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 June 29, 2018

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)	870278175 (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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes  X  No __

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

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ]	Smaller reporting company [X]
Emerging growth company [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [  ]

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 July 31, 2018 was 11,352,516.

FORM 10-Q

Evans & Sutherland Computer Corporation

Quarter Ended June 29, 2018

	PART I – FINANCIAL INFORMATION
		Page No.
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 29, 2018 and December 31, 2017 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 29, 2018 and June 30, 2017 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 29, 2018 and June 30, 2017 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 4.	Controls and Procedures	20
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 6.	Exhibits	21
SIGNATURE		22

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)

	June 29,	December 31,
	2018	2017
ASSETS
Current assets:
Cash and cash equivalents	$5,154	$5,276
Restricted cash	405	312
Accounts receivable, net	5,504	3,794
Current portion of lease receivable	255	247
Contract revenue in excess of billings	4,657	2,763
Inventories, net	4,258	3,973
Prepaid expenses and deposits	688	712
Total current assets	20,921	17,077
Long-term lease receivable, net of current portion	707	836
Property and equipment, net	4,447	4,527
Goodwill	635	635
Other assets	2,039	1,955
Total assets	$28,749	$25,030
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$1,900	$1,667
Accrued liabilities	1,318	912
Billings in excess of contract revenue	9,229	7,117
Current portion of retirement obligations	469	500
Current portion of pension settlement obligation	409	409
Current portion of long-term debt	231	224
Total current liabilities	13,556	10,829
Retirement obligations, net of current portion	4,059	4,150
Pension settlement obligation, net of current portion	4,478	4,478
Long-term debt, net of current portion	1,423	1,540
Deferred rent obligation	591	808
Total liabilities	24,107	21,805
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value: 10,000,000 shares authorized;   no shares outstanding	-	-
Common stock, $0.20 par value: 30,000,000 shares authorized;   11,616,866 shares issued	2,323	2,323
Additional paid-in-capital	53,894	53,818
Common stock in treasury, at cost, 264,350 shares	(3,532)	(3,532)
Accumulated deficit	(45,867)	(47,208)
Accumulated other comprehensive loss	(2,176)	(2,176)
Total stockholders’ equity	4,642	3,225
Total liabilities and stockholders’ equity	$28,749	$25,030

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

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EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended		Six Months Ended
	June 29,	June 30,	June 29,	June 30,
	2018	2017	2018	2017
Sales	$8,872	$6,744	$16,453	$14,787
Cost of sales	(5,654)	(4,479)	(10,556)	(9,848)
Gross profit	3,218	2,265	5,897	4,939
Operating expenses:
Selling, general and administrative	(1,685)	(1,517)	(3,431)	(3,123)
Research and development	(740)	(766)	(1,494)	(1,467)
Pension	(54)	(57)	(108)	(115)
Total operating expenses	(2,479)	(2,340)	(5,033)	(4,705)
Operating income (loss)	739	(75)	864	234
Other expense, net	(100)	(93)	(175)	(202)
Income (loss) before income tax provision	639	(168)	689	32
Income tax provision	(20)	(3)	(31)	(18)
Net income (loss)	$619	$(171)	$658	$14
Net income (loss) per common share – basic	$0.05	$(0.02)	$0.06	$0.00
Net income (loss) per common share – diluted	$0.05	$(0.02)	$0.05	$0.00
Weighted average common shares outstanding – basic	11,353	11,353	11,353	11,353
Weighted average common shares outstanding – diluted	12,050	11,353	11,997	12,076

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
	June 29,	June 30,
	2018	2017
Cash flows from operating activities:
Net income	$658	$14
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	135	129
Provision for excess and obsolete inventory	159	48
Other	125	1
Changes in operating assets and liabilities:
Increase in accounts receivable	(1,758)	(664)
Decrease in lease receivable	121	134
Decrease (increase) in inventories	(1,367)	323
Increase in contract revenue in excess of billings	(1,140)	(644)
Increase in prepaid expenses and other assets	(60)	(775)
Increase (decrease) in accounts payable	233	(300)
Increase (decrease) in accrued liabilities	406	(46)
Decrease in accrued pension and retirement liabilities	(122)	(115)
Increase in billings in excess of contract revenue	2,964	809
Decrease in deferred rent obligation	(217)	(211)
Net cash provided by (used in) operating activities	137	(1,297)
Cash flows from investing activities:
Purchases of property and equipment	(59)	(86)
Proceeds from sale of property and equipment	3	-
Net cash used in investing activities	(56)	(86)
Cash flows from financing activities:
Principal payments on long-term debt	(110)	(105)
Net cash used in financing activities	(110)	(105)
Net decrease in cash, cash equivalents, and restricted cash	(29)	(1,488)
Cash, cash equivalents, and restricted cash as of beginning of the period	5,588	7,426
Cash, cash equivalents, and restricted cash as of end of the period	$5,559	$5,938
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$50	$56
Income taxes	48	120

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, 2017.

The accompanying unaudited condensed consolidated balance sheets, statements of operations, 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 six months ended June 29, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018.  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

As more fully described in Note 2, effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance.  As a result of the adoption of ASU Topic 606, the Company changed its accounting policy for revenue recognition. See Note 2 for the methods used to determine revenue recognition for the periods presented.

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 (Loss) Per Common Share

Basic net income (loss) per common share is computed based on the weighted-average number of common shares outstanding during the period.  Diluted net income per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. 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.  Stock options produced common stock equivalents of 644,374 and 723,283 used to compute diluted net income per share for the six months ended June 29, 2018 and June 30, 2017, respectively.

6

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Inventories, net

Inventories consisted of the following:

	June 29,	January 1,
	2018	2018
Raw materials	$6,624	$5,458
Work in process	114	1,011
Finished goods	598	423
Reserve for obsolete inventory	(3,078)	(2,919)
Inventories, net	$4,258	$3,973

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 changes the accounting for leases. In particular, lessees will recognize lease assets and lease liabilities for operating leases. This update will have a minimal effect on lessor accounting. ASU 2016-02 is not effective until 2019. The Company is currently assessing the impact on its financial reporting of implementing this guidance.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash

(“ASU 2016-18”). ASU 2016-18 changes the cash flow presentation and disclosures of restricted cash. The

Company implemented this update in the presented financial statements.

2.    REVENUE

The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of the initial application of January 1, 2018. The Company applied Topic 606 using the cumulative effect method, and accordingly recognized the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. As a result, the Company used different methods for recognizing revenue in each of the periods presented as detailed below.

Products and services

The Company generates its revenue through manufacturing, integrating, distributing, and servicing its various products consisting of: Audio-Visual Systems, Domes, Show Content, and Maintenance and Service contracts. All of the Company’s products are sold worldwide.

Audio-Visual Systems consist of standard and customized hardware components integrated with proprietary software. The Audio-Visual Systems are most often used as the primary equipment for planetarium theaters operated by educational institutions. Occasionally, Audio-Visual Systems are sold for other special purposes at various visitor attractions. Audio-Visual System sales include upgrades of existing systems and sub-systems. Sales of typical Audio-Visual Systems range from $200 to $2,000.  

Domes are hemispheric or curved metal structures fabricated from mostly aluminum metal tubing and sheets at the Company’s factory. Some Dome components have a special optical coating applied by a partner vendor. The Dome components are shipped to a customer site and are assembled and installed in or on the customer’s building by a crew of Company employees or subcontractors. Domes are often sold with an Audio-Visual System to serve as projection screens but can also be sold separately. Most often a Dome sold separately is used as a projection screen but occasionally they are used as architectural treatments. Dome projection screens sold separately can be used for existing planetarium theaters or other special visitor attractions such as theme park rides. A typical Dome is a hemispheric structure ranging from 40 to 70 feet in diameter but Domes are also produced in various curved shapes and sizes to accommodate a special purpose. Dome sales typically range from $200 to $1,000 but occasionally exceed this range for sales of multiple complex structures priced at several million dollars.

7

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Show Content is sold under a license agreement. Show Content can also be sold with or without an Audio-Visual System. Most Show Content is sold to planetarium theaters which historically have been used as astronomical simulators; however, digital technologies have expanded capabilities to display a wider variety of content. The Company’s Show Content products include a variety of mostly educational topics including but not limited to astronomy, earth sciences, history, and biology. The Company sells Show Content it produces as well as content produced by other entities under distribution arrangements. Show Content sales typically range from $2 to $80.

Maintenance and Service is sold in the form of spare parts or service agreements that sometimes include an extended warranty feature. Maintenance and Service is sold predominantly for Audio-Visual Systems. Dome products require less maintenance but can benefit from an occasional cleaning. Part sales typically range from $1 to $100. Maintenance and Service contract sales typically range from $3 to $200.  

The Company sells and markets its products through its employee sales team. For many foreign sales, the employee team is assisted by commissioned agents based in the locale of the customer. The Company markets its products through a network of industry associations and by messaging to the designers of planetarium theaters and visitor attractions. For Dome sales other than for planetarium projects, the Company relies on relationships developed with many satisfied customers in the architectural, visitor attraction, and theme park community. Customer decisions are based on price, product features and the experience of the supplier.

