10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

__________________________________________________

FORM 10-Q

(Mark One)

[X]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,

For the quarterly period ended July 1, 2016

or

[   ]Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,

For the transition period from _____ to _____

Commission file number 001-14677

__________________________________________________

EVANS & SUTHERLAND COMPUTER CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Utah (State or Other Jurisdiction of Incorporation or Organization)	87-0278175 (I.R.S. Employer Identification No.)
770 Komas Drive, Salt Lake City, Utah (Address of Principal Executive Offices)	84108 (Zip Code)
Registrant's Telephone Number, Including Area Code:  (801) 588-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   X    No ____

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ]   (Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ___ No   X_

The number of shares of the registrant's Common Stock (par value $0.20 per share) outstanding on August 3, 2016 was 11,177,316.

FORM 10-Q

Evans & Sutherland Computer Corporation

Quarter Ended July 1, 2016

		Page No.
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of July 1, 2016 and December 31, 2015 (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended July 1, 2016 and July 3, 2015 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 1, 2016 and July 3, 2015 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 4.	Controls and Procedures	14
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 6.	Exhibits	15
SIGNATURE		16

2

PART I – FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except share and per share data)

	July 1,			December 31,
	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	3,242		$	3,734
Restricted cash		602			601
Accounts receivable, net		3,785			4,825
Costs and estimated earnings in excess of billings on
uncompleted contracts		3,053			2,695
Inventories, net		4,431			4,072
Prepaid expenses and deposits		714			1,038
Total current assets		15,827			16,965
Property and equipment, net		4,653			4,735
Goodwill		635			635
Intangible assets, net		13			27
Other assets		1,184			1,082
Total assets	$	22,312		$	23,444
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	1,113		$	1,062
Accrued liabilities		1,302			1,031
Billings in excess of costs and estimated earnings on
uncompleted contracts		3,998			3,995
Customer deposits		2,836			3,232
Current portion of retirement obligations		541			480
Current portion of pension settlement obligation		356			356
Current portion of long-term debt		206			199
Total current liabilities		10,352			10,355
Pension and retirement obligations, net of current portion		4,703			4,839
Pension settlement obligation, net of current portion		5,268			5,268
Long-term debt, net of current portion		1,853			1,975
Deferred rent obligation		1,442			1,653
Total liabilities		23,618			24,090
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		2,288			2,288
Additional paid-in-capital		53,507			53,434
Common stock in treasury, at cost, 264,350 shares		(3,532	)		(3,532	)
Accumulated deficit		(51,165	)		(50,432	)
Accumulated other comprehensive loss		(2,404	)		(2,404	)
Total stockholders' deficit		(1,306	)		(646	)
Total liabilities and stockholders' deficit	$	22,312		$	23,444

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited) (In thousands, except per share data)

	Three Months Ended						Six Months Ended
	July 1,			July 3,			July 1,			July 3,
	2016			2015			2016			2015
Sales	$	5,268		$	10,289		$	13,168		$	18,291
Cost of sales		(3,699	)		(6,896	)		(8,896	)		(11,907	)
Gross profit		1,569			3,393			4,272			6,384
Operating expenses:
Selling, general and administrative		(1,766	)		(1,755	)		(3,437	)		(3,597	)
Research and development		(569	)		(544	)		(1,156	)		(1,139	)
Pension		(65	)		(49	)		(131	)		(424	)
Pension settlement		-			(3,620	)		-			(3,620	)
Total operating expenses		(2,400	)		(5,968	)		(4,724	)		(8,780	)
Operating loss		(831	)		(2,575	)		(452	)		(2,396	)
Other expense, net		(132	)		(148	)		(260	)		(173	)
Loss before income tax provision		(963	)		(2,723	)		(712	)		(2,569	)
Income tax provision (benefit)		(6	)		23			(21	)		(28	)
Net loss	$	(969	)	$	(2,700	)	$	(733	)	$	(2,597	)
Net loss per common share – basic and diluted	$	(0.09	)	$	(0.24	)	$	(0.07	)	$	(0.23	)
Weighted average common shares outstanding – basic		11,177			11,158			11,177			11,123
Weighted average common shares outstanding – diluted		11,177			11,158			11,177			11,123
Comprehensive income (loss), net of tax:
Net loss	$	(969	)	$	(2,700	)	$	(733	)	$	(2,597	)
Other comprehensive income (loss):
Reclassification of pension expense to net income		-			-			-			195
Pension settlement					31,776			-			31,776
Other comprehensive income		-			31,776			-			31,971
Total comprehensive income (loss)	$	(969	)	$	29,076		$	(733	)	$	29,374

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

 

	Six Months Ended
	July 1,			July 3,
	2016			2015
Cash flows from operating activities:
Net loss	$	(733	)	$	(2,597	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization		145			144
Amortization of deferred pension costs		-			195
Pension settlement charge		-			3,620
Provision for excess and obsolete inventory		124			33
Other		79			32
Changes in assets and liabilities:
Decrease (increase) in restricted cash		(1	)		90
Decrease (increase) in accounts receivable		1,034			(1,072	)
Increase in inventories		(483	)		(949	)
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts, net		(355	)		(2,996	)
Decrease (increase) in prepaid expenses and other assets		222			(935	)
Increase in accounts payable		51			367
Increase in accrued liabilities		271			915
Decrease in pension and retirement obligations		(75	)		(23	)
Decrease in pension settlement obligation		-			(1,485	)
Increase (decrease) in customer deposits		(396	)		70
Decrease in deferred rent obligation		(211	)		(212	)
Net cash used in operating activities		(328	)		(4,803	)
Cash flows from investing activities:
Purchases of property and equipment		(49	)		(27	)
Net cash used in investing activities		(49	)		(27	)
Cash flows from financing activities:
Principal payments on long-term debt		(115	)		(109	)
Net cash used in financing activities		(115	)		(109	)
Net decrease in cash and cash equivalents		(492	)		(4,939	)
Cash and cash equivalents as of beginning of the period		3,734			7,038
Cash and cash equivalents as of end of the period	$	3,242		$	2,099
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	72		$	93
Income taxes		11			11
Supplemental disclosures of non-cash investing and financing
activities:
Settlement of pension liability	$	-		$	35,869

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

All dollar amounts (except share and per share amounts) in thousands.

