UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2016
or
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ___________________________
Commission file number 0-8771
EVANS & SUTHERLAND COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
 
Utah
87-0278175
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
770 Komas Drive, Salt Lake City, Utah
84108
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code: 801-588-1000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $0.20 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [  ] Yes  [x ] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  [ ] Yes  [x] No

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.       [ x ] Yes       [  ] 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). [ x ] Yes  [  ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[x]

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 definition 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 [  ]                       Smaller reporting company [x]
                                                                                      (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).  [  ] Yes    [x ] No

The aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates of the registrant as of July 1, 2016 the last business day of the registrant's most recently completed second fiscal quarter was $4,468,308 based on the closing sale price of $0.70 as reported by the Over-the-Counter Market. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock, based on Schedule 13D and 13G filings, have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for other purposes.

The number of shares of the registrant's Common Stock outstanding as of March 1, 2017 was 11,352,516.


DOCUMENTS INCORPORATED BY REFERENCE:

 
Certain information from the Registrant's definitive proxy statement for the 2017 Annual Meeting of Stockholders is incorporated by reference into Part III hereof.

EVANS & SUTHERLAND COMPUTER CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
 
     
     
7
     
     
     
     
 

 
2

 
PART I

ITEM 1.   BUSINESS
Throughout this document Evans & Sutherland Computer Corporation may be referred to as "Evans & Sutherland," "E&S," "we," "us," "our" or the "Company."  All dollar amounts are in thousands unless otherwise indicated.
Evans & Sutherland was incorporated in the state of Utah on May 10, 1968.  Our principal offices are located at 770 Komas Drive, Salt Lake City, Utah 84108, and our telephone number is (801) 588-1000.  Through a link on our website, www.es.com, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the "SEC").  We make our website content available for informational purposes only.  The information provided on our website is not incorporated by reference into this Form 10-K and our website address is not intended to be a hyperlink.  The above reports and other information are also available, free of charge, at www.sec.gov .  Alternatively, the public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

General

Evans & Sutherland focuses on the production of high-quality advanced visual display systems used primarily in full-dome video projection applications, dome projection screens, dome architectural treatments, and unique content for planetariums, schools, science centers, other educational institutions, and entertainment venues.  With a nearly 50-year history in computer graphics, we are widely regarded as both a pioneer and a leader in providing the world's most compelling full-dome digital theater and planetarium systems as well as original full-dome shows.  With our subsidiary, Spitz, Inc. ("Spitz"), and its over 70-year history as a leading supplier of planetarium systems, dome projection screens and other dome displays, E&S supplies premier total system solutions for its digital theater markets as well as customized domes and other unique geometric structures in the architectural market.
   
We continue to maintain a significant share of the overall planetarium and digital theater market. We estimate that our market share has ranged from 35% to 70%, depending on the specific market and time period.  We estimate that the size of the market for digital theater and planetarium systems is approximately $65 million annually. 

Description of Products
E&S offers a range of products and services primarily for dome and planetarium theaters in educational institutions, training, and entertainment venues.  These products include state of the art planetarium and dome theater systems consisting of proprietary hardware and software, and other unique visual display systems primarily used to project digital video on large curved surfaces.  We also produce unique show content both for our own library which we license to customers and for specific customer requirements for planetarium and dome theaters.  Additionally, we manufacture and install metal domes with customized optical coatings and acoustical properties that are used for planetarium and dome theaters as well as many other unique custom applications.  Our dome engineering and manufacturing resources also design and supply geometrically complex structures for customized architectural treatments, often involving curved metal shapes with unique optical and acoustical properties.
Description of Markets
We are an industry leader in providing full-dome hardware and software to an international customer base in the digital theater, planetarium, entertainment, training and educational markets.  In each of these markets we face highly competitive conditions where we compete on features, performance, and responsiveness to customer needs as well as on price.  E&S is unique among its competitors by virtue of its capability as a single source that can directly supply and integrate all of the equipment in the planetarium theater, including the projection system, sound, lighting, computer control system and domed projection screen.  We believe our range of visual systems and services at various price and performance levels, our research and development investments and capabilities, our responsiveness to customers, and our ability to design and manufacture value-added visual systems enable us to compete effectively. Our competitive strengths with visual systems and services aid the sale of our dome projection screens as customers often require a new dome projection screen with their visual system. We also believe our capabilities to design and manufacture domes and certain other architectural structures are very unique and enable us to compete effectively in all of the markets where these products are sold.
3

