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 September 26, 2014
or
[   ]           Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,

For the transition period from _____ to _____

Commission file number 001-14677
__________________________________________________

EVANS & SUTHERLAND COMPUTER CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

         Large accelerated filer [  ]                                                                                                Accelerated filer [  ]

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

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ___ No    X  

The number of shares of the registrant’s Common Stock (par value $0.20 per share) outstanding on November 5, 2014 was 11,089,199.

 
 

 

FORM 10-Q

Evans & Sutherland Computer Corporation

Quarter Ended September 26, 2014

   
Page No.
     
   
     
 
     
 
     
 
 
     
 
 
     
 
     
 
     
     
   
     
     
     
 
SIGNATURE


 
2

 

PART I – FINANCIAL INFORMATION

Item 1.                      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands, except share and per share data)

   
September 26,
   
December 31,
 
   
2014
   
2013
 
ASSETS
 
Current assets:
           
Cash and cash equivalents
  $ 3,983     $ 3,376  
Restricted cash
    731       1,020  
Marketable securities
    -       229  
Accounts receivable, less allowances for doubtful receivables of $246
               
and $277, respectively
    4,810       5,552  
Costs and estimated earnings in excess of billings on uncompleted contracts
    2,178       2,391  
Inventories, net
    4,063       3,025  
Prepaid expenses and deposits
    506       568  
Total current assets
    16,271       16,161  
Property, plant and equipment, net
    7,339       7,405  
Goodwill
    635       635  
Definite-lived intangible assets, net
    80       115  
Other assets
    1,046       1,386  
Total assets
  $ 25,371     $ 25,702  
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
Current liabilities:
               
Accounts payable
  $ 837     $ 1,433  
Accrued liabilities
    1,150       1,183  
Billings in excess of costs and estimated earnings on uncompleted contracts
    3,661       3,358  
Customer deposits
    2,602       2,157  
Current portion of retirement obligations
    519       531  
Current portion of long-term debt
    2,408       2,995  
Total current liabilities
    11,177       11,657  
Pension and retirement obligations, net of current portion
    23,525       23,567  
Long-term debt, net of current portion
    3,004       2,362  
Deferred rent obligation
    1,526       1,514  
Total liabilities
    39,232       39,100  
Commitments and contingencies (Note 4)
               
Stockholders' deficit:
               
Preferred stock, no par value: 10,000,000 shares authorized;
               
no shares outstanding
    -       -  
Common stock, $0.20 par value: 30,000,000 shares authorized;
         
11,441,666 shares issued
    2,288       2,288  
Additional paid-in capital
    54,496       54,484  
Common stock in treasury, at cost: 352,467 shares
    (4,709 )     (4,709 )
Accumulated deficit
    (48,632 )     (47,852 )
Accumulated other comprehensive loss
    (17,304 )     (17,609 )
Total stockholders' deficit
    (13,861 )     (13,398 )
Total liabilities and stockholders' deficit
  $ 25,371     $ 25,702  

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

 
3

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
( Unaudited ) ( In thousands, except per share data )

   
Three Months Ended
   
Nine Months Ended
 
   
September 26,
   
September 27,
   
September 26,
   
September 27,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Sales
  $ 7,656     $ 8,509     $ 20,040     $ 18,428  
Cost of sales
    4,371       4,981       12,669       11,858  
    Gross profit
    3,285       3,528       7,371       6,570  
Operating expenses:
                               
    Selling, general and administrative
    1,637       1,545       5,211       4,291  
    Research and development
    537       529       1,608       1,873  
    Pension
    359       249       777       618  
        Total operating expenses
    2,533       2,323       7,596       6,782  
        Operating income (loss)
    752       1,205       (225 )     (212 )
Other expense, net
    (192 )     (185 )     (567 )     (540 )
   Income (loss) before income tax provision
    560       1,020       (792 )     (752 )
Income tax (provision) benefit
    79       (31 )     12       (41 )
        Net income (loss)
  $ 639     $ 989     $ (780 )   $ (793 )
 
Net income (loss) per common share – basic and diluted
  $ 0.06     $ 0.09     $ (0.07 )   $ (0.07 )
                                 
Weighted average common shares outstanding – basic
    11,089       11,089       11,089       11,089  
Weighted average common shares outstanding – diluted
    11,435       11,155       11,089       11,089  
                                 
Comprehensive income (loss):
                               
Net income (loss)
  $ 639     $ 989     $ (780 )   $ (793 )
Other comprehensive income:
                               
    Reclassification of realized gains from sale of marketable securities to net income (loss)
    -       -       -       (26 )
    Unrealized gain on marketable securities
    -       3       -       18  
    Reclassification of pension expense to net income (loss)
    101       182       305       546  
      Other comprehensive income, net of tax
    101       185       305       538  
        Total comprehensive income (loss)
  $ 740     $ 1,174     $ (475 )   $ (255 )
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
 
   
Nine Months Ended
 
   
September 26,
   
September 27,
 
   
2014
   
2013
 
Cash flows from operating activities:
           
Net loss
  $ (780 )   $ (793 )
   Adjustments to reconcile net loss to net cash provided by
 operating activities:
         
     Depreciation and amortization
    376       452  
     Amortization of deferred pension expense
    305       546  
     Other
    294       471  
     Change in assets and liabilities:
               
     Decrease (increase) in restricted cash
    289       (333 )
     Decrease (increase) in accounts receivable, net
    726       (1,287 )
     Increase in inventories
    (1,104 )     (1,062 )
     Decrease in costs and estimated earnings in excess of billings
        on uncompleted contracts
    516       1,813  
     Decrease in prepaid expenses and deposits
    402       633  
     Increase (decrease) in accounts payable
    (596 )     689  
     Decrease in accrued liabilities
    (21 )     (102 )
     Decrease in pension and retirement obligations
    (54 )     (549 )
     Increase in customer deposits
    445       419  
   Net cash provided by operating activities
    798       897  
                 
Cash flows from investing activities:
               
Purchases of property, plant and equipment
    (289 )     (30 )
Proceeds from sale of marketable securities
    229       385  
       Net cash (used in) provided by investing activities
    (60 )     355  
                 
Cash flows from financing activities:
               
Principal payments on long-term debt
    (131 )     (123 )
        Net cash used in financing activities
    (131 )     (123 )
                 
Net increase in cash and cash equivalents
    607       1,129  
Cash and cash equivalents as of beginning of the period
    3,376       2,111  
Cash and cash equivalents as of end of the period
  $ 3,983     $ 3,240  
                 
Non-cash investing and financing activities:
               
      Reclassification of realized gains from sale of marketable securities to net loss
  $ -     $ (26 )
      Unrealized gain on marketable securities
    -       18  
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ 390     $ 397  
Cash paid for income taxes
    45       26  
                 

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

 
5

 
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” and “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, 2013.