Most of the Company’s revenue comes from sales of Audio-Visual Systems and Domes for planetarium theaters or other visitor attractions. Sales can be to existing theaters interested in upgrading or to a new theater. Maintenance and Service and Show Content provide a reasonably steady stream of repeat revenue from existing customers but only at levels that can supplement the volume required from Audio-visual Systems and Domes necessary to sustain the business. As such, the Company relies on sales to new projects each year. Customer sales sometimes can take years to consummate from the initial planning stage to the award of the contract. Often there is a competitive bid process with multiple suppliers involved.

Customer contracts generally provide for progress payments which in many cases provides advance funding for the cost of performance. In some cases, customers hold a small portion of the contract payment for performance security through the warranty. The Company may also be required to provide performance security in the form of a surety bond or international standby letter of credit. Most customers are large public institutions, government or quasi-government entities, and large theme park entities, which carry little credit risk.  

Multiple Deliverable Arrangements  

Some contracts include multiple deliverables.  Significant deliverables in such arrangements commonly include Audio-Visual Systems, Domes, Show Content and various Maintenance and Service deliverables.  Revenue earned on deliverables such as products, services and maintenance contracts are allocated to each deliverable based on the relative fair values of the deliverables.  Relative fair values of deliverables are generally determined based on actual and estimated selling price. Delivery times of such contracts vary but typically occur within a three to twelve-month time period.

Revenue Recognition Methods for 2017

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 revenue recognized and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets.

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

8

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured.

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.  

Revenue Recognition Methods for 2018

In 2018, upon adoption of Topic 606, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following describes the methods used to recognize revenue under the application of Topic 606.

Audio-Visual Systems. The Company’s Audio-Visual Systems are sold for a fixed price under non-cancelable contracts. Because systems are often designed with unique features and constantly changing technology components, there is no practical alternative use for a system after it is sold. Under Topic 606, if an entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for the performance completed to date, then its performance obligation is satisfied and control of the product transfers over time. If control transfers over time, an entity selects a method to measure progress that is consistent with the objective of depicting its performance and recognizes revenue accordingly. The Company has determined the percentage-of-completion method utilizing cost-to-cost methodology best depicts the measure of progress because it tracks the utilization of total resources to fulfill the obligation. This same method has been used prior to the adoption of Topic 606 for recognizing revenue on certain Audio-Visual System sales and most Dome sales. With the adoption of Topic 606, essentially all Audio-Visual Systems and subsystem sales will use the percentage-of-completion method for revenue recognition.  

Domes. The Company’s Domes are sold for a fixed price under non-cancelable contracts. Because Domes have custom design and interface features, there is no practical alternative use for a Dome after it is sold. As discussed above under Audio-Visual Systems, when there is no alternative use for the product and there is an enforceable right to payment, Topic 606 requires revenue to be recognized over the time of performance. Accordingly, the Company continues to use the percentage-of-completion method utilizing cost-to-cost methodology for the recognition of revenue for the sale Domes, as it has prior to the adoption of Topic 606.  

Show Content.  Show Content is sold under various license agreements, most often for a fixed price, but occasionally for a variable share of the customer’s theater revenue. Sales of Show Content require no future obligations by the Company after delivery.  The Company recognizes the revenue for fixed price Show Content licenses upon the execution of the license agreement and delivery of media since that is the time control and benefit of the Show Content is transferred. Under Topic 606, an entity does not recognize revenue for the variable amounts related to a royalty until a customer’s subsequent sales or usage occurs. Accordingly, revenue from the variable share of the customer’s theater revenue is recognized when realized. The method used by the Company for recognizing Show Content revenue has not changed with the adoption of Topic 606.

Maintenance and Service. Maintenance and Service revenue consists of parts sales and service contracts. Parts sales are recognized upon shipment which is when the control and benefit transfers to the customer. Service contracts are sold for a fixed price and provide the customer with various levels of preventive service, support and limited warranty protection. Under Topic 606, the revenue for service contracts is recognized ratably over the term of the contract or upon delivery of a service specified in the contract. The method used by the Company for recognizing Maintenance and Service revenue has not changed with the adoption of Topic 606.

Contract Acquisition Costs

Contract acquisition costs consist of expenditures of Company employee and other resources and, in some cases, the payment of sales commissions to non-employee agents. Expenditures of Company employee and other resources are costs that would be incurred regardless of whether the contract is obtained, are not recoverable, and therefore are expensed as they are incurred under Topic 606. Sales commissions paid to agents are incurred only if the contract is obtained and therefore are incremental costs of acquiring the contract. Rather than capitalize the cost of sales commissions, the Company has elected to expense sales commissions as incurred under the practical expedient permitted by Topic 606, whereby expensing is permitted when the amortization period of the asset that the entity otherwise would have recognized is one year or less.

9

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Disaggregation of Revenue

In the following table, revenue reported for the three and six months ended June 29, 2018 under Topic 606 is disaggregated by primary geographical market, major product line, timing of revenue recognition and product application.

Revenue for the three months ended June 29, 2018
Product Application	Planetarium Theaters	Other Visitor Attractions	Architectural Treatments	Total
Primary geographic area:
North America	$5,771	$353	$269	$6,393
Europe	1,098	401	-	1,499
Asia	223	746	-	969
Other	11	-	-	11
	$7,103	$1,500	$269	$8,872
Products:
Audio-Visual Systems	$4,009	$401	$-	$4,410
Domes	1,508	1,099	269	2,876
Show Content	844	-	-	844
Maintenance and Service	742	-	-	742
	$7,103	$1,500	$269	$8,872
Timing of revenue recognition:
Goods transferred at point in time	$1,078	$-	$-	$1,078
Goods and services transferred over time	6,025	1,500	269	7,794
	$7,103	$1,500	$269	$8,872

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EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Revenue for the six months ended June 29, 2018
Product Application	Planetarium Theaters	Other Visitor Attractions	Architectural Treatments	Total
Primary geographic area:
North America	$8,904	$473	$629	$10,006
Europe	1,431	412	-	1,843
Asia	2,679	1,593	-	4,272
Other	332	-	-	332
	$13,346	$2,478	$629	$16,453
Products:
Audio-Visual Systems	$7,995	$412	$-	$8,407
Domes	2,883	2,066	629	5,578
Show Content	1,170	-	-	1,170
Maintenance and Service	1,298	-	-	1,298
	$13,346	$2,478	$629	$16,453
Timing of revenue recognition:
Goods transferred at point in time	$1,559	$-	$-	$1,559
Goods and services transferred over time	11,787	2,478	629	14,894
	$13,346	$2,478	$629	$16,453

11

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contract Balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of June 29, 2018:

	June 29, 2018	January 1, 2018
Receivables reported as accounts receivable, net	$5,504	$3,794
Contract revenue in excess of billings	4,657	3,517
Billings in excess of contract revenue	9,229	6,265

Significant changes in the contract assets and the contract liabilities balances during the period are as follows:

	Contract Assets	Contract Liabilities
Revenue recognized that was included in the contract liability balance at the beginning of the period		$3,934
Increases due to amounts billed to customers, excluding amounts recognized as revenue during the period		$ (6,898)
Transferred to receivables from contract assets recognized at the beginning of the period	$ (2,797)
Increases as a result of revenue recognized, excluding amounts transferred to receivables during the period	$3,937

Contract revenue in excess of billings are contract assets that arise when revenue recognized on a contract exceeds the cumulative progress billings. Contracts generally provide for an enforceable right to payment for performance completed to date but do not necessarily have a present right to consideration payment for performance completed until the event that triggers the progress billing. The contract assets are transferred to the receivables when the rights to payment occur and amounts are billed. Billings in excess of contract revenue are contract liabilities that arise when progress billings on a contract exceed the revenue recognized. Contract liabilities are relieved as the performance obligation is completed and revenue is recognized. Progress billings vary among contracts and can be triggered by chronological milestones, performance events or other various measurements of performance.

Backlog of Remaining Customer Performance Obligations

The following table includes estimated revenue expected to be recognized and recorded as sales in the future from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

	Remainder of 2018	2019	2020	2021
Sales	$17,042	$9,251	$250	$235

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EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

3.    CHANGES IN ACCOUNTING POLICIES

Except for the changes disclosed in Note 1 under revenue recognition, the Company has consistently applied the accounting policies to both periods presented in these condensed consolidated financial statements. The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below. The Company applied Topic 606 using the cumulative effect method and accordingly recognized the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under prior accounting rules.

