products 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.

It should be noted that industry segment information may be of limited
usefulness in comparing an industry segment of the Company with a similar
industry segment of another enterprise.

F-12
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Selected information by major industry segment is summarized below for 1994.
The restaurant segment does not represent ten percent (10%) of combined
revenue, operating profit or identifiable assets in 1995 or 1996 or in the
three months ended March 31, 1996 and 1997.

<TABLE>
<CAPTION>
DECEMBER 31, 1994 THEATRE RESTAURANT TOTAL
----------------- ----------- ---------- -----------
<S> <C> <C> <C>
Net sales................................... $25,731,253 $3,027,193 $28,758,446
=========== ========== ===========
Operating income............................ $ 4,123,846 $ 65,275 $ 4,189,121
=========== ========== ===========
Interest expense............................ $ 238,667
===========
Income before income taxes.................. $ 3,950,454
===========
Depreciation and amortization:
Plant and equipment....................... $ 309,991 $ 34,443 $ 344,434
=========== ========== ===========
Other..................................... $ 181,677 $ 5,232 $ 186,909
=========== ========== ===========
Identifiable assets......................... $14,915,128 $1,759,273 $16,674,401
=========== ========== ===========
Capital expenditures........................ $ 212,502 $ 34,282 $ 246,784
=========== ========== ===========
</TABLE>

12. CAPITAL STOCK

a. Option Plans

The Company has adopted a 1995 Incentive and Non-Incentive Stock Option Plan
(the "1995 Stock Option Plan") and a 1995 Non-Employee Directors Non-Incentive
Stock Option Plan (the "1995 Directors Stock Option Plan" and collectively
with the 1995 Stock Option Plan, the "Plans"). A total of 825,000 shares of
Ballantyne common stock have been reserved for issuance pursuant to the Plans.
The 1995 Stock Option Plan provides for the granting of incentive and non-
incentive stock options. The 1995 Directors Stock Option Plan provides for the
granting of non-incentive stock options only. The per share exercise price of
incentive stock options may not be less than 100% of the fair market value of
a share of Ballantyne common stock on the date of grant (110% of fair market
value in the case of an incentive stock option granted to any person who, at
the time the incentive stock option is granted, owns (or is considered as
owning within the meaning of Section 424 (d) of the Internal Revenue Code of
1986, as amended) stock possessing more than 10% of the total combined voting
powers of all classes of stock of the Company or any parent or subsidiary).
With respect to non-incentive stock options, the per share exercise price may
not be less than 85% of the fair market value of a share of Ballantyne common
stock on the date of grant.

Information as to shares subject to the Plans is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE
OPTIONS PER OPTION PRICE
--------- -------------- --------
<S> <C> <C> <C>
Options outstanding at December 31, 1994..... -- -- --
Granted...................................... 750,750 $3.94-$4.39 $4.01
------- ----------- -----
Options outstanding at December 31, 1995..... 750,750 3.94-4.39 4.01
Granted...................................... 24,750 4.85 4.85
Exercised.................................... (57,750) 3.94 3.94
------- ----------- -----
Options outstanding at December 31, 1996..... 717,750 $3.94-$4.85 $4.04
======= =========== =====
Exercisable options at December 31, 1996..... 717,750 $3.94-$4.85 $4.04
======= =========== =====
</TABLE>

F-13
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has also adopted the 1995 Employee Stock Purchase Plan. The 1995
Employee Stock Purchase Plan 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 and participants are limited to purchasing
1,000 shares of Ballantyne common stock in any offering period. 150,000 shares
of Ballantyne common stock have been reserved pursuant to the 1995 Employee
Stock Purchase Plan.

The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plan and the exercise price of all options issued have
equaled the market value of the stock on the date of grant. Accordingly, no
compensation cost has been recognized for any of the aforementioned stock
compensation plans. Had compensation cost for the Company's stock compensation
plans been determined consistent with FASB Statement No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Net income:
As reported............................................ $3,040,325 $5,036,693
Pro forma.............................................. $2,062,200 $3,059,454
Primary earnings per share:
As reported............................................ $ 0.42 $ 0.62
Pro forma.............................................. $ 0.19 $ 0.29
</TABLE>

The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996: dividend yield of 0.0 percent;
expected volatility of 75 percent; risk-free interest rate of 6.15 percent;
and expected lives of ten years for the 1995 Incentive and Non-Incentive Stock
Option Plan options and three to five years for the other stock compensation
plans.