The accompanying unaudited condensed consolidated balance sheets, statements of comprehensive income (loss), and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows.  The results of operations for the periods ended September 26, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.  The Company operates on a calendar year with the first three fiscal quarters ending on the last Friday of the calendar quarter.

Revenue Recognition

Sales include revenues from system hardware and the related integrated software, database products and service contracts.  The following methods are used to recognize revenue:
 
Percentage of Completion . In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized using the percentage-of-completion method.  In applying this method,  the Company utilizes cost-to-cost methodology whereby it estimates the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) for each contract to its total anticipated costs for that contract.   This ratio is then utilized to determine the amount of gross profit earned based on the Company’s estimate of total gross profit at completion for each contract.  The Company routinely reviews estimates related to percentage-of-completion contracts and adjusts for changes in the period the revisions are made.  Billings on uncompleted percentage-of-completion contracts may be greater than or less than incurred costs and estimated earnings and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets.
 
In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above.
 
Completed Contract . Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method.  Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured.

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

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

 
6

 
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


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

Stock-Based Compensation

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

Net 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 (loss) 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.

Inventories, net
 
Inventories consisted of the following:
   
September 26,
   
December 31,
 
   
2014
   
2013
 
             
Raw materials
  $ 5,871     $ 5,587  
Work in process
    1,001       234  
Finished goods
    276       223  
Reserve for obsolete inventory
    (3,085 )     (3,019 )
     Inventories, net
  $ 4,063     $ 3,025  

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 provides for a single, principles-based model for revenue recognition that replaces existing revenue recognition guidance. ASU 2014-09 is effective for annual and interim periods beginning on or after December 15, 2016. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted. The Company has not yet selected a transition method and is in the process of evaluating the effect this standard will have on its consolidated financial statements and related disclosures.

Liquidity

The Company has experienced recurring annual losses since 2007. Furthermore, as of September 26, 2014, the unfunded obligation of the Company’s qualified defined benefit pension plan (“Pension Plan”), as measured for accounting purposes, amounted to $19,001, contributing to a total stockholders’ deficit of $13,861 as of September 26, 2014.  Aided by prior cost reduction efforts and improved 2013 sales volume, the Company reported annual net income for 2013 but incurred a net loss of $780 for the first three quarters of 2014. The Company does not believe it can sustain and improve annual profitability at sufficient levels to fund its existing Pension Plan obligation. In order to preserve the liquid resources required to operate the business, the Company stopped making cash payments due to the Pension Plan trust beginning in October 2012. The Company initiated an application process for the distress termination of the Pension Plan in accordance with provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) which it believes will result in a settlement of its Pension Plan liabilities on terms that are feasible for the Company to continue in business as a going concern through 2014 and beyond. Because of the payments due to the Pension Trust, a lien in favor of the Pension Plan has arisen against the assets of the Company. On October 3, 2014, the lender for the Company’s Spitz Inc. (“Spitz”) subsidiary’s mortgage notes, a commercial bank, notified the Company that the liens placed on the Company assets by the Pension Plan constituted an event of default under the mortgage notes’ credit agreements. Citing cross default terms, the bank suspended borrowings on the Spitz $1,100 working capital line of credit. The bank has not elected to accelerate the payment of the loan balance or exercise any other remedies available upon an event of default. The bank expressed interest in a continuing credit relationship upon satisfactory settlement of the pension liabilities and agreed to forbear from exercising any further remedies until January 15, 2015. The mortgage balances totaled $2,408 as of September 26, 2014. The Company has not used the Spitz $1,100 working capital line of credit since 2011 and, if necessary, the Company believes that it will have sufficient funds to satisfy the Spitz mortgage note balances if the bank were to accelerate the maturity under its default remedy. However, the Company further believes that it will conclude a satisfactory settlement with the PBGC by January 15, 2015 or within a time frame acceptable to the bank. The Company continues to progress through the termination process toward a settlement; however, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome and it cannot provide assurance that its expectations set forth above will occur in a timely manner or at all.

 
7

 
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

 
2.
STOCK OPTION PLAN
 
As of September 26, 2014, options to purchase 1,439,913 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 nine months ended September 26, 2014 follows (shares in thousands):

         
Weighted-
 
         
Average
 
   
Number
   
Exercise
 
   
of Shares
   
Price
 
             
Outstanding as of beginning of the period
    1,235     $ 2.62  
Granted
    200       0.13  
Exercised
    -       -  
Forfeited or expired
    (101 )     4.85  
Outstanding as of end of the period
    1,334       2.08  
                 
Exercisable as of the end of the period
    993       2.76  

As of September 26, 2014, options exercisable and options outstanding had a weighted average remaining contractual term of 3.7 and 5.0 years, respectively, and aggregate intrinsic value of $26 and $76, 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 nine months of 2014, were based on estimates as of the date of grant as follows:
 
Risk-free interest rate
    0.74 %
Dividend yield
    0.00 %
Volatility
    340 %
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.

 
8

 
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


As of September 26, 2014, there was approximately $14 of share-based compensation cost related to grants under the stock option plan that will be recognized over a weighted-average period of 2.1 years.

Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for the nine-month periods ended September 26, 2014 and September 27, 2013 was $12 and $14, respectively.  Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for each of the three-month periods ended September 26, 2014 and September 27, 2013 was $4.
 
3.
EMPLOYEE RETIREMENT BENEFIT PLANS
 
  Distress Termination Application
 
On January 7, 2013, the Company submitted a PBGC Form 600 Distress Termination, Notice of Intent to Terminate, to the PBGC. The notice filing initiated an application process by the Company with the PBGC for the distress termination of the Pension Plan. The Pension Plan benefits are guaranteed by the ERISA Title IV insurance fund, which is administered by the PBGC. The Company proposed a termination date of March 8, 2013. Through the application process, the Company’s intent has been to demonstrate to the PBGC that it qualifies for a distress termination of the Pension Plan under either of two of the criteria of Section 4041(c)(2) of ERISA (inability to continue in business absent termination and unreasonably increased pension costs) and applicable PBGC regulations. To satisfy the criteria, the Company and its wholly owned subsidiary each must demonstrate to the satisfaction of the PBGC that, unless the termination occurs, the Company will be unable to pay its debts when they come due and will be unable to continue in business, or that the costs of the Pension Plan have become unreasonably burdensome solely as a result of a decline in the workforce covered by the Pension Plan. A distress termination under Section 4041(c)(2) of ERISA would transfer the Pension Plan’s benefit obligations to the PBGC, up to ERISA guaranteed limits, without requiring reorganization under bankruptcy law. The Pension Plan’s actuary has informed the Company that following termination of the Pension Plan and subject to the PBGC’s review of participant benefits, all of the benefits earned by participants as of the date of plan termination are expected to fall within ERISA guaranteed limits.
 