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated financial statements for the three and six months ended June 29, 2018:

Condensed consolidated balance sheet
Impact of changes in accounting policies
			Balances
			Without
			adoption of
June 29, 2018	As reported	Adjustments	Topic 606
Cash and cash equivalents	$ 5,154	$ -	$ 5,154
Restricted cash	405	-	405
Contract revenue in excess of billings	4,657	(978)	3,679
Inventories, net	4,258	1,754	6,012
Others	14,275	-	14,275
Total assets	28,749	776	29,525
Billings in excess of contract revenue	9,229	1,938	11,167
Others	14,878	-	14,878
Total liabilities	24,107	1,938	26,045
Accumulated deficit	(45,867)	(1,162)	(47,029)
Others	50,509	-	50,509
Total stockholders’ equity	4,642	(1,162)	3,480
Total liabilities and stockholders’ equity	$ 28,749	$ 776	$ 29,525

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EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed consolidated statement of operations
Impact of changes in accounting policies
			Balances
			Without
			adoption of
For the three months ended June 29, 2018	As reported	Adjustments	Topic 606
Sales	$8,872	$(876)	$7,996
Cost of sales	(5,654)	630	(5,024)
Selling, general and administrative	(1,685)	-	(1,685)
Income tax expense	(20)	-	(20)
Others	(894)	-	(894)
Net income	$619	$(246)	$373

Impact of changes in accounting policies
			Balances
			Without
			adoption of
For the six months ended June 29, 2018	As reported	Adjustments	Topic 606
Sales	$16,453	$(1,310)	$15,143
Cost of sales	(10,556)	831	(9,725)
Selling, general and administrative	(3,431)	-	(3,431)
Income tax expense	(31)	-	(31)
Others	(1,777)	-	(1,777)
Net income	$658	$(479)	$179

Condensed consolidated statement of cash flows
Impact of changes in accounting policies
			Balances
			without
			adoption of
For the six months ended June 29, 2018	As reported	Adjustments	Topic 606
Net income	$658	$(479)	$179
Adjustments to reconcile net income to net   cash provided by operating activities:
Other	125	-	125
Changes in:
Inventories	(1,367)	(831)	(2,198)
Contract revenue in excess of billings	(1,140)	978	(162)
Billings in excess of contract revenue	2,964	332	3,296
Other	(1,103)	-	(1,103)
Net cash provided by operating activities	137	-	137
Net cash used in investing activities	(56)	-	(56)
Net cash used in financing activities	$(110)	$-	$(110)

14

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

4.STOCK OPTION PLAN  

As of June 29, 2018, options to purchase 1,001,781 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 June 29, 2018 follows (shares in thousands):

		Weighted-
		Average
	Number	Exercise
	of Shares	Price
Outstanding as of beginning of the period	1,609	$0.66
Granted	150	1.12
Exercised	-	-
Forfeited or expired	(162)	1.21
Outstanding as of end of the period	1,597	0.65
Exercisable as of end of the period	1,128	$0.48

As of June 29, 2018, options exercisable and options outstanding had a weighted average remaining contractual term of 5.21 and 6.23 years, respectively, and had an aggregate intrinsic value of $641 and $676, 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 2018, were based on estimates as of the date of grant as follows:

Risk-free interest rate	2.04%
Dividend yield	0.00%
Volatility	125%
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 June 29, 2018, there was approximately $162 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 operations for the six-month periods ended June 29, 2018 and June 30, 2017 was $76 and $86, respectively. Share-based compensation expense included in selling, general and administrative expense in the statements of operations for the three-month periods ended June 29, 2018 and June 30, 2017 was $37 and $46, respectively.

15

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

5.EMPLOYEE RETIREMENT BENEFIT PLANS  

Pension and Retirement Obligations

In 2015, the Company terminated a defined pension plan and settled the resulting liabilities in exchange for a fixed obligation secured by the Company’s assets (the “Pension Settlement Obligation”). The remaining payments due under the Pension Settlement Obligation consist of ten installments of $750 to the Pension Benefit Guaranty Corporation due annually on October 31. The Pension Settlement Obligation is recorded net of imputed interest expense at 7%, as a liability on the balance sheet.

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 $469 in the next 12 months.  

Components of Net Periodic Benefit Expense

	Supplemental Executive
	Retirement Plan
	June 29,	June 30,
For the six months ended:	2018	2017
Interest cost	$68	$78
Amortization of actuarial loss	40	37
Net periodic benefit expense	$108	$115

	Supplemental Executive
	Retirement Plan
	June 29,	June 30,
For the three months ended:	2018	2017
Interest cost	$34	$39
Amortization of actuarial loss	20	18
Net periodic benefit expense	$54	$57

16

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

As described in the notes to the condensed consolidated financial statements, the Company adopted Topic 606, Revenue from Contracts with Customers, with a date of the initial application of January 1, 2018. The Company applied Topic 606 using the cumulative effect method and accordingly recognized the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. As a result, the Company used different methods for recognizing revenue in each of the years presented as detailed below.

The adoption of Topic 606 changed the method of recognizing revenue for certain customer contracts. More specifically, for some contracts, revenue previously was not recognized until the product was accepted by the customer. Under Topic 606, revenue for these contracts will be recognized over time using the percentage completion method, which is the method used for most of our customer contracts. The immediate effect of the change was to accelerate earnings on the revenue backlog for the effected contracts. Much of this acceleration was recorded in a cumulative transition adjustment, whereby $682 of gross profit on $1,606 of sales was recorded directly to stockholders’ equity.  Although the benefit of the earnings from the transition adjustment is reflected in the financial position of the Company on the balance sheet, it will not be reported in the statement of operations. Going forward, we believe Topic 606 will create a smoother revenue stream by spreading more revenue over the period of performance as opposed to previously when some contract revenue was recorded in a lump sum in the period of acceptance by the customer.

The results for the three and six months ended June 29, 2018 produced net income of $619 and $658, respectively. The 2018 results compared favorably to the three and six months ended June 30, 2017 which reported a loss of $171 for the three months ended June 30, 2017 and marginal income of $14 for the six months ended June 30, 2017. The improved results were attributable to increased sales recorded in 2018. Some of the increase in sales recorded was attributable to the change in the method of recognizing revenue as explained above. As more fully described in the footnotes to the financial statements, under the accounting methods used in 2017, the three months and six months ended June 29, 2018 would have produced net income of $373 and $179 respectively. Sales for 2018 were higher,

17

due to more work completed on customer projects in the second quarter of 2018. The sales recorded is driven by the expenditure of resources required to meet customer schedules for the projects in the sales backlog. Sales bookings were healthy in the first six months of 2018 and, with the sales prospects, present an opportunity for profitable results for the remainder of 2018.

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, 2017.  In addition, the Company considers the new revenue standard, adopted January 1, 2018 and described in Note 2, to be a critical accounting policy. For all of these policies, management cautions that future results rarely develop exactly as forecasted, and the best estimates routinely require modification.  

RESULTS OF OPERATIONS

Sales and Backlog

The following table summarizes our sales:

	Three Months Ended		Six Months Ended
	June 29, 2018	June 30, 2017	June 29, 2018	June 30, 2017
Sales	$8,872	$6,744	$16,453	$14,787

See Note 2 and Note 3 to the condensed consolidated financial statements for explanations of changes in the accounting method for revenue recognition. Sales for the three and six months ended June 29, 2018 would have been $7,996 and $15,143 using the same accounting method used in 2017. The higher 2018 sales were attributable to an increase in work performed on larger planetarium systems and domes; otherwise the contribution to sales from other customer projects was comparable in the periods presented.  

Revenue backlog decreased to $26,778 as of June 29, 2018, compared to $27,360 as of December 31, 2017. The decrease in the revenue backlog is mainly attributed to the change in accounting method for revenue recognition. As discussed in Note 2 and Note 3 to the condensed consolidated financial statements, the cumulative effect of the change was recorded as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. This adjustment recorded the gross profit on $1,606 of sales from the revenue backlog. Also, the changes in the accounting method for revenue recognition resulted in $1,310 of additional sales in the six months of 2018. Hence, the change in the accounting method for revenue recognition reduced the backlog by a total $2,916. Had it not been for the change, the sales backlog would have increased to $29,694. The revenue backlog benefited by strong sales bookings for planetarium systems in the first six months of 2018.    

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
	June 29, 2018	June 30, 2017	June 29, 2018	June 30, 2017
Gross profit	$3,218	$2,265	$5,897	$4,939
Gross profit percentage	36%	34%	36%	33%

The mix of products delivered and the types of customer contracts that contributed to the revenue in the periods presented causes variability in the gross profit percentage. Also, the higher 2018 sales resulted in efficiencies that lowered overhead cost of as a percentage of sales.  

18

Operating Expenses

The following table summarizes our operating expenses:

	Three Months Ended		Six Months Ended
	June 29, 2018	June 30, 2017	June 29, 2018	June 30, 2017
Selling, general and administrative	$1,685	$1,517	$3,431	$3,123
Research and development	740	766	1,494	1,467
Pension	54	57	108	115
Total operating expenses	$2,479	$2,340	$5,033	$4,705

Selling, general and administrative expenses were higher in 2018 compared to 2017. This was due to the timing of expenditures and costs related to a bi-annual industry conference in 2018. Also, in 2017, there was a reduction in the allowance for doubtful accounts receivable resulting in a credit which reduced 2017 expenses.