1. GENERAL

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the "Company" or "E&S") have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flows, in conformity with U.S. generally accepted accounting principles ("US GAAP").  This report on Form 10-Q should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 2015.

The accompanying unaudited condensed consolidated balance sheets, statements of comprehensive income (loss), and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations and cash flows.  The results of operations for the three and six months ended July 1, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.  The Company operates on a calendar year with the first three fiscal quarters ending on the last Friday of the thirteenth week in the quarter.

Revenue Recognition

Sales include revenues from system hardware and the related integrated software, database products and service contracts.  The following methods are used to determine revenue recognition:

Percentage of Completion. In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized using the percentage-of-completion method.  In applying this method,  the Company utilizes cost-to-cost methodology whereby it estimates the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) for each contract to its total anticipated costs for that contract.   This ratio is then utilized to determine the amount of gross profit earned based on the Company's estimate of total gross profit at completion for each contract.  The Company routinely reviews estimates related to percentage-of-completion contracts and adjusts for changes in the period the revisions are made.  Billings on uncompleted percentage-of-completion contracts may be greater than or less than incurred costs and estimated earnings and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets.

In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above.

Completed Contract. Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method.  Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured.

Multiple Element Arrangements.  Some contracts include multiple elements.  Significant deliverables in such arrangements commonly include various hardware components of the Company's visual display systems, domes, show content and various service and maintenance elements.  Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements.  Relative fair values of elements are generally determined based on actual and estimated selling price.  Delivery times of such contracts typically occur within a three to six-month time period.

Other.  Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single element.  Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized over the period of performance under the contract.

6

Anticipated Losses.  For contracts with anticipated losses at completion, a provision is recorded when the loss is probable.  After an anticipated loss is recorded, subsequent revenues and cost of sales are recognized in equal and offsetting amounts as contract costs are incurred.

Stock-Based Compensation

Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest.  Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Company's current estimates.

Net Loss Per Common Share

Basic net loss per common share is computed based on the weighted-average number of common shares outstanding during the period. Stock options are considered to be common stock equivalents in computing diluted net income per share, when applicable. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share.  Because there was a net loss for the periods presented, no common stock equivalents were used in the computation of the net loss per common share.    

Inventories, net

Inventories consisted of the following:

	July 1,			December 31,
	2016			2015
Raw materials	$	6,135		$	5,958
Work in process		1,489			1,265
Finished goods		302			220
Reserve for obsolete inventory		(3,495	)		(3,371	)
Inventories, net	$	4,431		$	4,072

7

2. STOCK OPTION PLAN

As of July 1, 2016, options to purchase 1,252,581 shares of common stock under the Company's stock option plan were authorized and reserved for future grant.  A summary of activity in the stock option plan for the six months ended July 1, 2016 follows (shares in thousands):

				Weighted-
				Average
	Number			Exercise
	of Shares			Price
Outstanding as of beginning of the period		1,470		$	1.53
Granted		226			0.89
Exercised		-
Forfeited or expired		(175	)		6.65
Outstanding as of end of the period		1,521			0.84
Exercisable as of end of the period		1,137		$	0.92

As of July 1, 2016, options exercisable and options outstanding had a weighted average remaining contractual term of 4.50 and 5.63 years, respectively, and had an aggregate intrinsic value of $345 and $418, respectively.

The Black-Scholes option-pricing model is used to estimate the fair value of options under the Company's stock option plan. The weighted average values of employee stock options granted under the stock option plan, as well as the weighted average assumptions used in calculating these values during the first six months of 2016, were based on estimates as of the date of grant as follows:

Risk-free interest rate		1.17	%
Dividend yield		0	%
Volatility		258	%
Expected life	3.5 years

Expected option life and volatility are based on historical data of the Company.   The risk-free interest rate is calculated based on the average US Treasury bill rate that corresponds with the option life.  Historically, the Company has not declared dividends and there are no foreseeable plans to do so.

As of July 1, 2016, there was approximately $116 of total unrecognized share-based compensation cost related to grants under the stock option plan that will be recognized over a weighted-average period of 2.3 years.

Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for each of the six-month periods ended July 1, 2016 and July 3, 2015 was $72 and $20, respectively.  Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for each of the three-month periods ended July 1, 2016 and July 3, 2015 was $48 and $11, respectively.

3. EMPLOYEE RETIREMENT BENEFIT PLANS

 Settlement of Pension Plan Liabilities

On April 21, 2015, the Company entered into a series of agreements to terminate its defined pension plan (the "Pension Plan") and settle the resulting liabilities. Pursuant to the agreements, as of July 1, 2016, the Company is obligated to pay eleven remaining installments of $750 to the Pension Benefit Guaranty Corporation (the "PBGC") due annually on October 31 of each year from 2016 through 2026 (the "Pension Settlement Obligation"). As security for the Pension Settlement Obligation, the Company granted to the PBGC a security interest on all of the Company's assets, subordinate to certain senior liens held by the Company's two senior lenders. The Pension Settlement Obligation is recorded net of imputed interest expense at 7%, as a liability on the balance sheet.