If the distress termination application is approved, the Company’s unfunded obligation of the Pension Plan would be replaced by a new Pension Plan termination liability to the PBGC, determined by the Pension Plan’s underfunding on a termination basis pursuant to ERISA, PBGC regulations, and other applicable legal authority, along with an ERISA special termination premium.  The Company would also be liable for any unpaid contributions to the Pension Plan (which in substance is a subset of plan termination liability) and annual insurance premiums for the Pension Plan, along with any interest and penalties. While the full Pension Plan termination liability and other pension related liabilities due to the PBGC would likely be greater than the unfunded obligation of the Pension Plan as currently reported in the Company’s financial statements, the Company is in discussions with the PBGC to negotiate a settlement of such liabilities on terms that are feasible for the Company to continue in business as a going concern, which is consistent with the purposes of the statute.
 
The Company’s goal in seeking a distress termination of the Pension Plan is to ensure that the pension benefits of all Pension Plan participants are paid up to federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from bankruptcy reorganization. The Company has been pursuing a conclusion of the process and a settlement of the resulting liabilities. Based upon ongoing correspondence with the PBGC, the Company believes that the application process will likely result in a settlement of the Pension Plan liabilities on terms that will enable the Company to continue to operate as a going concern. However, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome.
 
Employer Contributions
 
Through September 15, 2012, the Company’s funding policy was to contribute to the Pension Plan trust amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. Beginning in October 2012, the Company discontinued this policy in order to preserve the necessary liquidity for its operations. As a result, a lien in favor of the PBGC has arisen against the assets of the Company to secure aggregate unpaid contributions which amount to $6,307, including interest, as of October 15, 2014. Independent actuarial valuations have determined that additional contributions of approximately $3,900 will become due through October 15, 2015. The Company’s legal counsel has advised that the PBGC usually does not take enforcement action under its lien rights while it is still considering the application for the distress termination which is consistent with the Company’s dialog with the PBGC through the application process. Based upon ongoing correspondence with the PBGC, the Company believes that the application process will likely result in a settlement of the Pension Plan liabilities on terms that will enable the Company to continue to operate as a going concern, although there can be no assurance as to the timing and ultimate outcome of such settlement discussions.
 

 
9

 
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The Company is not currently required to fund the Supplemental Executive Retirement Plan (SERP).  All benefit payments are made by the Company directly to those who receive benefits from the SERP.  As such, these payments are treated as both contributions and benefits paid for reporting purposes. The Company expects to contribute and pay SERP benefits of approximately $519 in the next 12 months.

Components of Net Periodic Benefit Expense
 
   
Pension Plan
   
Supplemental Executive Retirement Plan
 
For the three months ended:
 
September 26, 2014
   
September 27, 2013
   
September 26, 2014
   
September 27, 2013
 
                         
Service cost
  $ -     $ -     $ -     $ -  
Interest cost
    569       398       55       41  
Expected return on assets
    (574 )     (460 )     -       -  
Amortization of actuarial loss
    101       177       12       17  
Amortization of prior year service cost
    -       -       (12 )     (12 )
Net periodic benefit expense
    96       115       55       46  
Other pension related expense
    208       88       -       -  
    $ 304     $ 203     $ 55     $ 46  

   
Pension Plan
   
Supplemental Executive Retirement Plan
 
For the nine months ended:
 
September 26, 2014
   
September 27, 2013
   
September 26, 2014
   
September 27, 2013
 
                         
Service cost
  $ -     $ -     $ -     $ -  
Interest cost
    1,706       1,195       164       123  
Expected return on assets
    (1,724 )     (1,381 )     -       -  
Amortization of actuarial loss
    304       531       37       51  
Amortization of prior year service cost
    -       -       (36 )     (36 )
Net periodic benefit expense
    286       345       165       138  
Other pension related expense
    326       135       -       -  
    $ 612     $ 480     $ 165     $ 138  

For the three-month periods ended September 26, 2014 and September 27, 2013, the Company reclassified $101 and $182, respectively, of actuarial loss from accumulated other comprehensive loss that was included in pension expense in the statements of comprehensive loss for the same periods.  For the nine-month periods ended September 26, 2014 and September 27, 2013, the Company reclassified $305 and $546, respectively, of actuarial loss from accumulated other comprehensive loss that was included in pension expense in the statements of comprehensive income (loss) for the same periods.

 
10

 
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


4.           Debt
 
Mortgage Notes
 
On October 3, 2014, the lender for the Spitz mortgage notes, a commercial bank,  notified the Company that the liens placed on the Company assets by the Pension Plan were an event of default under the mortgage loan agreements. Pursuant to the notification, the Company and the bank entered into an agreement whereby the bank agreed to forbear from exercising any further remedies other than the suspension of advances under the working capital line of credit, until January 15, 2015 while the Company negotiates the settlement of its pension liabilities, subject to certain conditions agreed to by the Company. The conditions  the Company agreed to include continuing to make debt service payments under the mortgage loan agreements, the occurrence of no further adverse events in the condition of the Company, and the incorporation of the financial covenants of the line of credit agreement  between the bank and Spitz dated March 15, 2012   as additional covenants in the mortgage loan agreements effective immediately and continuing until the loans are paid in full.   The Company believes that it will be able to comply with the additional covenants and, upon settlement of the pension liabilities, the pension plan liens will be replaced by consensual liens in favor of the PBGC which will be subordinate to the commercial bank’s lien under terms agreeable to the commercial bank. However, no assurance can be given that the Company will be able to comply with the additional covenants or that the pension plan liens will be replaced by consensual liens in favor of the PBGC.
 
Line of Credit

Because of cross default provisions, the October 3, 2014 notice of default of the mortgage note included notification by the commercial bank that it is no longer obligated to make advances under its line of credit agreement and that it elected to suspend future advances. The Company expects that upon settlement of the pension liabilities, it will be able to reach agreement with the commercial bank to permit new borrowings for future potential working capital requirements. However, no assurance can be given that the Company will be able to reach agreement with the commercial bank to permit new borrowings under the line of credit.   As of September 26, 2014, there were no borrowings outstanding under the credit agreement and there have been no borrowings outstanding since February 2011.