Research and development expenses were comparable in the periods presented. Research and development expenses generally vary with use of engineering resources for product improvement projects as opposed to customer delivery activities.

Pension expense declined slightly in 2018 compared to 2017 due to a decrease in the interest cost on the SERP.

Other Expense, net

The following table summarizes our other expense:

	Three Months Ended		Six Months Ended
	June 29, 2018	June 30, 2017	June 29, 2018	June 30, 2017
Total other expense, net	$100	$93	$175	$202

Other expense decreased in 2018 compared to 2017 mainly due to declining interest expense on the Pension Settlement Obligation and mortgage notes along with offsetting increase of interest income from a capital lease receivable.   

LIQUIDITY AND CAPITAL RESOURCES

Outlook

As discussed above in the executive summary, 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 first six months of 2018, $137 of cash provided by operating activities was attributable to $1,077 of cash provided by the net income for the period, after the effect of non-cash items of $419 which was offset by cash used by changes to working capital of $940. The significant uses of cash from changes to working capital were increases in accounts receivable, inventory, and contract revenue in excess of billings.  This was partially offset by an increase in billings in excess of contract revenue resulting from advance billings to customers.  These changes are attributable to the timing of billings, customer payments and new customer orders.   

In the first six months of 2017, $1,297 of cash used in operating activities was attributable to $192 of cash provided by the net income for the period, after the effect of $178 of non-cash items and an unfavorable change to working capital of $1,489. The change to working capital was driven by increases in receivables, prepaid expenses and other assets, and contract revenue in excess of billings, which was offset by an increase in billings in excess of contract

19

revenue. These increases are attributable to the timing of billings and new customer orders.   The change in working capital was also affected by an increase in prepaid expenses and other assets.

Cash used in investing activities was $56 for the six months ended June 29, 2018 compared to $86 for the same period of 2017.  Investing activities for both periods presented consisted almost entirely of property and equipment purchases.

For the six months ended June 29, 2018, financing activities used $110 of cash compared to $105 in 2017 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 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 June 29, 2018.

Letters of Credit

Under the 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 June 29, 2018 there were outstanding letters of credit and bank guarantees of $405, which are scheduled to expire during the year ending December 31, 2018.  

Mortgage Notes

As of June 29, 2018, Spitz had obligations totaling $1,654 under its two mortgage notes payable.

Item 4.  CONTROLS AND PROCEDURES

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

On January 1, 2018 the Company’s subsidiary began processing inventory transactions on the integrated accounting software system it uses for all other transactions. Prior to 2018 the subsidiary’s inventory and product bills of material were accounted for using a legacy system. This change was made to improve the efficiency of the accounting function through improved integration of all transactions. Also, transitioning off the legacy system

20

provides better security and assurance of system support. The Company has made changes to its internal control over financial reporting in connection with this transition from the legacy system.

Other than the improvements noted above, 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 three months ended June 29, 2018, 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.

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 June 29, 2018, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

21

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 6, 2018	By: /s/ Paul Dailey
		Paul Dailey, Chief Financial Officer
		and Corporate Secretary
		(Authorized Officer)
		(Principal Financial and Accounting Officer)

22

EX-31.1

Exhibit 31.1

Rule 13a-14 Certification

CERTIFICATIONS*

I, Jonathan Shaw, 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 6, 2018

/s/ Jonathan Shaw
Jonathan Shaw
Chief 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 6, 2018

/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, Jonathan Shaw, certify, pursuant to 18 U.S.C. Sec.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 June 29, 2018, 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 6, 2018By:     /s/ Jonathan Shaw  

Jonathan Shaw 

             Chief Executive Officer 

I, Paul L. Dailey, certify, pursuant to 18 U.S.C. Sec.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 June 29, 2018, 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 6, 2018By:     /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. Sec.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
	Jun. 29, 2018	Jul. 31, 2018
Details
Registrant Name	EVANS & SUTHERLAND COMPUTER CORPORATION
Registrant CIK	0000276283
SEC Form	10-Q
Period End date	Jun. 29, 2018
Fiscal Year End	--12-31
Trading Symbol	escc
Tax Identification Number (TIN)	870278175
Number of common stock shares outstanding		11,352,516
Filer Category	Smaller Reporting Company
Current with reporting	Yes
Voluntary filer	No
Well-known Seasoned Issuer	No
Amendment Flag	false
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Contained File Information, File Number	001-14677
Entity Incorporation, State Country Name	Utah
Entity Address, Address Line One	770 Komas Drive
Entity Address, City or Town	Salt Lake City
Entity Address, State or Province	Utah
Entity Address, Postal Zip Code	84108

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 29, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 5,154	$ 5,276
Restricted cash	405	312
Accounts receivable, net	5,504	3,794
Current portion of lease receivable	255	247
Contract revenue in excess of billings	4,657	2,763
Inventories, net	4,258	3,973
Prepaid expenses and deposits	688	712
Total current assets	20,921	17,077
Long-term lease receivable, net of current portion	707	836
Property and equipment, net	4,447	4,527
Goodwill	635	635
Other assets	2,039	1,955
Total assets	28,749	25,030
Current liabilities:
Accounts payable	1,900	1,667
Accrued liabilities	1,318	912
Billings in excess of contract revenue	9,229	7,117
Current portion of retirement obligations	469	500
Current portion of pension settlement obligation	409	409
Current portion of long-term debt	231	224
Total current liabilities	13,556	10,829
Retirement obligations, net of current portion	4,059	4,150
Pension settlement obligation, net of current portion	4,478	4,478
Long-term debt, net of current portion	1,423	1,540
Deferred rent obligation	591	808
Total liabilities	24,107	21,805
Stockholders' equity:
Preferred stock, no par value: 10,000,000 shares authorized; no shares outstanding	0	0
Common stock, $0.20 par value: 30,000,000 shares authorized; 11,616,866 shares issued	2,323	2,323
Additional paid-in-capital	53,894	53,818
Common stock in treasury, at cost, 264,350 shares	(3,532)	(3,532)
Accumulated deficit	(45,867)	(47,208)
Accumulated other comprehensive loss	(2,176)	(2,176)
Total stockholders' equity	4,642	3,225
Total liabilities and stockholders' equity	$ 28,749	$ 25,030

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - Parenthetical - $ / shares	Jun. 29, 2018	Dec. 31, 2017
Details
Preferred Stock, No Par Value	$ 0	$ 0
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Outstanding	0	0
Common Stock, Par or Stated Value Per Share	$ 0.20	$ 0.20
Common Stock, Shares Authorized	30,000,000	30,000,000
Common Stock, Shares, Issued	11,616,866	11,616,866
Treasury Stock, Shares	264,350	264,350

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Details
Sales	$ 8,872	$ 6,744	$ 16,453	$ 14,787
Cost of sales	(5,654)	(4,479)	(10,556)	(9,848)
Gross profit	3,218	2,265	5,897	4,939
Operating expenses:
Selling, general and administrative	(1,685)	(1,517)	(3,431)	(3,123)
Research and development	(740)	(766)	(1,494)	(1,467)
Pension	(54)	(57)	(108)	(115)
Total operating expenses	(2,479)	(2,340)	(5,033)	(4,705)
Operating income (loss)	739	(75)	864	234
Other expense, net	(100)	(93)	(175)	(202)
Income (loss) before income tax provision	639	(168)	689	32
Income tax provision	(20)	(3)	(31)	(18)
Net income (loss)	$ 619	$ (171)	$ 658	$ 14
Net income (loss) per common share - basic	$ 0.05	$ (0.02)	$ 0.06	$ 0.00
Net income (loss) per common share - diluted	$ 0.05	$ (0.02)	$ 0.05	$ 0.00
Weighted average common shares outstanding - basic	11,353	11,353	11,353	11,353
Weighted average common shares outstanding - diluted	12,050	11,353	11,997	12,076

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income	$ 658	$ 14
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	135	129
Provision for excess and obsolete inventory	159	48
Other	125	1
Changes in operating assets and liabilities:
Increase in accounts receivable	(1,758)	(664)
Decrease in lease receivable	121	134
Decrease (increase) in inventories	(1,367)	323
Increase in contract revenue in excess of billings	(1,140)	(644)
Increase in prepaid expenses and other assets	(60)	(775)
Increase (decrease) in accounts payable	233	(300)
Increase (decrease) in accrued liabilities	406	(46)
Decrease in accrued pension and retirement liabilities	(122)	(115)
Increase in billings in excess of contract revenue	2,964	809
Decrease in deferred rent obligation	(217)	(211)
Net cash provided by (used in) operating activities	137	(1,297)
Cash flows from investing activities:
Purchases of property and equipment	(59)	(86)
Proceeds from sale of property and equipment	3	0
Net cash used in investing activities	(56)	(86)
Cash flows from financing activities:
Principal payments on long-term debt	(110)	(105)
Net cash used in financing activities	(110)	(105)
Net decrease in cash, cash equivalents, and restricted cash	(29)	(1,488)
Cash, cash equivalents, and restricted cash as of beginning of the period	5,588	7,426
Cash, cash equivalents, and restricted cash as of end of the period	5,559	5,938
Cash paid during the period for:
Interest	50	56
Income taxes	$ 48	$ 120

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1. General

6 Months Ended

Jun. 29, 2018

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, 2017.