8

The Company recorded pension expense of $326 attributable to the Pension Plan for the first quarter of 2015, which was prior to the April 2015 plan termination. As a result of the termination Pension Plan, the Company's only remaining pension obligation is the Supplemental Executive Retirement Plan ("SERP").

Employer Contributions

The Company is not currently required to fund the 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 $541 in the next 12 months.

Components of Net Periodic Benefit Expense

					Supplemental Executive
	Pension Plan				Retirement Plan
	July 1,		July 3,		July 1,			July 3,
For the three months ended:	2016		2015		2016			2015
Service cost	$	-	$	-	$	-		$	-
Interest cost		-		-		48			44
Expected return on assets		-		-		-			-
Amortization of actuarial loss		-		-		20			17
Amortization of prior year service cost		-		-		(3	)		(12	)
Net periodic benefit expense		-		-		65			49
Insurance premium due PBGC		-		-		-			-
	$	-	$	-	$	65		$	49

						Supplemental Executive
	Pension Plan					Retirement Plan
	July 1,		July 3,			July 1,			July 3,
For the six months ended:	2016		2015			2016			2015
Service cost	$	-	$	-		$	-		$	-
Interest cost		-		617			95			88
Expected return on assets		-		(585	)		-			-
Amortization of actuarial loss		-		195			41			34
Amortization of prior year service cost		-		-			(5	)		(24	)
Net periodic benefit expense		-		227			131			98
Insurance premium due PBGC		-		99			-			-
	$	-	$	326		$	131		$	98

For the six-month period ended July 3, 2015, the Company reclassified $195 of actuarial loss from accumulated other comprehensive loss that was included in pension expense in the statements of comprehensive loss for the same period.

9

Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the "Company,"  "E&S," "we," "us" and "our") included in Item 1 of Part I of this quarterly report on Form 10-Q.  In addition to the historical information contained herein, this quarterly report on Form 10-Q includes certain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as "should," "expect," "anticipate," "estimate," "target," "may," "project," "guidance," "intend," "plan," "believe" and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, the Company's goals, plans and projections regarding its financial position, results of operations, cash flows, market position, product development, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years.

Although the Company believes it has been prudent in its plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. The Company undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.

All dollar amounts are in thousands.

Executive Summary

The second quarter of 2016 produced only $5,268 of sales. This unusually low sales volume was attributable to the timing of customer deliveries of planetarium systems and a temporary drop in backlog from low sales orders in the first quarter of 2016. The low sales volume resulted in under-absorption of fixed overhead which negatively affected gross profit. Also considerable resources were expended on product demonstrations at a major bi-annual planetarium conference resulting in higher than normal selling expenses. As a result, we reported a net loss of $969 in the second quarter of 2016 which offset first quarter net income to produce a net loss of $733 for the first half of 2016. This variability in the timing of sales orders and customer deliveries are an element of our business that occasionally affect results in this way. While the results of operations are disappointing, a healthy volume of new sales orders in the second quarter of 2016 helped the sales backlog rebound almost to the level at the beginning of the year. In addition, significant new orders already booked early in the third quarter of 2016 and several promising prospects attributable to positive reactions to recent product demonstrations are expected to sustain a healthy sales backlog for the remainder of 2016. The sales backlog and customer delivery schedules support our positive outlook for higher sales levels and profitable results for the second half of 2016.

The net loss for the second quarter of 2016 increased our stockholders deficit, but we believe this is a temporary setback and that future results will lead to the elimination of our stockholders' deficit toward our goal of building shareholder value. For the longer term, we continue to expect variable but reasonably consistent sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses and meet our obligations including the Pension Settlement Obligation. With the settlement of the Pension Plan liabilities, we expect our improved financial position to present opportunities for better results through the availability of credit and stronger qualification for customer projects.

Critical Accounting Policies

Certain accounting policies are considered by management to be critical to an understanding of our condensed consolidated financial statements.  Their application requires significant management judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain.  A summary of critical accounting policies can be found in our Form 10-K for the year ended December 31, 2015.  For all of these policies, management cautions that future results rarely develop exactly as forecasted, and the best estimates routinely require modification.

10

Results of Operations

Sales and Backlog

The following table summarizes our sales:

	Three Months Ended				Six Months Ended
	July 1, 2016		July 3, 2015		July 1, 2016		July 3, 2015
Sales	$	5,268	$	10,289	$	13,168	$	18,291

Sales for the second quarter and first six months of 2016 were lower than the same periods in 2015. The lower 2016 sales were attributable to timing of deliveries on customer contracts and the low volume of new orders during the first three months of 2016.

Revenue backlog was $25,498 as of July 1, 2016, compared to $26,298 as of December 31, 2015. The slight decline in the revenue backlog is attributed to a low volume of new orders booked in the first quarter of 2016, mostly offset by a high volume of new orders booked in the second quarter. Sales prospects support the outlook for a higher volume of new orders through the remainder of 2016.

Gross Profit

The following table summarizes our gross profit and the gross profit as a percentage of total sales:

  

	Three Months Ended						Six Months Ended
	July 1, 2016			July 3, 2015			July 1, 2016			July 3, 2015
Gross profit	$	1,569		$	3,393		$	4,272		$	6,384
Gross profit percentage		30	%		33	%		32	%		35	%

The variability in the gross profit percentage was due to volume related efficiencies, the mix of products delivered and the types of customer contracts that contributed to the revenue recognized for the periods presented.