Sale/Leaseback Financing

On July 31, 2014, the Company provided notice to Wasatch Research Park I, LLC (“Wasatch”) to exercise its option to repurchase the buildings it occupies under agreements with Wasatch. The repurchase price, net of a credit due for a lease deposit, would have been $3,027. The repurchase transaction required completion by October 31, 2014. On November 4, 2014, the Company agreed to an extension of its current lease for a term of 5 years. As a condition of the extension the Company will no longer have a right to repurchase the buildings. Base annual rent for the extended 5-year term will be $549. Base annual rent prior to the lease extension was $509.

The extension of the lease for 5 years without a repurchase option is expected to result in recording the disposition of building assets and the extinguishment of both the sale-leaseback debt and the deferred rent obligation in the fourth quarter of 2014. The new lease obligation is expected to be accounted for as an operating lease commencing November 1, 2014.
 

 
11

 

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 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

Sales volume and net income for the third quarter of 2014 was slightly lower than the comparable period of 2013. For the 9 month periods presented, sales and gross profit contributions improved in 2014; however the net loss was comparable due to higher operating expenses in 2014. The higher 2014 operating expenses were due largely to a credit from a settlement of a dispute which reduced expenses in the second quarter of 2013. Also, sales and marketing expenses in 2014 were higher due to a bi-annual tradeshow and the redirection of production and engineering resources to sales and marketing activities.  The third quarter compares favorably to the first two quarters of 2014. The improvement was attributable to the timing of work and deliveries on customer projects rather than a negative trend in the overall business. The sales backlog and prospects remain strong which supports an encouraging outlook for the remainder of 2014 and into 2015. Cash balances are expected to continue to be variable as result of the timing of progress payments on customer orders. We continue to believe that sales and overall results for 2014 will be comparable to 2013.
 
We expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses excluding the current expense of the Pension Plan. The success of our efforts to settle our pension liabilities for an amount that the business can satisfy remains critical to the long-term viability of the Company. We believe an improved financial position that would result from relief of the Pension Plan burden may present opportunities for better results through the availability of credit and stronger qualification for customer projects.
 

 
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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, 2013.  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:
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 26, 2014
   
September 27, 2013
   
September 26, 2014
   
September 27, 2013
 
Sales
  $ 7,656     $ 8,509     $ 20,040     $ 18,428  
 
Sales for the third quarter of 2014 were slightly lower compared to the same period in 2013. Sales for the first nine months of 2014 were 9% higher than the same period in 2013 due to an increase in the volume of orders and deliveries of all of our products.  Revenue backlog was $19,857 as of September 26, 2014, compared to $17,165 as of December 31, 2013.  We expect sales for the remainder of 2014 to result in total annual sales comparable to 2013 based on delivery schedules from the improved revenue backlog as well as strong sales prospects.
 
Gross Profit
 
The following table summarizes our gross profit and the gross profit as a percentage of total sales:

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 26, 2014
   
September 27, 2013
   
September 26, 2014
   
September 27, 2013
 
Gross profit
  $ 3,285     $ 3,528     $ 7,371     $ 6,570  
Gross profit percentage
    43 %     41 %     37 %     36 %

Gross profit percentages for the three- and nine-month periods ended September 26, 2014 were comparable to the same periods in 2013.

Operating Expenses
 
The following table summarizes our operating expenses:

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 26, 2014
   
September 27, 2013
   
September 26, 2014
   
September 27, 2013
 
Selling, general and
  administrative
  $ 1,637     $ 1,545     $ 5,211     $ 4,291  
Research and development
    537       529       1,608       1,873  
Pension
    359       249       777       618  
    Total operating expenses
  $ 2,533     $ 2,323     $ 7,596     $ 6,782  

General and administrative expenses were higher for the three- and nine-month periods ended September 26, 2014 compared to the same periods in 2013 due largely to a receipt in the second quarter of 2013 that was recorded as a credit for the recovery of legal fees pursuant to a settlement of a dispute with a subcontractor for a customer project.  Also, sales and marketing expenses were higher due to increased tradeshow activity and the redirection of resources from content software production to sales and marketing activities. Research and development costs for the nine month period ended September 26, 2014 were lower than the same period in 2013 primarily due to engineering resources being redirected from research and development activities to customer projects and selling expenses. Pension expense was higher for the three- and nine-month periods ended September 26, 2014 compared to the same periods in 2013 due to an increase in other pension related expense attributable to accounting for the distress termination process.

 
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Other Expense, net

The following table summarizes our other expense:

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 26, 2014
   
September 27, 2013
   
September 26, 2014
   
September 27, 2013
 
Total other expense, net
  $ 192     $ 185     $ 567     $ 540  

For the three- and nine-month periods ended September 26, 2014, other expense, net, was comparable to the same periods in 2013.

Liquidity and Capital Resources

Outlook
 
As discussed above in the executive summary and the notes to the condensed consolidated financial statements, we have made significant progress in our effort to reduce our long history of operating losses and we believe that we will settle our pension liabilities on terms that the business can fulfill. As a result, we believe existing liquidity resources and funds generated from forecasted revenue will meet our current and long-term obligations upon adjustment for the settlement of the pension liabilities. 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 nine months of 2014, $798 of cash provided by operating activities was attributable to a favorable change in working capital of $603, in addition to $195 provided by the net loss of $780 after the effect of $975 of non-cash expense items.

In the first nine months of 2013, $897 of cash provided by operating activities was attributable to a favorable change in working capital of $221, in addition to $676 provided by the net loss of $793, after the effect of $1,469 of non-cash items expense items.

The change in working capital in both periods presented was driven by improvement in progress payments from customer contracts, attributable to the timing of billings and an increase in customer orders.

Cash used by investing activities was $60 in the first nine months of 2014 compared to $355 of cash that was provided by investing activities for the same period of 2013, representing cash provided by the sale of marketable securities offset by purchases of property, plant and equipment of $289 and $30 in 2014 and 2013, respectively.

In the first nine months of 2014, financing activities used $131 of cash compared to $123 in 2013, for principal payments on mortgage notes.

Credit Facilities

The Company is a party to a credit agreement with a commercial bank to provide borrowings of up to $1,100 to fund working capital requirements.  Interest is charged on any amounts borrowed at the lender’s prime rate. On October 3, 2014, the commercial bank notified the Company that it is no longer obligated to make advances under the credit agreement and elected to suspend future advances because of events of default on loan covenants resulting from the liens placed on the Company’s assets by the Pension Plan. The Company expects that upon settlement of the pension liabilities, it will be able to comply with covenants as required by the commercial bank to permit new borrowings for potential working capital requirements. As of September 26, 2014, there were no borrowings outstanding under the credit agreement and there have been no borrowings outstanding since February 2011. The Company does not foresee the need for borrowings for the foreseeable future.