The accompanying unaudited condensed consolidated balance sheets, statements of operations, 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 six months ended June 29, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018.  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

As more fully described in Note 2, effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance.  As a result of the adoption of ASU Topic 606, the Company changed its accounting policy for revenue recognition. See Note 2 for the methods used to determine revenue recognition for the periods presented.

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 (Loss) Per Common Share

Basic net income (loss) per common share is computed based on the weighted-average number of common shares outstanding during the period.  Diluted net income per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. 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.  Stock options produced common stock equivalents of 644,374 and 723,283 used to compute diluted net income per share for the six months ended June 29, 2018 and June 30, 2017, respectively.

Inventories, net

Inventories consisted of the following:

	June 29,	January 1,
	2018	2018
Raw materials	$6,624	$5,458
Work in process	114	1,011
Finished goods	598	423
Reserve for obsolete inventory	(3,078)	(2,919)
Inventories, net	$4,258	$3,973

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 changes the accounting for leases. In particular, lessees will recognize lease assets and lease liabilities for operating leases. This update will have a minimal effect on lessor accounting. ASU 2016-02 is not effective until 2019. The Company is currently assessing the impact on its financial reporting of implementing this guidance.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash

(“ASU 2016-18”). ASU 2016-18 changes the cash flow presentation and disclosures of restricted cash. The

Company implemented this update in the presented financial statements.

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2. Revenue

6 Months Ended

Jun. 29, 2018

Notes

2. Revenue

2.    REVENUE

The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of the initial application of January 1, 2018. The Company applied Topic 606 using the cumulative effect method, and accordingly recognized the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. As a result, the Company used different methods for recognizing revenue in each of the periods presented as detailed below.

Products and services

The Company generates its revenue through manufacturing, integrating, distributing, and servicing its various products consisting of: Audio-Visual Systems, Domes, Show Content, and Maintenance and Service contracts. All of the Company’s products are sold worldwide.

Audio-Visual Systems consist of standard and customized hardware components integrated with proprietary software. The Audio-Visual Systems are most often used as the primary equipment for planetarium theaters operated by educational institutions. Occasionally, Audio-Visual Systems are sold for other special purposes at various visitor attractions. Audio-Visual System sales include upgrades of existing systems and sub-systems. Sales of typical Audio-Visual Systems range from $200 to $2,000.  

Domes are hemispheric or curved metal structures fabricated from mostly aluminum metal tubing and sheets at the Company’s factory. Some Dome components have a special optical coating applied by a partner vendor. The Dome components are shipped to a customer site and are assembled and installed in or on the customer’s building by a crew of Company employees or subcontractors. Domes are often sold with an Audio-Visual System to serve as projection screens but can also be sold separately. Most often a Dome sold separately is used as a projection screen but occasionally they are used as architectural treatments. Dome projection screens sold separately can be used for existing planetarium theaters or other special visitor attractions such as theme park rides. A typical Dome is a hemispheric structure ranging from 40 to 70 feet in diameter but Domes are also produced in various curved shapes and sizes to accommodate a special purpose. Dome sales typically range from $200 to $1,000 but occasionally exceed this range for sales of multiple complex structures priced at several million dollars.

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.

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.  

Revenue Recognition Methods for 2018

In 2018, upon adoption of Topic 606, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following describes the methods used to recognize revenue under the application of Topic 606.

Audio-Visual Systems. The Company’s Audio-Visual Systems are sold for a fixed price under non-cancelable contracts. Because systems are often designed with unique features and constantly changing technology components, there is no practical alternative use for a system after it is sold. Under Topic 606, if an entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for the performance completed to date, then its performance obligation is satisfied and control of the product transfers over time. If control transfers over time, an entity selects a method to measure progress that is consistent with the objective of depicting its performance and recognizes revenue accordingly. The Company has determined the percentage-of-completion method utilizing cost-to-cost methodology best depicts the measure of progress because it tracks the utilization of total resources to fulfill the obligation. This same method has been used prior to the adoption of Topic 606 for recognizing revenue on certain Audio-Visual System sales and most Dome sales. With the adoption of Topic 606, essentially all Audio-Visual Systems and subsystem sales will use the percentage-of-completion method for revenue recognition.  

Domes. The Company’s Domes are sold for a fixed price under non-cancelable contracts. Because Domes have custom design and interface features, there is no practical alternative use for a Dome after it is sold. As discussed above under Audio-Visual Systems, when there is no alternative use for the product and there is an enforceable right to payment, Topic 606 requires revenue to be recognized over the time of performance. Accordingly, the Company continues to use the percentage-of-completion method utilizing cost-to-cost methodology for the recognition of revenue for the sale Domes, as it has prior to the adoption of Topic 606.  

Show Content.  Show Content is sold under various license agreements, most often for a fixed price, but occasionally for a variable share of the customer’s theater revenue. Sales of Show Content require no future obligations by the Company after delivery.  The Company recognizes the revenue for fixed price Show Content licenses upon the execution of the license agreement and delivery of media since that is the time control and benefit of the Show Content is transferred. Under Topic 606, an entity does not recognize revenue for the variable amounts related to a royalty until a customer’s subsequent sales or usage occurs. Accordingly, revenue from the variable share of the customer’s theater revenue is recognized when realized. The method used by the Company for recognizing Show Content revenue has not changed with the adoption of Topic 606.

Maintenance and Service. Maintenance and Service revenue consists of parts sales and service contracts. Parts sales are recognized upon shipment which is when the control and benefit transfers to the customer. Service contracts are sold for a fixed price and provide the customer with various levels of preventive service, support and limited warranty protection. Under Topic 606, the revenue for service contracts is recognized ratably over the term of the contract or upon delivery of a service specified in the contract. The method used by the Company for recognizing Maintenance and Service revenue has not changed with the adoption of Topic 606.

Contract Acquisition Costs

Contract acquisition costs consist of expenditures of Company employee and other resources and, in some cases, the payment of sales commissions to non-employee agents. Expenditures of Company employee and other resources are costs that would be incurred regardless of whether the contract is obtained, are not recoverable, and therefore are expensed as they are incurred under Topic 606. Sales commissions paid to agents are incurred only if the contract is obtained and therefore are incremental costs of acquiring the contract. Rather than capitalize the cost of sales commissions, the Company has elected to expense sales commissions as incurred under the practical expedient permitted by Topic 606, whereby expensing is permitted when the amortization period of the asset that the entity otherwise would have recognized is one year or less.

Disaggregation of Revenue

In the following table, revenue reported for the three and six months ended June 29, 2018 under Topic 606 is disaggregated by primary geographical market, major product line, timing of revenue recognition and product application.

Revenue for the three months ended June 29, 2018
Product Application	Planetarium Theaters	Other Visitor Attractions	Architectural Treatments	Total
Primary geographic area:
North America	$5,771	$353	$269	$6,393
Europe	1,098	401	-	1,499
Asia	223	746	-	969
Other	11	-	-	11
	$7,103	$1,500	$269	$8,872
Products:
Audio-Visual Systems	$4,009	$401	$-	$4,410
Domes	1,508	1,099	269	2,876
Show Content	844	-	-	844
Maintenance and Service	742	-	-	742
	$7,103	$1,500	$269	$8,872
Timing of revenue recognition:
Goods transferred at point in time	$1,078	$-	$-	$1,078
Goods and services transferred over time	6,025	1,500	269	7,794
	$7,103	$1,500	$269	$8,872

Revenue for the six months ended June 29, 2018
Product Application	Planetarium Theaters	Other Visitor Attractions	Architectural Treatments	Total
Primary geographic area:
North America	$8,904	$473	$629	$10,006
Europe	1,431	412	-	1,843
Asia	2,679	1,593	-	4,272
Other	332	-	-	332
	$13,346	$2,478	$629	$16,453
Products:
Audio-Visual Systems	$7,995	$412	$-	$8,407
Domes	2,883	2,066	629	5,578
Show Content	1,170	-	-	1,170
Maintenance and Service	1,298	-	-	1,298
	$13,346	$2,478	$629	$16,453
Timing of revenue recognition:
Goods transferred at point in time	$1,559	$-	$-	$1,559
Goods and services transferred over time	11,787	2,478	629	14,894
	$13,346	$2,478	$629	$16,453

Contract Balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of June 29, 2018:

	June 29, 2018	January 1, 2018
Receivables reported as accounts receivable, net	$5,504	$3,794
Contract revenue in excess of billings	4,657	3,517
Billings in excess of contract revenue	9,229	6,265

Significant changes in the contract assets and the contract liabilities balances during the period are as follows:

	Contract Assets	Contract Liabilities
Revenue recognized that was included in the contract liability balance at the beginning of the period		$3,934
Increases due to amounts billed to customers, excluding amounts recognized as revenue during the period		$ (6,898)
Transferred to receivables from contract assets recognized at the beginning of the period	$ (2,797)
Increases as a result of revenue recognized, excluding amounts transferred to receivables during the period	$3,937

Contract revenue in excess of billings are contract assets that arise when revenue recognized on a contract exceeds the cumulative progress billings. Contracts generally provide for an enforceable right to payment for performance completed to date but do not necessarily have a present right to consideration payment for performance completed until the event that triggers the progress billing. The contract assets are transferred to the receivables when the rights to payment occur and amounts are billed. Billings in excess of contract revenue are contract liabilities that arise when progress billings on a contract exceed the revenue recognized. Contract liabilities are relieved as the performance obligation is completed and revenue is recognized. Progress billings vary among contracts and can be triggered by chronological milestones, performance events or other various measurements of performance.

