Utah
(State or Other Jurisdiction of
Incorporation or Organization)
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87-0278175
(I.R.S. Employer
Identification No.)
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770 Komas Drive, Salt Lake City, Utah
(Address of Principal Executive Offices)
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84108
(Zip Code)
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Registrant's Telephone Number, Including Area Code: (801) 588-1000
|
Large accelerated filer [ ]
|
Accelerated filer [ ]
|
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
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Smaller reporting company [X]
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March 28,
|
December 31,
|
|||||||
2014
|
2013
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 4,818 | $ | 3,376 | ||||
Restricted cash
|
1,001 | 1,020 | ||||||
Marketable securities
|
119 | 229 | ||||||
Accounts receivable, less allowances for doubtful receivables of $305
and $277, respectively |
5,147 | 5,552 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts
|
1,560 | 2,391 | ||||||
Inventories, net
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2,971 | 3,025 | ||||||
Prepaid expenses and deposits
|
588 | 568 | ||||||
Total current assets
|
16,204 | 16,161 | ||||||
Property, plant and equipment, net
|
7,349 | 7,405 | ||||||
Goodwill
|
635 | 635 | ||||||
Definite-lived intangible assets, net
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104 | 115 | ||||||
Other assets
|
1,307 | 1,386 | ||||||
Total assets
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$ | 25,599 | $ | 25,702 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 778 | $ | 1,433 | ||||
Accrued liabilities
|
1,169 | 1,183 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts
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4,513 | 3,358 | ||||||
Customer deposits
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2,006 | 2,157 | ||||||
Current portion of retirement obligations
|
519 | 531 | ||||||
Current portion of long-term debt
|
3,057 | 2,995 | ||||||
Total current liabilities
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12,042 | 11,657 | ||||||
Pension and retirement obligations, net of current portion
|
23,565 | 23,567 | ||||||
Long-term debt, net of current portion
|
2,316 | 2,362 | ||||||
Deferred rent obligation
|
1,518 | 1,514 | ||||||
Total liabilities
|
39,441 | 39,100 | ||||||
Commitments and contingencies
|
||||||||
Stockholders' deficit:
|
||||||||
Preferred stock, no par value: 10,000,000 shares authorized;
no shares outstanding
|
- | - | ||||||
Common stock, $0.20 par value: 30,000,000 shares authorized; 11,441,666 shares issued
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2,288 | 2,288 | ||||||
Additional paid-in capital
|
54,489 | 54,484 | ||||||
Common stock in treasury, at cost: 352,467 shares
|
(4,709 | ) | (4,709 | ) | ||||
Accumulated deficit
|
(48,403 | ) | (47,852 | ) | ||||
Accumulated other comprehensive loss
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(17,507 | ) | (17,609 | ) | ||||
Total stockholders' deficit
|
(13,842 | ) | (13,398 | ) | ||||
Total liabilities and stockholders' deficit
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$ | 25,599 | $ | 25,702 |
Three Months Ended
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||||||||
March 28,
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March 29,
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|||||||
2014
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2013
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|||||||
Sales
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$ | 6,672 | $ | 4,707 | ||||
Cost of sales
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4,528 | 3,397 | ||||||
Gross profit
|
2,144 | 1,310 | ||||||
Operating expenses:
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||||||||
Selling, general and administrative
|
1,748 | 1,565 | ||||||
Research and development
|
560 | 670 | ||||||
Pension
|
209 | 208 | ||||||
Total operating expenses
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2,517 | 2,443 | ||||||
Operating loss
|
(373 | ) | (1,133 | ) | ||||
Other expense, net
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(169 | ) | (214 | ) | ||||
Loss before income tax provision
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(542 | ) | (1,347 | ) | ||||
Income tax provision
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(9 | ) | (10 | ) | ||||
Net loss
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$ | (551 | ) | $ | (1,357 | ) | ||
Net loss per common share – basic and diluted
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$ | (0.05 | ) | $ | (0.12 | ) | ||
Weighted average common shares outstanding – basic and diluted
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11,089 | 11,089 | ||||||
Comprehensive loss:
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||||||||
Net loss
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$ | (551 | ) | $ | (1,357 | ) | ||
Other comprehensive income (loss), net of tax:
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||||||||
Reclassification of realized gains from sale of marketable securities to net loss
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- | (15 | ) | |||||
Unrealized gain on marketable securities