All per share and number of share information has been adjusted for the 10%
stock distribution issued on March 8, 1996 as well as the 3-for-2 stock split
issued on March 5, 1997.

b. Warrants

The Company has granted Merita Bank Ltd, the primary lending bank of Canrad,
a warrant to purchase 323,400 shares of Ballantyne common stock. The warrant
is exercisable at a per share price of $3.94. All shares subject to the
warrant are exercisable at March 31, 1997. The number of shares under warrant
and the per share price have been adjusted for the effect of the 10% stock
distribution issued on March 8, 1996 and the 3-for-2 stock split issued on
March 5, 1997.

c. Change of Control

A substantial portion of the shares of Ballantyne common stock owned by
Canrad are pledged to secure Canrad's obligation under a credit facility
provided by Merita Bank Ltd. During the period, if any, that one or more
events of default shall have occurred and are continuing under such credit
facility, Merita Bank Ltd. shall have the right to sell all or any portion of
such pledged shares at one or more public or private sales called and
conducted in any manner permitted by the New York Uniform Commercial Code. The
sale of all or a substantial portion of such pledged shares could result in a
change of control of Ballantyne.

F-14
<PAGE>

BALLANTYNE OF OMAHA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. NET INCOME PER SHARE

Net income per share is based on the weighted average number of common
shares outstanding. The effects of the assumed exercise of outstanding stock
options and warrants have been included in the income per share calculation
for the period that the shares were assumed issued using the treasury stock
method. Net income per share also reflects the effect of the assumed interest
expense less related tax effects of the $8,000,000 borrowing pursuant to the
Norwest Bank revolving credit facility which is assumed to be outstanding as
of the beginning of the earliest period presented, with no repayment being
made during 1994 and 1995.

Weighted average shares outstanding amounted to 6,600,000 for the year ended
December 31, 1994, 6,654,344 for the year ended December 31, 1995 and
8,094,417 for the year ended December 31, 1996 and 6,880,731 and 9,340,702 for
the three months ended March 31, 1996 and 1997, respectively.

The Company's Board of Directors declared a 3-for-2 stock split of the
Company's common stock on January 29, 1997. The stock split was in the form of
a 50% common stock dividend payable March 5, 1997 to shareholders of record on
February 10, 1997. As a result of the stock split, Ballantyne's outstanding
shares of common stock increased to approximately 8,569,785 at December 31,
1996. Per share data have been restated to reflect this stock split as of the
earliest period presented. The Company's Board of Directors declared a 10%
stock distribution on January 23, 1996, which was issued on March 8, 1996, to
shareholders of record on February 9, 1996. This stock distribution resulted
in the issuance of 600,000 shares of common stock. Per share data have been
restated to reflect these stock distributions as of the earliest period
presented. The stock distribution is not considered a distribution of earnings
except to the extent that the Company has retained earnings, but rather had
the effect of increasing the number of outstanding shares.

14. COMMITMENTS AND CONTINGENCIES

The Company has in place a profit sharing plan for key management employees.
Amounts due pursuant to the plan are based upon the attainment of specific
operating levels that are established by the Board of Directors. Amounts
charged to operations pursuant to the profit sharing plan amounted to
$425,052, $538,247 and $913,676 for 1994, 1995 and 1996, respectively and
$142,501 and $232,400 for the three months ended March 31, 1996 and 1997,
respectively. The amounts payable of $538,247 and $913,676 at December 31,
1995 and 1996, respectively, and $232,400 at March 31, 1997 are included in
accrued expenses in the accompanying consolidated balance sheets.

During 1994, the Company entered into a deferred compensation agreement with
its President and Chief Executive Officer providing for monthly payments of
$5,000 commencing with his date of retirement or death and continuing for
twenty-four months thereafter. Deferred compensation expense was approximately
$48,000 for the years ended December 31, 1994 and 1995 and $24,000 for the
year ended December 31, 1996 and $12,000 and $0 for the three months ended
March 31, 1996 and 1997, respectively. No amounts payable under the agreement
are vested.

F-15
<PAGE>

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No dealer, salesperson or other person has been authorized to give any
information or to make any representations in connection with the Offering
other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company, any of the Selling Stockholders or the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the shares of Common Stock offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby, to any person in any jurisdiction
in which such an offer or solicitation would be unlawful. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any circumstance,
create any implication that there has been no change in the affairs of the
Company or that the information contained herein is correct as of any date
subsequent to the date hereof.

--------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ........................................................ 3
Risk Factors............................................................... 6
Use of Proceeds............................................................ 10
Price Range of Common Stock................................................ 10
Dividend Policy............................................................ 10
Capitalization............................................................. 11
Selected Consolidated Financial Data ...................................... 12
Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................................................ 13
Business................................................................... 17
Management................................................................. 26
Principal and Selling Stockholders......................................... 34
Certain Transactions....................................................... 36
Description of Capital Stock............................................... 37
Shares Eligible for Future Sale............................................ 40
Underwriting............................................................... 41
Legal Matters.............................................................. 42
Experts.................................................................... 42
Incorporation of Certain Documents by
Reference................................................................. 43
Additional Information..................................................... 43
Index to Consolidated Financial Statements................................. F-1
</TABLE>

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2,224,860 Shares

[LOGO] BALLANTYNE OF OMAHA, INC.

Common Stock

--------------

PROSPECTUS

--------------

COWEN & COMPANY

PRUDENTIAL SECURITIES INCORPORATED

June 26, 1997

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