Backlog of Remaining Customer Performance Obligations

The following table includes estimated revenue expected to be recognized and recorded as sales in the future from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

	Remainder of 2018	2019	2020	2021
Sales	$17,042	$9,251	$250	$235

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3. Changes in Accounting Policies

6 Months Ended

Jun. 29, 2018

Notes

3. Changes in Accounting Policies

3.    CHANGES IN ACCOUNTING POLICIES

Except for the changes disclosed in Note 1 under revenue recognition, the Company has consistently applied the accounting policies to both periods presented in these condensed consolidated financial statements. The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below. The Company applied Topic 606 using the cumulative effect method and accordingly recognized the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under prior accounting rules.

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated financial statements for the three and six months ended June 29, 2018:

Condensed consolidated balance sheet
Impact of changes in accounting policies
			Balances
			Without
			adoption of
June 29, 2018	As reported	Adjustments	Topic 606
Cash and cash equivalents	$ 5,154	$ -	$ 5,154
Restricted cash	405	-	405
Contract revenue in excess of billings	4,657	(978)	3,679
Inventories, net	4,258	1,754	6,012
Others	14,275	-	14,275
Total assets	28,749	776	29,525
Billings in excess of contract revenue	9,229	1,938	11,167
Others	14,878	-	14,878
Total liabilities	24,107	1,938	26,045
Accumulated deficit	(45,867)	(1,162)	(47,029)
Others	50,509	-	50,509
Total stockholders’ equity	4,642	(1,162)	3,480
Total liabilities and stockholders’ equity	$ 28,749	$ 776	$ 29,525

Condensed consolidated statement of operations
Impact of changes in accounting policies
			Balances
			Without
			adoption of
For the three months ended June 29, 2018	As reported	Adjustments	Topic 606
Sales	$8,872	$(876)	$7,996
Cost of sales	(5,654)	630	(5,024)
Selling, general and administrative	(1,685)	-	(1,685)
Income tax expense	(20)	-	(20)
Others	(894)	-	(894)
Net income	$619	$(246)	$373

Impact of changes in accounting policies
			Balances
			Without
			adoption of
For the six months ended June 29, 2018	As reported	Adjustments	Topic 606
Sales	$16,453	$(1,310)	$15,143
Cost of sales	(10,556)	831	(9,725)
Selling, general and administrative	(3,431)	-	(3,431)
Income tax expense	(31)	-	(31)
Others	(1,777)	-	(1,777)
Net income	$658	$(479)	$179

Condensed consolidated statement of cash flows
Impact of changes in accounting policies
			Balances
			without
			adoption of
For the six months ended June 29, 2018	As reported	Adjustments	Topic 606
Net income	$658	$(479)	$179
Adjustments to reconcile net income to net   cash provided by operating activities:
Other	125	-	125
Changes in:
Inventories	(1,367)	(831)	(2,198)
Contract revenue in excess of billings	(1,140)	978	(162)
Billings in excess of contract revenue	2,964	332	3,296
Other	(1,103)	-	(1,103)
Net cash provided by operating activities	137	-	137
Net cash used in investing activities	(56)	-	(56)
Net cash used in financing activities	$(110)	$-	$(110)

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4. Stock Option Plan

6 Months Ended

Jun. 29, 2018

Notes

4. Stock Option Plan

As of June 29, 2018, options to purchase 1,001,781 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 June 29, 2018 follows (shares in thousands):

		Weighted-
		Average
	Number	Exercise
	of Shares	Price
Outstanding as of beginning of the period	1,609	$0.66
Granted	150	1.12
Exercised	-	-
Forfeited or expired	(162)	1.21
Outstanding as of end of the period	1,597	0.65
Exercisable as of end of the period	1,128	$0.48

As of June 29, 2018, options exercisable and options outstanding had a weighted average remaining contractual term of 5.21 and 6.23 years, respectively, and had an aggregate intrinsic value of $641 and $676, 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 2018, were based on estimates as of the date of grant as follows:

Risk-free interest rate	2.04%
Dividend yield	0.00%
Volatility	125%
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 June 29, 2018, there was approximately $162 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 operations for the six-month periods ended June 29, 2018 and June 30, 2017 was $76 and $86, respectively. Share-based compensation expense included in selling, general and administrative expense in the statements of operations for the three-month periods ended June 29, 2018 and June 30, 2017 was $37 and $46, respectively.

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5. Employee Retirement Benefit Plans

6 Months Ended

Jun. 29, 2018

Notes

5. Employee Retirement Benefit Plans

5.EMPLOYEE RETIREMENT BENEFIT PLANS  

Pension and Retirement Obligations

In 2015, the Company terminated a defined pension plan and settled the resulting liabilities in exchange for a fixed obligation secured by the Company’s assets (the “Pension Settlement Obligation”). The remaining payments due under the Pension Settlement Obligation consist of ten installments of $750 to the Pension Benefit Guaranty Corporation due annually on October 31. The Pension Settlement Obligation is recorded net of imputed interest expense at 7%, as a liability on the balance sheet.

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 $469 in the next 12 months.  

Components of Net Periodic Benefit Expense

	Supplemental Executive
	Retirement Plan
	June 29,	June 30,
For the six months ended:	2018	2017
Interest cost	$68	$78
Amortization of actuarial loss	40	37
Net periodic benefit expense	$108	$115

	Supplemental Executive
	Retirement Plan
	June 29,	June 30,
For the three months ended:	2018	2017
Interest cost	$34	$39
Amortization of actuarial loss	20	18
Net periodic benefit expense	$54	$57

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1. General (Policies)

6 Months Ended

Jun. 29, 2018

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, 2017.

The accompanying unaudited condensed consolidated balance sheets, statements of operations, 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 six months ended June 29, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018.  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

As more fully described in Note 2, effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance.  As a result of the adoption of ASU Topic 606, the Company changed its accounting policy for revenue recognition. See Note 2 for the methods used to determine revenue recognition for the periods presented.

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 Income (Loss) Per Common Share

Basic net income (loss) per common share is computed based on the weighted-average number of common shares outstanding during the period.  Diluted net income per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. 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.  Stock options produced common stock equivalents of 644,374 and 723,283 used to compute diluted net income per share for the six months ended June 29, 2018 and June 30, 2017, respectively.

Inventories, net

Inventories, net

Inventories consisted of the following:

	June 29,	January 1,
	2018	2018
Raw materials	$6,624	$5,458
Work in process	114	1,011
Finished goods	598	423
Reserve for obsolete inventory	(3,078)	(2,919)
Inventories, net	$4,258	$3,973

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 changes the accounting for leases. In particular, lessees will recognize lease assets and lease liabilities for operating leases. This update will have a minimal effect on lessor accounting. ASU 2016-02 is not effective until 2019. The Company is currently assessing the impact on its financial reporting of implementing this guidance.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash

(“ASU 2016-18”). ASU 2016-18 changes the cash flow presentation and disclosures of restricted cash. The

Company implemented this update in the presented financial statements.

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1. General (Tables)

6 Months Ended

Jun. 29, 2018

Tables/Schedules

Schedule of Inventory

Inventories consisted of the following:

	June 29,	January 1,
	2018	2018
Raw materials	$6,624	$5,458
Work in process	114	1,011
Finished goods	598	423
Reserve for obsolete inventory	(3,078)	(2,919)
Inventories, net	$4,258	$3,973

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2. Revenue (Tables)

6 Months Ended

Jun. 29, 2018

Tables/Schedules

Schedule of geographical revenues

In the following table, revenue reported for the three and six months ended June 29, 2018 under Topic 606 is disaggregated by primary geographical market, major product line, timing of revenue recognition and product application.