 
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The Company has a finance arrangement which provided for the issuance of letters of credit and bank guarantees. Under the terms of the arrangement, we are required to maintain a balance in a specific bank account equal to or greater than the outstanding value of all letters of credit issued, plus other amounts necessary to adequately secure our obligations with the financial institution.  As of September 26, 2014, we had outstanding letters of credit totaling $731.  The cash collateral for these letters of credit was classified as restricted cash.

Mortgage Notes
 
As of September 26, 2014, our wholly owned Spitz subsidiary had obligations totaling $2,408 under its two mortgage notes payable to a commercial bank. On October 3, 2014, the commercial bank notified the Company that the liens placed on the Company’s assets by the Pension Plan constituted an event of default under the mortgage notes’ loan agreements. The commercial bank agreed to forbear from exercising any further remedies, other than suspension of advances under the working capital line of credit, until January 15, 2015 while the Company negotiates the settlement of its pension liabilities. The agreement to forbear from exercising any further remedies is subject to the Company continuing to make debt service payments under the mortgage note agreements, the occurrence of no further adverse events in the condition of the Company and the Company’s agreement to the incorporation of the financial covenants in the line of credit agreement as additional covenants in the mortgage loan agreements effective immediately and continuing until the loans are paid in full.   The Company believes that it will be able to comply with the additional covenants and, upon settlement of the pension liabilities, the Pension Plan liens will be replaced by consensual liens in favor of the PBGC which will be subordinate to the commercial bank’s lien under terms agreeable to the commercial bank. If necessary, the Company believes that it will have sufficient funds to satisfy the Spitz mortgage note balances if the bank were to accelerate the maturity under its default remedy. However, the Company further believes that it will conclude a satisfactory settlement with the PBGC by January 15, 2015 or within an extended time frame acceptable to the bank. The Company continues to progress through the termination process toward a settlement; however, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome and it cannot provide assurance that its expectations set forth above will occur in a timely manner or at all.

Sale-Leaseback Financing

On July 31, 2014, the Company provided notice to Wasatch Research Park I, LLC (“Wasatch”) to exercise the Company’s option to repurchase the buildings it occupies under agreements with Wasatch. The repurchase price, net of a credit due for a lease deposit, would have been $3,027. The repurchase transaction required completion by October 31, 2014. On November 4, 2014, the Company agreed to an extension of its current lease for a term of 5 years. As a condition of the extension the Company will no longer have a right to repurchase the buildings. Base annual rent for the extended 5-year term will be is $548. Base annual rent prior to the lease extension was $509.

As of September 26, 2014, the principal balance on the debt obligation recorded from the sale-leaseback financing transaction was $3,004. The extension of the lease for 5 years without a repurchase option is expected to be recorded as a disposition of building assets along with the extinguishment of the sale-leaseback debt obligation and the deferred rent obligation.  The new lease obligation is expected to be recorded as an operating lease commencing November 1, 2014.


 
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Item 4.                        CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures.

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

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed above that occurred during the quarter ended September 26, 2014, 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.

 
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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 5.                 Other Information

On November 4, 2014, the Company entered into an agreement (“the Amendment”) to amend the Sublease Agreement dated November 13, 2009 with Wasatch Research Park I, LLC (“Wasatch”), under which the Company leases the land and buildings which serve as its principal executive, engineering, manufacturing and operations facilities in the University of Utah Research Park in Salt Lake City, Utah. The Amendment extends the term of the Sublease Agreement for 5 years expiring on October 31, 2019. Base annual rent for the 5 year extended term is $548,719, payable monthly. The annual rent prior to the Amendment was $509,142. The Company will pay, as additional rent, any increase in rent to be paid by Wasatch under the escalation provision of its land lease agreement with the University of Utah Research Park. The Company had previously exercised its option to purchase the buildings from Wasatch under the Repurchase Option Agreement dated November 13, 2009.  By agreeing to extend the term of the lease, the Company has elected not to complete the purchase of the buildings and it will retain no purchase option or rights to ownership of the buildings through the extended term of the lease.

Item 6.                 EXHIBITS
 
 
10.1
First Amendment to Sublease Agreement dated November 4, 2014, by and between Evans & Sutherland Computer Corporation and Wasatch Research Park I, LLC, filed herewith.
 
10.2
Line of Credit Agreement between Spitz, Inc. and Bryn Mawr Trust Company dated March 15, 2012
 
10.3
Loan Forbearance Agreement between Evans & Sutherland Computer Corporation, Spitz, Inc. and Bryn Mawr Trust Company dated October 3, 2014
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended,   filed herewith.
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-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 periods ended September 26, 2014, are formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.



 
17

 


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: November 7, 2014
By:
/s/ Paul Dailey  
   
Paul Dailey, Chief Financial Officer
and Corporate Secretary
(Authorized Officer)
(Principal Financial and Accounting Officer)
 
       
       
 

 
18

 

Exhibit 10.1

FIRST AMENDMENT TO SUBLEASE AGREEMENT
(770 & 790 Komas Drive, Salt Lake City, Utah 84108)


THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT (this “ First Amendment ”) is made and entered into as of November 1, 2014, by and between WASATCH RESEARCH PARK 1, LLC , a Utah limited liability company, as master tenant (“ Landlord ”); and EVANS & SUTHERLAND COMPUTER CORPORATION, a Utah corporation, as tenant (“ Tenant ”), (collectively, the “ Parties ” and individually, a “ Party ”).


R E C I T A L S:

A.           Pursuant to that certain Sublease Agreement dated as of November 13, 2009 (the “ Sublease ”), Landlord leased to Tenant three (3) structures located on approximately 5.9 acres of land (“ Property ”) in Salt Lake County, Salt Lake City, Utah commonly known as 770 & 790 Komas Drive, Salt Lake City, Utah 84108 as set forth in the Sublease.  Subsequently, the 3,360 rentable square foot (“ RSF ”) Substation as defined in the Sublease was conveyed to Rocky Mountain Power under a separate agreement and is no longer a part of the Premises.  Capitalized terms used, but not specifically defined herein, shall have the meanings given them under the Sublease.

B.           Landlord and Tenant are parties to that certain Repurchase Option Agreement dated November 13, 2009 as amended by the First Amendment to Repurchase Option Agreement dated May 13, 2011 (the “ Repurchase Agreement ”).  Although Tenant provided notice of its intention to exercise its right to repurchase the Buildings and Leasehold Interest in the Real Property (all as defined in the Repurchase Agreement), Tenant has determined not to close any such transaction and to allow its rights under the Repurchase Agreement to expire.