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Operating Expenses

The following table summarizes our operating expenses:

	Three Months Ended				Six Months Ended
	July 1, 2016		July 3, 2015		July 1, 2016		July 3, 2015
Selling, general and
administrative	$	1,766	$	1,755	$	3,437	$	3,597
Research and development		569		544		1,156		1,139
Pension		65		49		131		424
Pension settlement		-		3,620		-		3,620
Total operating expenses	$	2,400	$	5,968	$	4,724	$	8,780

Selling, general and administrative expenses were slightly higher for the three months ended July 1, 2016 compared to the same period in 2015, while for the six month period they were lower. This was primarily due to the reduction in professional fees associated with the pension settlement which was mostly offset by higher selling expense in the second quarter of 2016 attributable to product demonstrations at a bi-annual planetarium conference.

Research and development expenses for the three and six months ended July 1, 2016 were slightly higher compared to the same periods in 2015 due primarily to increased labor costs and expenditures on product improvement projects.

Pension expense declined in the six months period of 2016 compared to 2015 due to the 2015 termination of the Pension Plan. The 2016 pension expenses are attributable to the SERP. The pension expense was higher in the second quarter of 2016 compared to 2015 due to changes in actuarial assumptions in measuring the SERP obligation.

See Other Comprehensive Income (Loss) and the Settlement of Pension Plan Liabilities below.

Other Expense, net

The following table summarizes our other expense:

	Three Months Ended				Six Months Ended
	July 1, 2016		July 3, 2015		July 1, 2016		July 3, 2015
Total other expense, net	$	132	$	148	$	260	$	173

For the three months ended July 1, 2016, other expense, net, was less than the same period in 2015 due primarily to a decrease in interest expense resulting from the amortization of debt obligations.  For the six months ended July 1, 2016, other expense, net, was more than the same period in 2015 due primarily to interest expense on the pension settlement obligation which began in April 2015.

Other Comprehensive Income (Loss) and the Settlement of Pension Plan Liabilities

The settlement of Pension Plan liabilities resulted in a charge to the statement of operations of $3,620 which was offset by other comprehensive income of $31,776 for a total gain of $28,156 in the second quarter of 2015. The other pension related charges in 2015 recorded in other comprehensive income were attributable to the accounting for actuarial valuations of the pension liabilities. Other comprehensive income (loss) in future years is expected to be limited to accounting for potential changes in the actuarial valuation of the SERP liabilities for much less significant amounts than 2015.

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Liquidity and Capital Resources

Outlook

As discussed in the executive summary above, we have made significant progress in our effort to reverse our long history of operating losses.  We believe that the termination of the Pension Plan together with the settlement of the underlying pension liabilities achieved our goal of reducing our obligations to levels that allow the business to be viable. As a result, we believe existing liquidity resources and funds generated from forecasted revenue will be sufficient to meet our current and long-term obligations. We continue to operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures.

Cash Flows

In the six months of 2016, the $328 of cash used in operating activities was attributable to $385 of cash absorbed by the net loss for the period, after the effect of $348 of non-cash items and a slightly favorable change to working capital of $57.  The more significant working capital changes contributing to cash consisted of an increase in progress payments from customer contracts, the amortization of prepaid expense and an increase in accrued expenses attributable to payroll schedules, which were mostly offset by an increase in inventory attributable to customer deliveries and the reduction of deferred rent obligation related to a deferred gain from a prior year sale leaseback transaction.

In the first six months of 2015, $4,803 of cash used in operating activities was attributable to $1,427 of cash from the net loss for the period, after the effect of $4,024 of non-cash items, mostly related to the pension settlement, less an unfavorable change to working capital of $6,230.  The cash effect of the change to working capital was driven primarily by the timing of customer progress payments, payment on the pension settlement obligation and, to a lesser degree, the acquisition of inventory for upcoming customer deliveries.

Cash used in investing activities was $49 for the first six months ended July 1, 2016 compared to $27 for the same period of 2015.  Investing activities for both periods presented consisted entirely of property and equipment purchases.

For the first six months ended July 1, 2016, financing activities used $115 of cash compared to $109 in 2015 for principal payments on mortgage notes.

Line of Credit

The Company is a party to a line-of-credit agreement with a commercial bank which permits borrowings of up to $1,100 to fund the working capital requirements of our subsidiary Spitz, Inc. ("Spitz"). Under the line of credit agreement, interest is charged on amounts borrowed at the lender's prime rate less 0.25%.  Any borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The line-of-credit agreement and mortgage notes (with the same commercial bank) contain cross default provisions whereby a default on either agreement will result in a default on both agreements. There were no borrowings outstanding under the line-of-credit agreement as of July 1, 2016.

Letters of Credit

Underthe terms of financing arrangements for letters of credit, the Company is required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit issued, plus other amounts necessary to adequately secure obligations with the financial institutions who issue the letters of credit.  As of July 1, 2016 there were outstanding letters of credit and bank guarantees of $600, which are scheduled to expire during the year ending December 31, 2016.

Mortgage Notes

As of July 1, 2016, Spitz had obligations totaling $2,059 under its two mortgage notes payable.

13

Item 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at the reasonable assurance level such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company are detected.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed above that occurred during the quarter ended July 1, 2016, or subsequent to that date, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

14

PART II - OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

In the normal course of business, we become involved in various legal proceedings.  Although the final outcome of such proceedings cannot be predicted with certainty, we believe the ultimate disposition of any such proceedings will not have a material adverse effect on our consolidated financial position, liquidity, or results of operations.

Item 6.EXHIBITS

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.

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.

32.1 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.