Revenue for the three months ended June 29, 2018
Product Application	Planetarium Theaters	Other Visitor Attractions	Architectural Treatments	Total
Primary geographic area:
North America	$5,771	$353	$269	$6,393
Europe	1,098	401	-	1,499
Asia	223	746	-	969
Other	11	-	-	11
	$7,103	$1,500	$269	$8,872
Products:
Audio-Visual Systems	$4,009	$401	$-	$4,410
Domes	1,508	1,099	269	2,876
Show Content	844	-	-	844
Maintenance and Service	742	-	-	742
	$7,103	$1,500	$269	$8,872
Timing of revenue recognition:
Goods transferred at point in time	$1,078	$-	$-	$1,078
Goods and services transferred over time	6,025	1,500	269	7,794
	$7,103	$1,500	$269	$8,872

Revenue for the six months ended June 29, 2018
Product Application	Planetarium Theaters	Other Visitor Attractions	Architectural Treatments	Total
Primary geographic area:
North America	$8,904	$473	$629	$10,006
Europe	1,431	412	-	1,843
Asia	2,679	1,593	-	4,272
Other	332	-	-	332
	$13,346	$2,478	$629	$16,453
Products:
Audio-Visual Systems	$7,995	$412	$-	$8,407
Domes	2,883	2,066	629	5,578
Show Content	1,170	-	-	1,170
Maintenance and Service	1,298	-	-	1,298
	$13,346	$2,478	$629	$16,453
Timing of revenue recognition:
Goods transferred at point in time	$1,559	$-	$-	$1,559
Goods and services transferred over time	11,787	2,478	629	14,894
	$13,346	$2,478	$629	$16,453

Schedule of contract balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of June 29, 2018:

	June 29, 2018	January 1, 2018
Receivables reported as accounts receivable, net	$5,504	$3,794
Contract revenue in excess of billings	4,657	3,517
Billings in excess of contract revenue	9,229	6,265

Schedule of changes in the contract assets and the contract liabilities

Significant changes in the contract assets and the contract liabilities balances during the period are as follows:

	Contract Assets	Contract Liabilities
Revenue recognized that was included in the contract liability balance at the beginning of the period		$3,934
Increases due to amounts billed to customers, excluding amounts recognized as revenue during the period		$ (6,898)
Transferred to receivables from contract assets recognized at the beginning of the period	$ (2,797)
Increases as a result of revenue recognized, excluding amounts transferred to receivables during the period	$3,937

Schedule of backlog of performance obligations

The following table includes estimated revenue expected to be recognized and recorded as sales in the future from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

	Remainder of 2018	2019	2020	2021
Sales	$17,042	$9,251	$250	$235

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3. Changes in Accounting Policies (Tables)

6 Months Ended

Jun. 29, 2018

Tables/Schedules

Schedule of impacts of accounting changes

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated financial statements for the three and six months ended June 29, 2018:

Condensed consolidated balance sheet
Impact of changes in accounting policies
			Balances
			Without
			adoption of
June 29, 2018	As reported	Adjustments	Topic 606
Cash and cash equivalents	$ 5,154	$ -	$ 5,154
Restricted cash	405	-	405
Contract revenue in excess of billings	4,657	(978)	3,679
Inventories, net	4,258	1,754	6,012
Others	14,275	-	14,275
Total assets	28,749	776	29,525
Billings in excess of contract revenue	9,229	1,938	11,167
Others	14,878	-	14,878
Total liabilities	24,107	1,938	26,045
Accumulated deficit	(45,867)	(1,162)	(47,029)
Others	50,509	-	50,509
Total stockholders’ equity	4,642	(1,162)	3,480
Total liabilities and stockholders’ equity	$ 28,749	$ 776	$ 29,525

Condensed consolidated statement of operations
Impact of changes in accounting policies
			Balances
			Without
			adoption of
For the three months ended June 29, 2018	As reported	Adjustments	Topic 606
Sales	$8,872	$(876)	$7,996
Cost of sales	(5,654)	630	(5,024)
Selling, general and administrative	(1,685)	-	(1,685)
Income tax expense	(20)	-	(20)
Others	(894)	-	(894)
Net income	$619	$(246)	$373

Impact of changes in accounting policies
			Balances
			Without
			adoption of
For the six months ended June 29, 2018	As reported	Adjustments	Topic 606
Sales	$16,453	$(1,310)	$15,143
Cost of sales	(10,556)	831	(9,725)
Selling, general and administrative	(3,431)	-	(3,431)
Income tax expense	(31)	-	(31)
Others	(1,777)	-	(1,777)
Net income	$658	$(479)	$179

Condensed consolidated statement of cash flows
Impact of changes in accounting policies
			Balances
			without
			adoption of
For the six months ended June 29, 2018	As reported	Adjustments	Topic 606
Net income	$658	$(479)	$179
Adjustments to reconcile net income to net   cash provided by operating activities:
Other	125	-	125
Changes in:
Inventories	(1,367)	(831)	(2,198)
Contract revenue in excess of billings	(1,140)	978	(162)
Billings in excess of contract revenue	2,964	332	3,296
Other	(1,103)	-	(1,103)
Net cash provided by operating activities	137	-	137
Net cash used in investing activities	(56)	-	(56)
Net cash used in financing activities	$(110)	$-	$(110)

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4. Stock Option Plan (Tables)

6 Months Ended

Jun. 29, 2018

Tables/Schedules

Schedule of Stock Option Plan Activity

A summary of activity in the stock option plan for the six months ended June 29, 2018 follows (shares in thousands):

		Weighted-
		Average
	Number	Exercise
	of Shares	Price
Outstanding as of beginning of the period	1,609	$0.66
Granted	150	1.12
Exercised	-	-
Forfeited or expired	(162)	1.21
Outstanding as of end of the period	1,597	0.65
Exercisable as of end of the period	1,128	$0.48

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 2018, were based on estimates as of the date of grant as follows:

Risk-free interest rate	2.04%
Dividend yield	0.00%
Volatility	125%
Expected life	3.5 years

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5. Employee Retirement Benefit Plans (Tables)

6 Months Ended

Jun. 29, 2018

Tables/Schedules

Components of Net Periodic Benefit Expense

	Supplemental Executive
	Retirement Plan
	June 29,	June 30,
For the six months ended:	2018	2017
Interest cost	$68	$78
Amortization of actuarial loss	40	37
Net periodic benefit expense	$108	$115

	Supplemental Executive
	Retirement Plan
	June 29,	June 30,
For the three months ended:	2018	2017
Interest cost	$34	$39
Amortization of actuarial loss	20	18
Net periodic benefit expense	$54	$57

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1. General: Net Income Per Common Share (Details) - shares	6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017
Details
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	644,374	723,283

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1. General: Inventories, net: Schedule of Inventory (Details) - USD ($) $ in Thousands	Jun. 29, 2018	Dec. 31, 2017
Details
Raw materials	$ 6,624
Work in process	114
Finished goods	598
Reserve for obsolete inventory	(3,078)
Inventories, net	$ 4,258	$ 3,973

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2. Revenue: Schedule of geographical revenues (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 29, 2018	Jun. 29, 2018
Application total
Product Application	$ 8,872	$ 16,453
Transferred at Point in Time
Product Application	1,078	1,559
Transferred over Time
Product Application	7,794	14,894
Audio-Visual Systems
Product Application	4,410	8,407
Domes
Product Application	2,876	5,578
Show Content
Product Application	844	1,170
Maintenance and Service
Product Application	742	1,298
North America
Product Application	6,393	10,006
Europe
Product Application	1,499	1,843
Asia
Product Application	969	4,272
Other
Product Application	11	332
Planetarium Theaters | Application total
Product Application	7,103	13,346
Planetarium Theaters | Transferred at Point in Time
Product Application	1,078	1,559
Planetarium Theaters | Transferred over Time
Product Application	6,025	11,787
Planetarium Theaters | Audio-Visual Systems
Product Application	4,009	7,995
Planetarium Theaters | Domes
Product Application	1,508	2,883
Planetarium Theaters | Show Content
Product Application	844	1,170
Planetarium Theaters | Maintenance and Service
Product Application	742	1,298
Planetarium Theaters | North America
Product Application	5,771	8,904
Planetarium Theaters | Europe
Product Application	1,098	1,431
Planetarium Theaters | Asia
Product Application	223	2,679
Planetarium Theaters | Other
Product Application	11	332
Other Visitor Attractions | Application total
Product Application	1,500	2,478
Other Visitor Attractions | Transferred at Point in Time
Product Application	0	0
Other Visitor Attractions | Transferred over Time
Product Application	1,500	2,478
Other Visitor Attractions | Audio-Visual Systems
Product Application	401	412
Other Visitor Attractions | Domes
Product Application	1,099	2,066
Other Visitor Attractions | Show Content
Product Application	0	0
Other Visitor Attractions | Maintenance and Service
Product Application	0	0
Other Visitor Attractions | North America
Product Application	353	473
Other Visitor Attractions | Europe
Product Application	401	412
Other Visitor Attractions | Asia
Product Application	746	1,593
Other Visitor Attractions | Other
Product Application	0	0
Architectural Treatments | Application total
Product Application	269	629
Architectural Treatments | Transferred at Point in Time
Product Application	0	0
Architectural Treatments | Transferred over Time
Product Application	269	629
Architectural Treatments | Audio-Visual Systems
Product Application	0	0
Architectural Treatments | Domes
Product Application	269	629
Architectural Treatments | Show Content
Product Application	0	0
Architectural Treatments | Maintenance and Service
Product Application	0	0
Architectural Treatments | North America
Product Application	269	629
Architectural Treatments | Europe
Product Application	0	0
Architectural Treatments | Asia
Product Application	0	0
Architectural Treatments | Other
Product Application	$ 0	$ 0