C.           The Parties wish to amend the Sublease in accordance with the terms of this First Amendment.

A G R E E M E N T:

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree, notwithstanding anything to the contrary contained in the Sublease, as follows:

1.            Recitals .  The Parties acknowledge and agree that the above Recitals are true and accurate and are incorporated in this First Amendment agreement by this reference.

2.            Termination of the Repurchase Options Agreement .  The Parties acknowledge and agree that as of October 31, 2014, the Repurchase Agreement has expired on its terms and is hereby terminated and has no further effect and that Tenant no longer has any rights to repurchase the Buildings and Leasehold Interest in the Real Property (all as defined in the Repurchase Agreement).

 
1

 


3.            Effective Date .  The Effective Date of this First Amendment is November 1, 2014.

4.            Term .  Section 3 of the Sublease is hereby amended to add five (5) additional years to the Term of the Sublease (“ Additional Term ”) commencing on November 1, 2014 (the “ Additional Term Commencement Date ”) and expiring on October 31, 2019, unless further extended or earlier terminated in accordance with the terms of the Sublease, as amended by this First Amendment.  The Parties hereby acknowledge that Tenant’s option to renew described in Section 3 of the Sublease has expired and shall not continue to apply to these adjusted Premises.

5.            Rent Commencement Date :  The “ Rent Commencement Date ” for the Additional Term shall be November 1, 2014.

6.            Rent :  Section 4(a) of the Sublease is hereby amended to add Base Rent for the Additional Term as follows:

 
(a)
Base Rent. The triple net, base rent shall be FIVE HUNDRED FORTY-EIGHT THOUSAND SEVEN HUNDRED NINETEEN AND 00/100 DOLLARS ($548,719.00) per annum (the "Base Rent"). The Base Rent consists of the following and/or shall be paid in this manner:

 
(i)
FORTY FIVE THOUSAND SEVEN HUNDRED TWENTY-SIX AND 58/100 DOLLARS ($45,726.58) per month from November 1, 2014 to October 31, 2019 (with the Base Rent prorated for any partial months).

 
(ii)
The amount of the Base Rent consists of the following components:
 
Space
 
Monthly Rent
   
Annual Rent:
 
Office Space Rent:
  $ 31,763.33     $ 381,160.00  
Warehouse Space Rent:
  $ 11,977.58     $ 143,731.00  
Shop Rent:
  $ 1,985.67     $ 23,828.00  
TOTAL
  $ 45,726.58     $ 548,719.00  
 
 
(iii)
One twelfth (1/12) of the Base Rent shall be payable in advance each month on or before the 1st day of each month during the duration of this Sublease. Any partial months shall be prorated accordingly. All Base Rent and Additional Rent defined in the Sublease (collectively, the "Rents") shall be paid to the following address, unless otherwise directed in writing: Wasatch Research Park I, LLC, 299 South Main Street, Suite 2400, Salt Lake City, Utah 84111.

7.            Section 4(c) : The Parties hereby acknowledge that Section 4(c) of the Sublease continues to apply.

 
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8.            First Right to Provide New Lease Space .  The Parties agree that if Tenant intends to relocate to a new lease space at the end of the Additional Term, then before executing any listing or agency agreement with a Utah real estate broker to find new lease space for Tenant, Tenant shall give Landlord at least thirty (30) days prior written notice of the same.  Likewise, if Tenant intends to relocate to a new lease space at the end of the Additional Term but Tenant intends to avoid engaging a Utah real estate broker and instead plans on using its own personnel to find such new space, then before making a written offer on any new lease space Tenant shall give Landlord at least thirty (30) days prior written notice of the same.  During either of these 30-day periods, Landlord will have the opportunity to present to Tenant other lease spaces that Tenant might choose to rent directly from Landlord or Landlord’s affiliates.  After listening to Landlord’s presentation, Tenant may choose, in its sole and absolute discretion, to (i) enter into lease negotiations with Landlord for any of Landlord’s (or Landlord’s affiliates’) lease spaces that Tenant prefers or (ii) decline to participate in any lease negotiations with Landlord.  At the conclusion of the thirty (30) day period, Tenant may engage a Utah real estate broker to find new lease space for Tenant, make a written offer for any new lease space, or take any other actions regarding its new space needs that Tenant desires to take.  Notwithstanding anything else contained herein, Tenant shall not be obligated to lease any new lease space from Landlord nor be restricted from engaging in market research concerning potential new lease spaces.
 
9.            Binding Effect .   The terms and conditions of this First Amendment shall be binding upon and inure to the benefit of Tenant and Landlord and their respective successors, transferees and assigns.
 
10.            Sublease Terms Apply; Amendment Controls .    Except as specifically provided herein, the terms and conditions of the Sublease shall remain in full force and effect.  If any provision of the Sublease is in conflict with any provisions of this First Amendment, the terms of this First Amendment shall control.
 
11.            Authority .  The parties represent to each other that this First Amendment has been fully authorized, that all persons signing for each party below have authority to bind the respective party, and that any approvals, if required, including, but not limited to the approval of third parties, have been obtained.
 
12.            Counterparts; Facsimile & Emailed Signatures .  This First Amendment may be signed in any number of counterparts with the same effect as if the signatures upon any counterpart were upon the same instrument, and all signed counterparts shall be deemed to be part of the original First Amendment.  Facsimile and emailed signatures shall bind the party transmitting such signature to the same extent as an original.

[Signature page follows.]

 
3

 

IN WITNESS WHEREOF , this First Amendment has been executed to be effective as of the last date written below.


  LANDLORD :
   
  WASATCH RESEARCH PARK 1, LLC, a Utah limited liability company
   
   
 
By: /s/ Ryan Peterson
 
Printed Name: Ryan Peterson
 
Title: Manager
 
Date: November 1, 2014
   
   
 
TENANT :
   
 
EVANS & SUTHERLAND COMPUTER CORPORATION, a Utah corporation
   
   
 
By: /s/ David H. Bateman
 
Printed Name: David H. Bateman
 
Title: President & CEO
 
Date: 4 November 2014




[ First Amendment to Sublease Agreement – 770 & 790 Komas Drive, Salt Lake City, UT 84108 ]

 
4

 

Exhibit 10.2
 
BUSINESS LOAN AGREEMENT

Principal
Loan Date
Maturity
Loan No
Call / Coll
Account
Officer
Initials
 $  1,100,000.00
3/15/2012
6/30/2012
192367
150 / 19
 
367
 
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length limitations.