101 The following materials from this Quarterly Report on Form 10-Q for the period ended July 1, 2016, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

15

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		EVANS & SUTHERLAND COMPUTER CORPORATION
Date:	August 4, 2016	By:     /s/ Paul Dailey
		Paul Dailey, Chief Financial Officer
		and Corporate Secretary
		(Authorized Officer)
		(Principal Financial and Accounting Officer)

16

EX-31.1

Exhibit 31.1

Rule 13a-14 Certification

CERTIFICATIONS*

I, David H. Bateman, certify that:

  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: August 4, 2016

/s/ David H. BatemanDavid H. BatemanChief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Rule 13a-14 Certification

CERTIFICATIONS*

I, Paul L. Dailey, certify that:

  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: August 4, 2016

/s/ Paul L. Dailey

Paul L. Dailey Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. 1350,

 as Adopted Pursuant Section 906 of the

Sarbanes-Oxley Act of 2002

I, David H. Bateman, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-Q of Evans & Sutherland Computer Corporation for the quarter ended July 1, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Evans & Sutherland Computer Corporation.

Date: August 4, 2016	By: /s/ David H. Bateman
	David H. Bateman
	Chief Executive Officer

I, Paul L. Dailey, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-Q of Evans & Sutherland Computer Corporation for the quarter ended July 1, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Evans & Sutherland Computer Corporation.

Date: August 4, 2016	By:  /s/ Paul L. Dailey
	Paul L. Dailey
	Chief Financial Officer

The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

Document and Entity Information - shares	6 Months Ended
	Jul. 01, 2016	Aug. 03, 2016
Document and Entity Information:
Entity Registrant Name	EVANS & SUTHERLAND COMPUTER CORPORATION
Document Type	10-Q
Document Period End Date	Jul. 01, 2016
Trading Symbol	escc
Amendment Flag	false
Entity Central Index Key	0000276283
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		11,177,316
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jul. 01, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 3,242	$ 3,734
Restricted cash	602	601
Accounts receivable, net	3,785	4,825
Costs and estimated earnings in excess of billings on uncompleted contracts	3,053	2,695
Inventories, net	4,431	4,072
Prepaid expenses and deposits	714	1,038
Total current assets	15,827	16,965
Property and equipment, net	4,653	4,735
Goodwill	635	635
Intangible assets, net	13	27
Other assets	1,184	1,082
Total assets	22,312	23,444
Current liabilities:
Accounts payable	1,113	1,062
Accrued liabilities	1,302	1,031
Billings in excess of costs and estimated earnings on uncompleted contracts	3,998	3,995
Customer deposits	2,836	3,232
Current portion of retirement obligations	541	480
Current portion of pension settlement obligation	356	356
Current portion of long-term debt	206	199
Total current liabilities	10,352	10,355
Pension and retirement obligations, net of current portion	4,703	4,839
Pension settlement obligation, net of current portion	5,268	5,268
Long-term debt, net of current portion	1,853	1,975
Deferred rent obligation	1,442	1,653
Total liabilities	23,618	24,090
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	2,288	2,288
Additional paid-in-capital	53,507	53,434
Common stock in treasury, at cost, 264,350 shares	(3,532)	(3,532)
Accumulated deficit	(51,165)	(50,432)
Accumulated other comprehensive loss	(2,404)	(2,404)
Total stockholders' deficit	(1,306)	(646)
Total liabilities and stockholders' deficit	$ 22,312	$ 23,444

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jul. 01, 2016	Dec. 31, 2015
Statement of Financial Position
Preferred Stock, par value
Preferred Stock, shares authorized	10,000,000	10,000,000
Preferred Stock, shares outstanding
Common Stock, par value	$ 0.20	$ 0.20
Common Stock, shares authorized	30,000,000	30,000,000
Common Stock, shares issued	11,441,666	11,441,666
Common stock in treasury, shares	264,350	264,350

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2016	Jul. 03, 2015	Jul. 01, 2016	Jul. 03, 2015
Statement of Comprehensive Income
Sales	$ 5,268	$ 10,289	$ 13,168	$ 18,291
Cost of sales	(3,699)	(6,896)	(8,896)	(11,907)
Gross profit	1,569	3,393	4,272	6,384
Operating expenses:
Selling, general and administrative	(1,766)	(1,755)	(3,437)	(3,597)
Research and development	(569)	(544)	(1,156)	(1,139)
Pension	(65)	(49)	(131)	(424)
Pension settlement		(3,620)		(3,620)
Total operating expenses	(2,400)	(5,968)	(4,724)	(8,780)
Operating loss	(831)	(2,575)	(452)	(2,396)
Other expense, net	(132)	(148)	(260)	(173)
Loss before income tax provision	(963)	(2,723)	(712)	(2,569)
Income tax provision (benefit)	(6)	23	(21)	(28)
Net loss	$ (969)	$ (2,700)	$ (733)	$ (2,597)
Net loss per common share - basic and diluted	$ (0.09)	$ (0.24)	$ (0.07)	$ (0.23)
Weighted average common shares outstanding - basic	11,177	11,158	11,177	11,123
Weighted average common shares outstanding - diluted	11,177	11,158	11,177	11,123
Comprehensive income (loss), net of tax:
Net loss	$ (969)	$ (2,700)	$ (733)	$ (2,597)
Other comprehensive income (loss):
Reclassification of pension expense to net income				195
Pension settlement		31,776		31,776
Other comprehensive income		31,776		31,971
Total comprehensive income (loss)	$ (969)	$ 29,076	$ (733)	$ 29,374