Digital Theater
In the digital theater market our products compete with traditional optical-mechanical products and digital display systems offered by GOTO Optical Mfg. Co., Konica-Minolta Planetarium Co. Ltd., Carl Zeiss Inc., and Sky-Skan, Inc. The Company's digital display systems can be configured with our proprietary projector systems or standard commercial projectors similar to systems sold by our competitors.  Our proprietary Digistar full-dome digital system, along with other customized software tools differentiate our digital theater systems and compete favorably with competitive digital display systems. Our SciDome planetarium system, which uses a dome theater version of a retail desktop astronomy product with curriculum tools for teachers, creates a unique competitive advantage when targeting smaller classroom planetarium theaters.
Advanced Displays
Our capabilities and products sometimes are used for special advance display applications primarily for wide audiences in specialty theaters and other visitor attractions. This includes the integration of the most advanced video projectors with customized lenses, software and unique application techniques to serve customers who are in search of extraordinary display of visual content. Our competition in these markets includes various specialty audio visual systems integrators and alternative solutions using other technologies.
Domed Structures
Our Spitz subsidiary is the world's leading producer of domed projection screens. At Spitz we design, manufacture, and install domed projection screens used in planetarium theaters and a variety of other applications such as ride simulators, special or large format film theaters, simulation training systems and architectural treatments. We have developed proprietary dome products such as our NanoSeam dome which we believe provides the smoothest, most uniform projection surface available. Our experience with dome projection screens enables us to advise on the architectural integration of domed projection screens and solve complex optical problems involving reflectivity and image distortion on compound curved surfaces. We believe that these skills are important to buyers of domed projection screens. The principal customers of our dome business are entities in the entertainment, educational and commercial and military simulation markets. Customers include major theme parks, casinos, world expositions, museums, schools, and military defense contractors. There is currently one known domestic competitor that manufactures domed projection screens. In addition, construction or metal fabrication contractors occasionally supply domed projection screens, particularly in foreign markets. The structures we design and supply for architectural treatments are sold as complements to our dome screen products or into the architectural market for a wide variety of interesting venues. Competition for our architectural treatment products usually comes from construction or metal fabrication contractors often with an alternative design idea.

Intellectual Property

We own a significant number of patents and trademarks and we are a licensee under several others.  Our portfolio of patents and trademarks, as a whole, contributes to our business.  However, no one piece of intellectual property is critical to our business, thus no individual piece of our intellectual property is separately discussed.  In the U.S. and internationally, we hold active patents that cover many aspects of our visualization technology.  Several patent applications are presently pending and routinely other patent applications are in preparation. We actively pursue patents on our new technology and we intend to vigorously protect our patent rights.  We often trademark key product names and brand names to protect our equity in the marketplace. We routinely copyright software and documentation and institute copyright registration when appropriate.  Currently we retain a total of 18 active U.S. patents.

Research and Development

We consider the timely development and improvement of our technology to be essential to maintain our competitive position and to capitalize on market opportunities.  We continue to fund essentially all research and development ("R&D") efforts internally. 
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R&D efforts continue to improve Digistar, our popular full-dome digital system and a key component to our planetarium and dome theater products.  We also explore the possibility of other commercial applications for Digistar technology as opportunities arise. We conduct ongoing R&D to improve the functionality of SciDome to keep pace with updated versions of the desktop software it emulates and to take advantage of the latest digital display and theater technology. Some noteworthy specific R&D activities for our advance display and planetarium products include the development of unique techniques to display three dimensional digital video and the expansion of educational curriculum tools to cover new subject matter in addition to astronomy such as chemistry and earth sciences.  We continue to develop improvements to our dome products including optical coatings and ways to make the projection surface more uniform.  There are also R&D efforts ongoing to enhance components of the systems we sell, such as improvements to theater lighting.
We continually work with the new digital projection technologies to develop advanced visual display systems primarily to be used by wide audiences in specialty theaters and other visitor attractions. This includes the integration of the most advanced video projectors with customized lenses, software and unique application techniques to serve customers who are in search of extraordinary display of visual content.
Dependence on Suppliers
Most of our current parts and assemblies are readily available through multiple sources in the open market; however, a limited number are available only from a single source.  In these cases, we either stock adequate inventory to cover future product demands, obtain the agreement of the vendor to maintain adequate stock for future demands, or develop alternative components or sources where appropriate.
Employees
As of December 31, 2016, Evans & Sutherland and its subsidiaries employed a total of 91 persons of which 88 were employed full time. 
Environmental Standards
We believe our facilities and operations are within standards fully acceptable to the Environmental Protection Agency and that all facilities and procedures are operated in accordance with environmental rules and regulations, and international, federal, state and local laws.
Strategic Relationships
In the normal course of business, we develop and maintain various types of relationships with key customers and technology partners.  The teaming agreements are with industry partners and are intended to improve our overall competitive position.  The product development agreements enhance our products by the cooperative development of new features and capabilities necessary to maintain our industry leading position.
Forward-Looking Statements and Associated Risks
This annual report, including all documents incorporated herein by reference, includes certain "forward-looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, among others, those statements preceded by, followed by or including the words "estimates," "believes," "expects," "anticipates," "plans," "projects," "intends," "predicts," "may," "will," "could," "would," "potential" and similar expressions or the negative of such terms.  See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II of this annual report on Form 10-K for a list of some of the forward-looking statements included in this Form 10-K.
5

EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers of E&S as of December 31, 2016.
 