 

Borrower:
 
 
 
 
Spitz, Inc.
700 Brandywine Drive
Chadds Ford, PA 19317
 
 
Lender: The Bryn Mawr Trust Company
Commercial lending - Media
801 Lancaster Avenue
Bryn Mawr, PA 19010
 

THIS BUSINESS LOAN AGREEMENT dated March 15, 2012, is made and executed between Spitz, Inc. ("Borrower") and The Bryn Mawr Trust Company ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM . This Agreement shall be effective as of March 15, 2012, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement. ADVANCE AUTHORITY . The following person or persons are authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of such authority: Jonathan A. Shaw, President of Spitz, Inc.; and Paul L. Dailey, Secretary of Spitz, Inc. CONDITIONS PRECEDENT TO EACH ADVANCE . Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

Loan Documents . Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.
Borrower's Authorization . Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses . Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties . The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default . There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES . Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:

Organization . Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Delaware. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage, Borrower maintains an office at 700 Brandywine Drive, Chadds Ford, PA 19317. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities.
Assumed Business Names . Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.
Authorization . Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties.
Financial Information . Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.
Legal Effect . This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
Properties . Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing
 

 
 

 


Loan No: 192367
BUSINESS LOAN AGREEMENT
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statement under any other name for at least the last five (5) years.
Hazardous Substances . Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the
Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to
make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous
Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.
Litigation and Claims . No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
Taxes . To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.
Lien Priority . Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.
Binding Effect . This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS . Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

Notices of Claims and Litigation . Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.
Financial Records . Maintain its books and records In accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.
Financial Statements . Furnish Lender with the following:

Annual Statements . As soon as available, but in no event later than ninety ( 90 ) /105 change initialed/ days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, reviewed by a certified public accountant satisfactory to Lender.
Tax Returns . As soon as available, but in no event later than sixty (60) days after the applicable filing date for the tax reporting period ended, Federal and other governmental tax returns, prepared by a certified public accountant satisfactory to Lender.
Additional Requirements . The Borrower will deliver to the Lender within 30 days after June 30th and December 31st of each calendar year, a current Work in Progress report and a current Backlog report both in form satisfactory to the Lender.
Interim Statements . As soon as available, but in no event later than thirty ( 30 ) /60 change initialed/ days after the end of each fiscal quarter, Borrower's balance sheet and profit and loss statement for the period ended including source and application of funds, prepared by Borrower.

All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

Additional Information . Furnish such additional information and statements, as Lender may request from time to time.
Financial Covenants and Ratios . Comply with the following covenants and ratios:

Tangible Net Worth Requirements. Other Net Worth requirements are as follows: Tangible Net Worth. Effective as of December 31, 2011, the Borrower will maintain a Minimum Tangible Net Worth of no less than $6,000,000.00 to be tested on that date and  quarterly thereafter. "Tangible Net Worth" is defined as total assets less Evans & Sutherland Computer Corporation receivables less total liabilities less any loans due from Evans & Sutherland Computer Corporation.
Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.

Insurance . Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by   any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a
 

 
 

 
 
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BUSINESS LOAN AGREEMENT
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security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require.
Insurance Reports . Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
Guaranties . Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantor named below, on Lender's forms, and in the amount and under the conditions set forth in those guaranties,

Name of Guarantor                                                                             Amount
Evans & Sutherland Computer                                                        Unlimited
Corporation

Other Agreements . Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements,
Loan Proceeds . Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and liens . Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
Performance . Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.
Operations . Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.
Environmental Studies . Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.
Compliance with Governmental Requirements . Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.
Inspection . Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of
Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.
Environmental Compliance and Reports . Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.
Additional Assurances . Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.

RECOVERY OF ADDITIONAL COSTS . If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (A) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (B) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (C) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error.

LENDER'S EXPENDITURES . If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or
 

 
 

 

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BUSINESS LOAN AGREEMENT
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paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.

NEGATIVE COVENANTS . Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the
prior written consent of Lender
Indebtedness and Liens . (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender.
Additional Financial Restrictions . Borrower shall not make distributions, pay dividends or otherwise transfer cash or any other assets of the Borrower to their parent company Evans & Sutherland Computer Corporation, to exceed 40% of net profits in any given year.
Lender is aware that transactions in the normal course of business take place between Borrower and Evans & Sutherland Computer Corporation frequently. The two entities work together often on projects creating an account receivable from one entity with a corresponding account payable for the other entity. The Lender accepts that these transactions take place and will permit them to the extent that the amount involved does not exceed $1,500,000.00 without the Lender's written consent. The Lender has the right to obtain an updated report at its discretion to evidence that the two entities are in compliance.
Continuity of Operations . (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties . (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.
Agreements . Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith.

CESSATION OF ADVANCES . If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.
RIGHT OF SETOFF . To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts.

DEFAULT . Each of the following shall constitute an Event of Default under this Agreement:

Payment Default . Borrower fails to make any payment when due under the Loan.
Other Defaults . Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
Environmental Default . Failure of any party to comply with or perform when due any term, obligation, covenant or condition contained in any environmental agreement executed in connection with any Loan.
Default in Favor of Third Parties . Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
False Statements . Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency . The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Defective Collateralization . This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.
Creditor or Forfeiture Proceedings . Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or
 

 
 

 

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BUSINESS LOAN AGREEMENT
(Continued)
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forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sale discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor . Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change . A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.
Insecurity . Lender in good faith believes itself insecure.
Right to Cure . If any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after Lender sends written notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

EFFECT OF AN EVENT OF DEFAULT . If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.
DEPOSITORY . The Borrower will establish and maintain the Borrower's primary deposit and operating accounts with Lender. The Borrower's failure to comply with this paragraph shall constitute a material default under the Note and the Lender shall have the immediate right to declare the Note in default, at the sole option of the Lender.
CLEAN UP PROVISION . Prior to the original Expiration Date, and annually thereafter if the Expiration Date is extended, the Borrower must repay the Line of Credit in full so that there is no outstanding principal balance for a period of at least thirty (30) consecutive days.

MISCELLANEOUS PROVISIONS . The following miscellaneous provisions are a part of this Agreement:
Amendments . This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Attorneys' Fees; Expenses . Borrower agrees to pay upon demand all of Lender's costs and expenses, including lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.
Caption Headings . Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the
provisions of this Agreement.
Consent to Loan Participation . Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to anyone or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest and unconditionally agrees that either lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.
Governing Law, This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Pennsylvania without regard to its conflicts of law provisions. This Agreement has been accepted by lender in the Commonwealth of Pennsylvania.
Choice of Venue . If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Montgomery County, Commonwealth of Pennsylvania.
No Waiver by Lender . Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sale discretion of Lender.
Notices . Unless otherwise provided by applicable law, any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail
 

 
 

 
Loan No: 192367
BUSINESS LOAN AGREEMENT
(Continued)
Page  6

 
postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices nder this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's
address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise p ovided by applicable Jaw, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to
all Borrowers.
Severability . If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any ircumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, th e offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so odified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Subsidiaries and Affiliates of Borrower . To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.
Successors and Assigns . All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.
Survival of Representations and Warranties . Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence . Time is of the essence in the performance of this Agreement.