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2. Revenue: Schedule of contract balances (Details) - USD ($) $ in Thousands	Jun. 29, 2018	Dec. 31, 2017
Details
Accounts receivable, net	$ 5,504	$ 3,794
Contract revenue in excess of billings	4,657
Other Liabilities, Current	$ 9,229

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2. Revenue: Schedule of changes in the contract assets and the contract liabilities (Details)	6 Months Ended
	Jun. 29, 2018 USD ($)
Contract revenue recognized
Increase (Decrease) in Contract with Customer, Liability	$ 3,934
Increase (Decrease) in Contract with Customer, Asset	3,937
Contract amount billed
Increase (Decrease) in Contract with Customer, Liability	(6,898)
Contract receivables recorded
Increase (Decrease) in Contract with Customer, Asset	$ (2,797)

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2. Revenue: Schedule of backlog of performance obligations (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Sales	$ 8,872	$ 6,744	$ 16,453	$ 14,787
Remainder of 2018 | Backlog in sales
Sales			17,042
2019 | Backlog in sales
Sales			9,251
2020 | Backlog in sales
Sales			250
2021 | Backlog in sales
Sales			$ 235

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3. Changes in Accounting Policies: Schedule of impacts of accounting changes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017	Dec. 31, 2017
Cash and cash equivalents	$ 5,154		$ 5,154		$ 5,276
Restricted cash	405		405		312
Contract revenue in excess of billings	4,657		4,657		2,763
Inventories, net	4,258		4,258		3,973
Total assets	28,749		28,749		25,030
Billings in excess of contract revenue	9,229		9,229		7,117
Total liabilities	24,107		24,107		21,805
Accumulated deficit	(45,867)		(45,867)		(47,208)
Total stockholders' equity	4,642		4,642		3,225
Total liabilities and stockholders' equity	28,749		28,749		$ 25,030
Sales	8,872	$ 6,744	16,453	$ 14,787
Cost of sales	(5,654)	(4,479)	(10,556)	(9,848)
Selling, general and administrative	(1,685)	(1,517)	(3,431)	(3,123)
Income tax provision	(20)	(3)	(31)	(18)
Net income	619	$ (171)	658	14
Changes in operating assets and liabilities:
Decrease (increase) in inventories			(1,367)	323
Increase in contract revenue in excess of billings			(1,140)	(644)
Increase in billings in excess of contract revenue			2,964	809
Net cash provided by operating activities			137	(1,297)
Net cash used in investing activities			(56)	(86)
Net cash used in financing activities			(110)	$ (105)
As reported
Cash and cash equivalents	5,154		5,154
Restricted cash	405		405
Contract revenue in excess of billings	4,657		4,657
Inventories, net	4,258		4,258
Others	14,275		14,275
Total assets	28,749		28,749
Billings in excess of contract revenue	9,229		9,229
Others	14,878		14,878
Total liabilities	24,107		24,107
Accumulated deficit	(45,867)		(45,867)
Others	50,509		50,509
Total stockholders' equity	4,642		4,642
Total liabilities and stockholders' equity	28,749		28,749
Sales	8,872		16,453
Cost of sales	(5,654)		(10,556)
Selling, general and administrative	(1,685)		(3,431)
Income tax provision	(20)		(31)
Others	(894)		(1,777)
Net income	619		658
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Other			125
Changes in operating assets and liabilities:
Decrease (increase) in inventories			(1,367)
Increase in contract revenue in excess of billings			(1,140)
Increase in billings in excess of contract revenue			2,964
Increase in contract liabilities			(1,103)
Net cash provided by operating activities			137
Net cash used in investing activities			(56)
Net cash used in financing activities			(110)
Scenario, Adjustment
Cash and cash equivalents	0		0
Restricted cash	0		0
Contract revenue in excess of billings	(978)		(978)
Inventories, net	1,754		1,754
Others	0		0
Total assets	776		776
Billings in excess of contract revenue	1,938		1,938
Others	0		0
Total liabilities	1,938		1,938
Accumulated deficit	(1,162)		(1,162)
Others	0		0
Total stockholders' equity	(1,162)		(1,162)
Total liabilities and stockholders' equity	776		776
Sales	(876)		(1,310)
Cost of sales	630		831
Selling, general and administrative	0		0
Income tax provision	0		0
Others	0		0
Net income	(246)		(479)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Other			0
Changes in operating assets and liabilities:
Decrease (increase) in inventories			(831)
Increase in contract revenue in excess of billings			978
Increase in billings in excess of contract revenue			332
Increase in contract liabilities			0
Net cash provided by operating activities			0
Net cash used in investing activities			0
Net cash used in financing activities			0
Balances without adoption of Topic 606
Cash and cash equivalents	5,154		5,154
Restricted cash	405		405
Contract revenue in excess of billings	3,679		3,679
Inventories, net	6,012		6,012
Others	14,275		14,275
Total assets	29,525		29,525
Billings in excess of contract revenue	11,167		11,167
Others	14,878		14,878
Total liabilities	26,045		26,045
Accumulated deficit	(47,029)		(47,029)
Others	50,509		50,509
Total stockholders' equity	3,480		3,480
Total liabilities and stockholders' equity	29,525		29,525
Sales	7,996		15,143
Cost of sales	(5,024)		(9,725)
Selling, general and administrative	(1,685)		(3,431)
Income tax provision	(20)		(31)
Others	(894)		(1,777)
Net income	$ 373		179
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Other			125
Changes in operating assets and liabilities:
Decrease (increase) in inventories			(2,198)
Increase in contract revenue in excess of billings			(162)
Increase in billings in excess of contract revenue			3,296
Increase in contract liabilities			(1,103)
Net cash provided by operating activities			137
Net cash used in investing activities			(56)
Net cash used in financing activities			$ (110)

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4. Stock Option Plan (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Options exercisable, weighted average remaining contractual term	5 years 2 months 15 days
Options outstanding, weighted average remaining contractual term	6 years 2 months 23 days
Options, Exercisable, Aggregate Intrinsic Value	$ 641	$ 641		$ 641
Options, Outstanding, Aggregate Intrinsic Value	676	676		676
Total unrecognized share-based compensation cost	$ 162	162		162
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	2 years 3 months 18 days
Selling, General and Administrative Expenses
Allocated Share-based Compensation Expense		$ 37	$ 46	$ 76	$ 86
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	1,001,781	1,001,781		1,001,781

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4. Stock Option Plan: Schedule of Stock Option Plan Activity (Details) - $ / shares shares in Thousands	6 Months Ended
	Jun. 29, 2018	Jun. 29, 2018
Details
Outstanding as of the beginning of the period	1,609
Outstanding as of the beginning of the period, weighted average exercise price	$ 0.66
Granted	150
Granted, weighted average exercise price	$ 1.12
Exercised	0
Forfeited or expired	(162)
Forfeited or expired, weighted average exercise price	$ 1.21
Outstanding as of the end of the period	1,609	1,597
Outstanding as of the end of the period, weighted average exercise price	$ 0.66	$ 0.65
Exercisable as of the end of the period		1,128
Exercisable as of the end of the period, weighted average exercise price		$ 0.48

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4. Stock Option Plan: Schedule of Stock Options Valuation Assumptions (Details)	Jun. 29, 2018
Details
Risk-free interest rate	2.04%
Dividend yield	0.00%
Volatility	125.00%
Expected life	3 years 6 months

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5. Employee Retirement Benefit Plans (Details) - USD ($) $ in Thousands	1 Months Ended
	Apr. 30, 2015	Jun. 29, 2018	Apr. 21, 2015
Pension Plan Settlement Agreement, Payment Schedule	ten installments of $750 to the Pension Benefit Guaranty Corporation due annually on October 31.
Pension Settlement Obligation, Interest Rate			7.00%
Supplemental Executive Retirement Plan
Expected Future Benefit Payments, Next Twelve Months		$ 469

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5. Employee Retirement Benefit Plans: Components of Net Periodic Benefit Expense (Details) - Supplemental Executive Retirement Plan - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2018	Jun. 30, 2017	Jun. 29, 2018	Jun. 30, 2017
Interest cost	$ 34	$ 39	$ 68	$ 78
Amortization of actuarial loss	20	18	40	37
Net periodic benefit expense	$ 54	$ 57	$ 108	$ 115