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jul. 01, 2016	Jul. 03, 2015
Cash flows from operating activities:
Net loss	$ (733)	$ (2,597)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	145	144
Amortization of deferred pension costs		195
Pension settlement charge		3,620
Provision for excess and obsolete inventory	124	33
Other	79	32
Changes in assets and liabilities:
Decrease (increase) in restricted cash	(1)	90
Decrease (increase) in accounts receivable	1,034	(1,072)
Increase in inventories	(483)	(949)
Increase in costs and estimated earnings in excess of billings on uncompleted contracts, net	(355)	(2,996)
Decrease (increase) in prepaid expenses and other assets	222	(935)
Increase in accounts payable	51	367
Increase in accrued liabilities	271	915
Decrease in pension and retirement obligations	(75)	(23)
Decrease in pension settlement obligation		(1,485)
Increase (decrease) in customer deposits	(396)	70
Decrease in deferred rent obligation	(211)	(212)
Net cash used in operating activities	(328)	(4,803)
Cash flows from investing activities:
Purchases of property and equipment	(49)	(27)
Net cash used in investing activities	(49)	(27)
Cash flows from financing activities:
Principal payments on long-term debt	(115)	(109)
Net cash used in financing activities	(115)	(109)
Net decrease in cash and cash equivalents	(492)	(4,939)
Cash and cash equivalents as of beginning of the period	3,734	7,038
Cash and cash equivalents as of end of the period	3,242	2,099
Supplemental disclosures of cash flow information:
Cash paid during the period for: Interest	72	93
Cash paid during the period for: Income taxes	$ 11	11
Supplemental disclosures of non-cash investing and financing activities:
Settlement of pension liability		$ 35,869

XML

1. General

6 Months Ended

Jul. 01, 2016

Notes

1. General

1.        GENERAL

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the "Company" or "E&S") have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flows, in conformity with U.S. generally accepted accounting principles ("US GAAP").  This report on Form 10-Q should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 2015.

The accompanying unaudited condensed consolidated balance sheets, statements of comprehensive income (loss), and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations and cash flows.  The results of operations for the three and six months ended July 1, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.  The Company operates on a calendar year with the first three fiscal quarters ending on the last Friday of the thirteenth week in the quarter.

Revenue Recognition

Sales include revenues from system hardware and the related integrated software, database products and service contracts.  The following methods are used to determine revenue recognition:

Percentage of Completion. In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized using the percentage-of-completion method.  In applying this method,  the Company utilizes cost-to-cost methodology whereby it estimates the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) for each contract to its total anticipated costs for that contract.   This ratio is then utilized to determine the amount of gross profit earned based on the Company's estimate of total gross profit at completion for each contract.  The Company routinely reviews estimates related to percentage-of-completion contracts and adjusts for changes in the period the revisions are made.  Billings on uncompleted percentage-of-completion contracts may be greater than or less than incurred costs and estimated earnings and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets.

In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above.

Completed Contract. Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method.  Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured.

Multiple Element Arrangements.  Some contracts include multiple elements.  Significant deliverables in such arrangements commonly include various hardware components of the Company's visual display systems, domes, show content and various service and maintenance elements.  Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements.  Relative fair values of elements are generally determined based on actual and estimated selling price.  Delivery times of such contracts typically occur within a three to six-month time period.

Other.  Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single element.  Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized over the period of performance under the contract.

Anticipated Losses.  For contracts with anticipated losses at completion, a provision is recorded when the loss is probable.  After an anticipated loss is recorded, subsequent revenues and cost of sales are recognized in equal and offsetting amounts as contract costs are incurred.

Stock-Based Compensation

Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest.  Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Company's current estimates.

Net Loss Per Common Share

Basic net loss per common share is computed based on the weighted-average number of common shares outstanding during the period. Stock options are considered to be common stock equivalents in computing diluted net income per share, when applicable. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share.  Because there was a net loss for the periods presented, no common stock equivalents were used in the computation of the net loss per common share.

Inventories, net

Inventories consisted of the following:

	July 1,	December 31,
	2016	2015
Raw materials	$6,135	$5,958
Work in process	1,489	1,265
Finished goods	302	220
Reserve for obsolete inventory	(3,495)	(3,371)
Inventories, net	$4,431	$4,072

XML

2. Stock Option Plan

6 Months Ended

Jul. 01, 2016

Notes

2. Stock Option Plan

2.        STOCK OPTION PLAN

As of July 1, 2016, options to purchase 1,252,581 shares of common stock under the Company's stock option plan were authorized and reserved for future grant. 

A summary of activity in the stock option plan for the six months ended July 1, 2016 follows (shares in thousands):

		Weighted-
		Average
	Number	Exercise
	of Shares	Price
Outstanding as of beginning of the period	1,470	$1.53
Granted	226	0.89
Exercised	-
Forfeited or expired	(175)	6.65
Outstanding as of end of the period	1,521	0.84
Exercisable as of end of the period	1,137	$0.92

As of July 1, 2016, options exercisable and options outstanding had a weighted average remaining contractual term of 4.50 and 5.63 years, respectively, and had an aggregate intrinsic value of $345 and $418, respectively.

The Black-Scholes option-pricing model is used to estimate the fair value of options under the Company's stock option plan.

The weighted average values of employee stock options granted under the stock option plan, as well as the weighted average assumptions used in calculating these values during the first six months of 2016, were based on estimates as of the date of grant as follows:

Risk-free interest rate	1.17%
Dividend yield	0%
Volatility	258%
Expected life	3.5 years

Expected option life and volatility are based on historical data of the Company.   The risk-free interest rate is calculated based on the average US Treasury bill rate that corresponds with the option life.  Historically, the Company has not declared dividends and there are no foreseeable plans to do so.

As of July 1, 2016, there was approximately $116 of total unrecognized share-based compensation cost related to grants under the stock option plan that will be recognized over a weighted-average period of 2.3 years.

Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for each of the six-month periods ended July 1, 2016 and July 3, 2015 was $72 and $20, respectively.  Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for each of the three-month periods ended July 1, 2016 and July 3, 2015 was $48 and $11, respectively.