DEFINITIONS . The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Advance . The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.
Agreement . The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
Borrower . The word "Borrower" means Spitz, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.
Collateral . The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust. conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Environmental Laws . The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
Event of Default . The words "Event of DefauIt" mean any of the events of default set forth in this Agreement in the default section of this Agreement.
GAAP . The word "GAAP" means generally accepted accounting principles.
Grantor . The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.
Guarantor . The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan.
Guaranty . The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.
Hazardous Substances . The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when
improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.
Indebtedness . The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.
Lender . The word "Lender" means The Bryn Mawr Trust Company, its successors and assigns.
Loan . The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter
 

 
 

 
 
Loan No: 192367
BUSINESS LOAN AGREEMENT
(Continued)
Page 7
                                                                                                                                 
existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.
Note . The word "Note" means the Note executed by Spitz, Inc. in the principal amount of $1,100,000.00 dated March 15, 2012, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.
Permitted liens . The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by   Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.
Related Documents . The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.
Security Agreement . The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.
Security Interest . The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER AND THE LENDER ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED MARCH 15, 2012.

THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

BORROWER:


SPITZ, INC.
 
 
By: /s/ Jonathan Shaw
Jonathan A. Shaw, President of Spitz, Inc.
 
(Seal)
 
 
By: Paul L. Dailey   (Seal)
Paul L. Dailey, Secretary of Spitz, Inc.
 
 
LENDER:
 
 
THE BRYN MAWR TRUST COMPANY
 
By: /s/ Robert E. Latshaw
Robert E. Latshaw, Vice President
 
 
(Seal)
 

 
 

 
Exhibit 10.3

BRYN MAWR TRUST LETTERHEAD



October 3, 2014
 
Spitz Inc.
700 Brandywine Drive
Chadds Ford, PA 19317
Attn:  Jonathan Shaw, President & CEO
Evans & Southerland Computer Corporation
600 Komas Drive
Salt Lake City, UT 84108
Attn: David Bateman, President & CEO
 
Re:         
(1) Loan Agreement between Spitz Inc. (“Borrower”) and The Bryn Mawr Trust
      Company (“Lender”), as successor in interest to First Keystone Bank

(2) Loan Agreement dated as of September 11, 2008 between Debtor and Lender,
      as successor in interest to First Keystone Bank

(3) Business Loan Agreement dated March 15, 2012 by and between Debtor
      and Lender

Gentlemen:

As you know, the assertion of claims by the Pension Benefit Guaranty Corporation (“PBGC”) and related liens against your properties resulting therefrom, constitute an Event of Default under the above Loan Agreements as well as the mortgages, security agreements, guarantees and amendments related thereto (the “Loan Documents”).  As a result of those Events of Default, notice and existence of which you hereby acknowledge, Lender is no longer obligated to make any further advances under the line of credit under the Business Loan Agreement dated March 15, 2012 referred to above, and has elected to suspend any further advances thereunder.

You have been attempting to negotiate a settlement of the PBGC lien and claims, and, although we have not yet approved any waiver of the defaults under the Loan Documents or further participation in financing Borrower, we have been cooperating in your attempt to negotiate a settlement with the PBGC including a subordination of the PBGC liens to those of Lender.  We now understand that you do not expect an agreement with the PBGC to be reached before the end of this year, and you have asked us to forbear from exercising any further remedies, other than suspension of advances under the line of credit, until January 15, 2015 while you attempt to negotiate a settlement which is acceptable to you and also to us.

We have agreed to do so on the following conditions, the breach of which will terminate our forbearance:

 
 

 


A.           You acknowledge your liability as Borrower and Guarantor, as the case may be, for the loans (“Loans”) evidenced and secured by the Loan Documents, agree that you have no defense to the same, and agree that you will continue to make debt service payments under the Loan Documents and otherwise comply with the terms thereof;

B.           No further adverse events occur in the condition of Borrower or Guarantor;

C.           You agree that in addition to the cross-default provisions in the Loan Documents, the provisions entitled “Financial Covenants and Ratios” and “Negative Covenants” set forth in the above Business Loan Agreement dated March 15, 2012 are hereby incorporated as additional covenants in all of the Loan Documents effective immediately and continuing until the Loans are paid in full.

D.           You agree that our willingness to forbear in exercising further remedies set forth in the Loan Documents, does not constitute an agreement to further forbear, to accept any proposed settlement with PBGC or to renew or extend the Line of Credit.

Kindly execute and return the enclosed copy of this letter so as to indicate your agreement to the foregoing.

Very truly yours,

/s/ Wayne McKillop
Wayne McKillop
Vice President, Commercial Banking


 
The undersigned agree to the foregoing terms.
 
SPITZ INC.
EVANS & SOUTHERLAND COMPUTER
 
CORPORATION
   
By:/s/ Jonathan Shaw
By:  /s/ David H. Bateman
     Name: JONATHAN SHAW
Name: David H. Bateman
     Title: PRESIDENT
Title: PRESIDENT & CEO


 
 

 

 
Exhibit 31.1
 
 
Rule 13a-14 Certification
 
CERTIFICATIONS*
 
 
I, David H. Bateman, certify that:
 
 
1.  
I have reviewed this quarterly report on Form 10-Q of Evans & Sutherland Computer Corporation;
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.  
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)  
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)  
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
Date: November 7, 2014
 
/s/ David H. Bateman
David H. Bateman
Chief Executive Officer
(Principal Executive Officer)
 

 
 

 

 
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: November 7, 2014
 
 
 /s/ Paul L. Dailey
Paul L. Dailey
 Chief Financial Officer
(Principal Financial Officer)
 

 
 

 

Exhibit 32.1

Certification Pursuant to 18 U.S.C. 1350,
 as Adopted Pursuant Section 906 of the
Sarbanes-Oxley Act of 2002


I, David H. Bateman, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-Q of Evans & Sutherland Computer Corporation for the quarter ended September 26, 2014, 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: November 7, 2014                                                              By:      /s/ David H. Bateman  
David H. Bateman
              Chief Executive Officer

I, Paul L. Dailey, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-Q of Evans & Sutherland Computer Corporation for the quarter ended September 26, 2014, 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: November 7, 2014                                                              By:      /s/ Paul L. Dailey                                                       
Paul L. Dailey
              Chief Financial Officer
 
The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.