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- | 22 | ||||||
Reclassification of pension expense to net loss
|
102 | 182 | ||||||
Other comprehensive income, net of tax
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102 | 189 | ||||||
Total comprehensive loss
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$ | (449 | ) | $ | (1,168 | ) |
Three Months Ended
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||||||||
March 28,
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March 29,
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|||||||
2014
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2013
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|||||||
Cash flows from operating activities:
|
||||||||
Net loss
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$ | (551 | ) | $ | (1,357 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
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||||||||
Depreciation and amortization
|
128 | 172 | ||||||
Provision for excess and obsolete inventory
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40 | 91 | ||||||
Amortization of deferred pension expense
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102 | 182 | ||||||
Other
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101 | 71 | ||||||
Change in assets and liabilities:
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||||||||
Decrease (increase) in restricted cash
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19 | (93 | ) | |||||
Decrease (increase) in accounts receivable, net
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368 | (622 | ) | |||||
Decrease (increase) in inventories
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14 | (404 | ) | |||||
Decrease in costs and estimated earnings in excess of billings
on uncompleted contracts
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1,986 | 1,950 | ||||||
Decrease in prepaid expenses and deposits
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59 | 135 | ||||||
Increase (decrease) in accounts payable
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(655 | ) | 117 | |||||
Decrease in accrued liabilities
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(10 | ) | (32 | ) | ||||
Decrease in pension and retirement obligations
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(14 | ) | (156 | ) | ||||
Decrease in customer deposits
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(151 | ) | (395 | ) | ||||
Net cash provided by (used in) operating activities
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1,436 | (341 | ) | |||||
Cash flows from investing activities:
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||||||||
Purchases of property, plant and equipment
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(61 | ) | (8 | ) | ||||
Proceeds from sale of marketable securities
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110 | 135 | ||||||
Net cash provided by investing activities
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49 | 127 | ||||||
Cash flows from financing activities:
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||||||||
Principal payments on long-term debt
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(43 | ) | (41 | ) | ||||
Net cash used in financing activities
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(43 | ) | (41 | ) | ||||
Net increase (decrease) in cash and cash equivalents
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1,442 | (255 | ) | |||||
Cash and cash equivalents as of beginning of the period
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3,376 | 2,111 | ||||||
Cash and cash equivalents as of end of the period
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$ | 4,818 | $ | 1,856 | ||||
Non-cash investing and financing activities:
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||||||||
Reclassification of realized gains from sale of marketable securities to net loss
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$ | - | $ | (15 | ) | |||
Unrealized gain on marketable securities
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- | 22 | ||||||
Supplemental Disclosures of Cash Flow Information:
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||||||||
Cash paid for interest
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$ | 130 | $ | 132 | ||||
Cash paid for income taxes
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39 | 24 |
March 28,
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December 31,
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|||||||
2014
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2013
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|||||||
Raw materials
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$ | 5,353 | $ | 5,587 | ||||
Work in process
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456 | 234 | ||||||
Finished goods
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221 | 223 | ||||||
Reserve for obsolete inventory
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(3,059 | ) | (3,019 | ) | ||||
Inventories, net
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$ | 2,971 | $ | 3,025 |
March 28, 2014
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Total
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Level 1
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Level 2
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Level 3