XML

3. Employee Retirement Benefit Plans

6 Months Ended

Jul. 01, 2016

Notes

3. Employee Retirement Benefit Plans

3.        EMPLOYEE RETIREMENT BENEFIT PLANS

Settlement of Pension Plan Liabilities

On April 21, 2015, the Company entered into a series of agreements to terminate its defined pension plan (the "Pension Plan") and settle the resulting liabilities. Pursuant to the agreements, as of July 1, 2016, the Company is obligated to pay eleven remaining installments of $750 to the Pension Benefit Guaranty Corporation (the "PBGC") due annually on October 31 of each year from 2016 through 2026 (the "Pension Settlement Obligation"). As security for the Pension Settlement Obligation, the Company granted to the PBGC a security interest on all of the Company's assets, subordinate to certain senior liens held by the Company's two senior lenders. The Pension Settlement Obligation is recorded net of imputed interest expense at 7%, as a liability on the balance sheet.

The Company recorded pension expense of $326 attributable to the Pension Plan for the first quarter of 2015, which was prior to the April 2015 plan termination. As a result of the termination Pension Plan, the Company's only remaining pension obligation is the Supplemental Executive Retirement Plan ("SERP").

Employer Contributions

The Company is not currently required to fund the 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 $541 in the next 12 months.

Components of Net Periodic Benefit Expense

			Supplemental Executive
	Pension Plan		Retirement Plan
	July 1,	July 3,	July 1,	July 3,
For the three months ended:	2016	2015	2016	2015
Service cost	$-	$-	$-	$-
Interest cost	-	-	48	44
Expected return on assets	-	-	-	-
Amortization of actuarial loss	-	-	20	17
Amortization of prior year service cost	-	-	(3)	(12)
Net periodic benefit expense	-	-	65	49
Insurance premium due PBGC	-	-	-	-
	$-	$-	$65	$49

			Supplemental Executive
	Pension Plan		Retirement Plan
	July 1,	July 3,	July 1,	July 3,
For the six months ended:	2016	2015	2016	2015
Service cost	$-	$-	$-	$-
Interest cost	-	617	95	88
Expected return on assets	-	(585)	-	-
Amortization of actuarial loss	-	195	41	34
Amortization of prior year service cost	-	-	(5)	(24)
Net periodic benefit expense	-	227	131	98
Insurance premium due PBGC	-	99	-	-
	$-	$326	$131	$98

For the six-month period ended July 3, 2015, the Company reclassified $195 of actuarial loss from accumulated other comprehensive loss that was included in pension expense in the statements of comprehensive loss for the same period.

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1. General (Policies)

6 Months Ended

Jul. 01, 2016

Policies

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the "Company" or "E&S") have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flows, in conformity with U.S. generally accepted accounting principles ("US GAAP").  This report on Form 10-Q should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 2015.

The accompanying unaudited condensed consolidated balance sheets, statements of comprehensive income (loss), and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations and cash flows.  The results of operations for the three and six months ended July 1, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.  The Company operates on a calendar year with the first three fiscal quarters ending on the last Friday of the thirteenth week in the quarter.

Revenue Recognition

Revenue Recognition

Sales include revenues from system hardware and the related integrated software, database products and service contracts.  The following methods are used to determine revenue recognition:

Percentage of Completion. In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized using the percentage-of-completion method.  In applying this method,  the Company utilizes cost-to-cost methodology whereby it estimates the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) for each contract to its total anticipated costs for that contract.   This ratio is then utilized to determine the amount of gross profit earned based on the Company's estimate of total gross profit at completion for each contract.  The Company routinely reviews estimates related to percentage-of-completion contracts and adjusts for changes in the period the revisions are made.  Billings on uncompleted percentage-of-completion contracts may be greater than or less than incurred costs and estimated earnings and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets.

In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above.

Completed Contract. Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method.  Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured.

Multiple Element Arrangements.  Some contracts include multiple elements.  Significant deliverables in such arrangements commonly include various hardware components of the Company's visual display systems, domes, show content and various service and maintenance elements.  Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements.  Relative fair values of elements are generally determined based on actual and estimated selling price.  Delivery times of such contracts typically occur within a three to six-month time period.

Other.  Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single element.  Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized over the period of performance under the contract.

Anticipated Losses.  For contracts with anticipated losses at completion, a provision is recorded when the loss is probable.  After an anticipated loss is recorded, subsequent revenues and cost of sales are recognized in equal and offsetting amounts as contract costs are incurred.

Stock-based Compensation

Stock-Based Compensation

Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest.  Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Company's current estimates.

Net Income Per Common Share

Net Loss Per Common Share

Basic net loss per common share is computed based on the weighted-average number of common shares outstanding during the period. Stock options are considered to be common stock equivalents in computing diluted net income per share, when applicable. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share.  Because there was a net loss for the periods presented, no common stock equivalents were used in the computation of the net loss per common share.

Inventories, Net

Inventories, net

Inventories consisted of the following:

	July 1,	December 31,
	2016	2015
Raw materials	$6,135	$5,958
Work in process	1,489	1,265
Finished goods	302	220
Reserve for obsolete inventory	(3,495)	(3,371)
Inventories, net	$4,431	$4,072

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1. General (Tables)

6 Months Ended

Jul. 01, 2016

Tables/Schedules

Schedule of Inventory

Inventories consisted of the following:

	July 1,	December 31,
	2016	2015
Raw materials	$6,135	$5,958
Work in process	1,489	1,265
Finished goods	302	220
Reserve for obsolete inventory	(3,495)	(3,371)
Inventories, net	$4,431	$4,072

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2. Stock Option Plan (Tables)

6 Months Ended

Jul. 01, 2016

Tables/Schedules

Schedule of Stock Option Plan Activity

A summary of activity in the stock option plan for the six months ended July 1, 2016 follows (shares in thousands):

		Weighted-
		Average
	Number	Exercise
	of Shares	Price
Outstanding as of beginning of the period	1,470	$1.53
Granted	226	0.89
Exercised	-
Forfeited or expired	(175)	6.65
Outstanding as of end of the period	1,521	0.84
Exercisable as of end of the period	1,137	$0.92