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||||||||||||
Mutual funds – debt securities
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$ | 76 | $ | 76 | $ | - | $ | - | ||||||||
Money market mutual funds
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43 | 43 | - | - | ||||||||||||
Total
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$ | 119 | $ | 119 | $ | - | $ | - | ||||||||
December 31, 2013
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Total
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Level 1
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Level 2
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Level 3
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||||||||||||
Mutual funds – debt securities
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$ | 183 | $ | 183 | - | - | ||||||||||
Money market mutual funds
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46 | 46 | - | - | ||||||||||||
Total
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$ | 229 | $ | 229 | $ | - | $ | - | ||||||||
Weighted-
|
||||||||
Average
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||||||||
Number
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Exercise
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|||||||
of Shares
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Price
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|||||||
Outstanding as of beginning of the period
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1,235 | $ | 2.62 | |||||
Granted
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200 | 0.13 | ||||||
Exercised
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- | - | ||||||
Forfeited or expired
|
(58 | ) | 4.44 | |||||
Outstanding as of end of the period
|
1,377 | 2.18 | ||||||
Exercisable as of the end of the period
|
1,036 | $ | 2.87 |
Risk-free interest rate
|
0.74 | % | ||
Dividend yield
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0.00 | % | ||
Volatility
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340 | % | ||
Expected life
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3.5 years
|
Pension Plan
|
Supplemental Executive Retirement Plan
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|||||||||||||
For the three months ended:
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March 28, 2014
|
March 29, 2013
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March 28, 2014
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March 29, 2013
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||||||||||
Service cost
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$ | - | $ | - | $ | - | $ | - | ||||||
Interest cost
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569 | 398 | 55 | 41 | ||||||||||
Expected return on assets
|
(574 | ) | (460 | ) | - | - | ||||||||
Amortization of actuarial loss
|
101 | 177 | 12 | 17 | ||||||||||
Amortization of prior year service cost
|
- | - | (12 | ) | (12 | ) | ||||||||
Settlement charge
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- | - | - | - | ||||||||||
Net periodic benefit expense
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96 | 115 | 55 | 46 | ||||||||||
Insurance premium due PBGC
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58 | 47 | - | - | ||||||||||
$ | 154 | $ | 162 | $ | 55 | $ | 46 |
For the Three Months Ended
|
||||||||
March 28, 2014
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March 29, 2013
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|||||||
Sales
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$ | 6,672 | $ | 4,707 | ||||
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Gross Profit
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For the Three Months Ended
|
||||||||
March 28, 2014
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March 29, 2013
|
|||||||
Gross profit
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$ | 2,144 | $ | 1,310 | ||||
Gross profit percentage
|
32 | % | 28 | % | ||||
For the Three Months Ended
|
||||||||
March 28, 2014
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March 29, 2013
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|||||||
Selling, general and administrative
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$ | 1,748 | $ | 1,565 | ||||
Research and development
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560 | 670 | ||||||
Pension
|
209 | 208 | ||||||
Total operating expenses
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$ | 2,517 | $ | 2,443 |
For the Three Months Ended
|
||||||||
March 28, 2014
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March 29, 2013
|
|||||||
Total other expense, net
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$ | 169 | $ | 214 |
31.1 |
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herewith.
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31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herewith.
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32.1
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Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
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101
|
The following materials from this Quarterly Report on Form 10-Q for the periods ended March 28, 2014, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Loss, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.
|
Date: May 9, 2014 | By: |
/s/ Paul Dailey
|
Paul Dailey, Chief Financial Officer
|
||
and Corporate Secretary
|
||
(Authorized Officer)
|
||
(Principal Financial and Accounting Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Evans & Sutherland Computer Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Evans & Sutherland Computer Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: May 9, 2014
|
By:
|
/s/ David H. Bateman
|
David H. Bateman
|
||
Chief Executive Officer
|
Date: May 9, 2014
|
By:
|
/s/ Paul L. Dailey
|
Paul L. Dailey
|
||
Chief Financial Officer
|
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4. Employee Retirement Benefit Plans
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 28, 2014
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4. Employee Retirement Benefit Plans | 4. EMPLOYEE RETIREMENT BENEFIT PLANS
Distress Termination Application
On January 7, 2013, the Company submitted a Pension Benefit Guaranty Corporation (PBGC) Form 600 Distress Termination, Notice of Intent to Terminate, to the PBGC. The notice filing initiated an application process by the Company with the PBGC for the distress termination of the Pension Plan. The Pension Plan benefits are guaranteed by the ERISA Title IV insurance fund, which is administered by the PBGC. The Company proposed a termination date of March 8, 2013. Through the application process, the Companys intent has been to demonstrate to the PBGC that it qualifies for a distress termination of the Pension Plan under either of two of the criteria of Section 4041(c)(2) of ERISA (inability to continue in business absent termination and unreasonably increased pension costs) and applicable PBGC regulations. To satisfy the criteria, the Company and its wholly owned subsidiary each must demonstrate to the satisfaction of the PBGC that, unless the termination occurs, the Company will be unable to pay its debts when they come due and will be unable to continue in business, or that the costs of the Pension Plan have become unreasonably burdensome solely as a result of a decline in the workforce covered by the Pension Plan. A distress termination under Section 4041(c)(2) of ERISA would transfer the Pension Plans benefit obligations to the PBGC, up to ERISA guaranteed limits, without requiring reorganization under bankruptcy law. The Pension Plans actuary has informed the Company that following termination of the Plan and subject to the PBGCs review of participant benefits, all of the benefits earned by participants as of the date of plan termination are expected to fall within ERISA guaranteed limits.
If the distress termination application is approved, the Companys unfunded obligation of the Pension Plan would be replaced by a new Pension Plan termination liability to the PBGC, determined by the Pension Plans underfunding on a termination basis pursuant to ERISA, PBGC regulations, and other applicable legal authority, along with an ERISA special termination premium. The Company would also be liable for any unpaid contributions to the Pension Plan (which in substance is a subset of plan termination liability) and annual insurance premiums for the Pension Plan, along with any interest and penalties. While the full Pension Plan termination liability and other pension related liabilities due to the PBGC would likely be greater than the unfunded obligation of the Pension Plan as currently reported in the Companys financial statements, the Company is in discussions with the PBGC to negotiate a settlement of such liabilities on terms that are feasible for the Company to continue in business as a going concern, which is consistent with the purposes of the statute.
The Companys goal in seeking a distress termination of the Pension Plan is to ensure that the pension benefits of all Pension Plan participants are paid up to federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from bankruptcy reorganization. The Company has been pursuing a conclusion of the process and a settlement of the resulting liabilities. Based upon recent correspondence with the PBGC, the Company believes that the application process will likely result in a settlement of the Pension Plan liabilities on terms that will enable the Company to continue to operate as a going concern. However, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome.
Employer Contributions
Through September 15, 2012, the Companys funding policy was to contribute to the Pension Plan trust amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. Beginning in October 2012, the Company discontinued this policy in order to preserve the necessary liquidity for its operations. As a result, a lien in favor of the PBGC has arisen against the assets of the Company to secure aggregate unpaid contributions which amount to $3,346, including interest, as of April 15, 2014. Independent actuarial valuations have determined that additional contributions of approximately $4,200 will become due through April 15, 2015. The Companys legal counsel has advised that the PBGC usually does not take enforcement action under its lien rights while it is still considering the application for the distress termination which is consistent with the Companys dialog with the PBGC through the application process. Based upon recent correspondence with the PBGC, the Company believes that the application process will likely result in a settlement of the Pension Plan liabilities on terms that will enable the Company to continue to operate as a going concern, although there can be no assurance as to the timing and ultimate outcome of such settlement discussions.
The Company is not currently required to fund the Supplemental Executive Retirement Plan (SERP). All benefit payments are made by the Company directly to those who receive benefits from the SERP. As such, these payments are treated as both contributions and benefits paid for reporting purposes. The Company expects to contribute and pay SERP benefits of approximately $519 in the next 12 months.
Components of Net Periodic Benefit Expense
For the three months ended March 28, 2014 and March 29, 2013, the Company reclassified $102 and $182, respectively, of actuarial loss from accumulated other comprehensive loss that was included in pension expense on the statement of comprehensive loss for the same periods. |