Schedule of Stock Options Valuation Assumptions

The weighted average values of employee stock options granted under the stock option plan, as well as the weighted average assumptions used in calculating these values during the first six months of 2016, were based on estimates as of the date of grant as follows:

Risk-free interest rate	1.17%
Dividend yield	0%
Volatility	258%
Expected life	3.5 years

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3. Employee Retirement Benefit Plans (Tables)

6 Months Ended

Jul. 01, 2016

Tables/Schedules

Schedule of Net Periodic Benefit Expense

			Supplemental Executive
	Pension Plan		Retirement Plan
	July 1,	July 3,	July 1,	July 3,
For the three months ended:	2016	2015	2016	2015
Service cost	$-	$-	$-	$-
Interest cost	-	-	48	44
Expected return on assets	-	-	-	-
Amortization of actuarial loss	-	-	20	17
Amortization of prior year service cost	-	-	(3)	(12)
Net periodic benefit expense	-	-	65	49
Insurance premium due PBGC	-	-	-	-
	$-	$-	$65	$49

			Supplemental Executive
	Pension Plan		Retirement Plan
	July 1,	July 3,	July 1,	July 3,
For the six months ended:	2016	2015	2016	2015
Service cost	$-	$-	$-	$-
Interest cost	-	617	95	88
Expected return on assets	-	(585)	-	-
Amortization of actuarial loss	-	195	41	34
Amortization of prior year service cost	-	-	(5)	(24)
Net periodic benefit expense	-	227	131	98
Insurance premium due PBGC	-	99	-	-
	$-	$326	$131	$98

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1. General: Inventories, Net: Schedule of Inventory (Details) - USD ($) $ in Thousands	Jul. 01, 2016	Dec. 31, 2015
Details
Raw Materials	$ 6,135	$ 5,958
Work in process	1,489	1,265
Finished goods	302	220
Reserve for obsolete inventory	(3,495)	(3,371)
Inventories, net	$ 4,431	$ 4,072

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2. Stock Option Plan (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2016	Jul. 03, 2015	Jul. 01, 2016	Jul. 03, 2015
Options exercisable, weighted average remaining contractual term			4 years 6 months	5 years 7 months 17 days
Options, Outstanding, Aggregate Intrinsic Value	$ 345	$ 418	$ 345	$ 418
Total unrecognized share-based compensation cost	116		$ 116
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			2 years 3 months 18 days
Allocated Share-based Compensation Expense	$ 48	$ 11	$ 72	$ 20
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	1,252,581		1,252,581

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2. Stock Option Plan: Schedule of Stock Option Plan Activity (Details) shares in Thousands	6 Months Ended
	Jul. 01, 2016 $ / shares shares
Details
Outstanding as of the beginning of the period	1,470
Outstanding as of the beginning of the period, weighted average exercise price | $ / shares	$ 1.53
Granted	226
Granted, weighted average exercise price | $ / shares	$ 0.89
Exercised
Forfeited or expired	(175)
Forfeited or expired, weighted average exercise price | $ / shares	$ 6.65
Outstanding as of the end of the period	1,521
Outstanding as of the end of the period, weighted average exercise price | $ / shares	$ 0.84
Exercisable as of the end of the period	1,137
Exercisable as of the end of the period, weighted average exercise price | $ / shares	$ 0.92

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2. Stock Option Plan: Schedule of Stock Options Valuation Assumptions (Details)	6 Months Ended
	Jul. 01, 2016
Details
Risk-free interest rate	1.17%
Dividend yield	0.00%
Volatility	258.00%
Expected life	3 years 6 months

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3. Employee Retirement Benefit Plans (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended			6 Months Ended
	Apr. 30, 2015	Jul. 01, 2016	Jul. 03, 2015	Apr. 03, 2015	Jul. 01, 2016	Jul. 03, 2015	Apr. 21, 2015
Pension Plan Settlement Agreement, Payment Schedule	the Company is obligated to pay eleven remaining installments of $750 to the Pension Benefit Guaranty Corporation (the 'PBGC') due annually on October 31 of each year from 2016 through 2026 (the 'Pension Settlement Obligation').
Pension Settlement Obligation, Interest Rate							7.00%
Pension		$ 65	$ 49		$ 131	$ 424
Reclassification of pension expense to net income						195
Pension Plan
Pension		0	0	$ 326	0	326
Supplemental Executive Retirement Plan
Pension		65	$ 49		131	$ 98
Expected Future Benefit Payments, Next Twelve Months		$ 541			$ 541

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3. Employee Retirement Benefit Plans: Schedule of Net Periodic Benefit Expense (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jul. 01, 2016	Jul. 03, 2015	Apr. 03, 2015	Jul. 01, 2016	Jul. 03, 2015
Pension	$ 65	$ 49		$ 131	$ 424
Pension Plan
Service cost	0	0		0	0
Interest cost	0	0		0	617
Expected return on assets	0	0		0	(585)
Amortization of actuarial loss	0	0		0	195
Amortization of prior year service cost	0	0		0	0
Net periodic benefit cost	0	0		0	227
Insurance premium due PBGC	0	0		0	99
Pension	0	0	$ 326	0	326
Supplemental Executive Retirement Plan
Service cost	0	0		0	0
Interest cost	48	44		95	88
Expected return on assets	0	0		0	0
Amortization of actuarial loss	20	17		41	34
Amortization of prior year service cost	(3)	(12)		(5)	(24)
Net periodic benefit cost	65	49		131	98
Insurance premium due PBGC	0	0		0	0
Pension	$ 65	$ 49		$ 131	$ 98