Name
Age
Position
 
Jonathan A. Shaw
60
Chief Executive Officer and Director
 
Paul L. Dailey
60
Chief Financial Officer and Corporate Secretary
 
Kirk D. Johnson
55
Chief Operating Officer and President
Jonathan A. Shaw was appointed Chief Executive Officer and Director in September 2016.  He previously served as President and Chief Executive Officer of Spitz since November 2001. Prior to his appointment as President and Chief Executive Officer of Spitz, Mr. Shaw held various management positions since 1985. 
Paul L. Dailey was appointed Executive Vice President in December 2016. He was appointed Chief Financial Officer and Corporate Secretary in February 2007.  He became an executive officer of E&S in August 2006 when he was appointed Acting Chief Financial Officer and Corporate Secretary.  Prior to his appointments at E&S, Mr. Dailey served as Executive Vice President, Chief Financial Officer and Corporate Secretary of Spitz, where he started as Controller in 1983. Mr. Dailey is a Certified Public Accountant.
Kirk D. Johnson was appointed Chief Operating Officer and President in September 2016.  He previously served as Vice President and General Manager of Digital Theater since January 2002.  He joined E&S in April 1990 and has held various engineering and management positions throughout his service at E&S. 

ITEM 2.   PROPERTIES
Our principal executive, engineering, manufacturing and operations facilities are located in the University of Utah Research Park in Salt Lake City, Utah, where we lease two buildings totaling approximately 68,000 square feet.
Spitz owns and occupies an approximately 47,000 square-foot building on approximately 15.2 acres in Chadds Ford, Pennsylvania. The property serves as collateral under Spitz's debt agreements through a mortgage granted to First Keystone Bank which is now The Bryn Mawr Trust Company, a commercial bank.

ITEM 3.   LEGAL PROCEEDINGS
In the normal course of business, we may have various legal claims and other contingent matters.  We know of no legal claims outstanding that would have a material adverse effect on our consolidated financial position, liquidity or results of operations.

ITEM 4.   MINE SAFETY DISCLOSURES
Not applicable

6

PART II

ITEM 5.               MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the Over-the-Counter Markets under the symbol "ESCC."  On March 1, 2017, there were approximately 430 holders of record of our common stock.  Because brokers and other institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
We have never paid a cash dividend on our common stock and have used funds generated internally to operate our business.  For the foreseeable future, we intend to follow our policy of retaining any future earnings to finance the development and growth of our business.
Additional information required by this item is incorporated by reference to the table captioned Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2016 in Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," of Part III of this annual report on Form 10-K.
The table below presents the high and low sales prices per share as reported by the Over-the-Counter Markets, by quarter for 2016 and 2015. The quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
   
2016
   
2015
 
    High     Low    
High
   
Low
 
First Quarter
  $ 1.06     $ 0.75     $ 0.55     $ 0.30  
Second Quarter
    1.15       0.70       0.95       0.42  
Third Quarter
    1.35       0.51       1.14       0.49  
Fourth
   
1.48
     
0.90
     
1.21
     
0.72
 
 
ITEM 6.   CONSOLIDATED FINANCIAL DATA
Not applicable



7

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition.  The discussion should be read in conjunction with our consolidated financial statements and notes included in Item 8, "Financial Statements and Supplementary Data," of this annual report on Form 10-K.  Information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements that involve risks and uncertainties.  Many factors could cause actual results to differ materially from those contained in the forward-looking statements.  See "Forward-Looking Statements" below for additional information concerning these items.
 ( All dollar amounts are in thousands unless otherwise indicated. )
Executive Summary
The year ended 2016 produced healthy sales and gross profit down slightly from 2015. The continued healthy sales and gross profit were attributable to strong sales bookings in 2014 through 2016. The sales backlog remained healthy at the end of 2016 which supports an encouraging outlook for 2017. Operating expenses decreased from $13,037 in 2015 to $9,721 in 2016; however, both 2015 and 2016 included certain expenses that are considered to be unusual and non-recurring.  Specifically, 2015 included a $3,620 charge for the settlement of the pension liabilities and 2016 included a severance obligation of a prior executive. With the exception of the pension settlement expense in 2015 and the severance expense in 2016, our operating expenses in 2016 were comparable to 2015.  We believe this illustrates the profit potential of our business without the burden of the Pension Plan. With a leaner executive leadership team and the healthy backlog and sales prospects, we anticipate sales at levels that are expected to yield profitable results in 2017.
We intend to continue to aggressively pursue opportunities in the digital theater and other markets served by our products, as well as the development and improvement of new innovative products such as Digistar for planetarium theaters. We will continue to develop and improve our planetarium products targeted for smaller venues in education markets such as our SciDome product. We intend to also continue development and improvement of our dome products used by planetarium theaters and many other varied applications.  We intend to continue the production of quality show content for planetarium theaters.  We believe that the ability to include the wide range of complementary products in the systems we sell, along with access to the legacy customer base of E&S and our subsidiary, Spitz, provides a unique competitive advantage.
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 and meet our obligations including our annual obligation to the Pension Benefit Guaranty Corporation ("PBGC") related to the termination of our qualified defined benefit pension plan ("Pension Plan") in 2015 (the "Pension Settlement Obligation").  Although we reported a net loss for 2015 due to the pension settlement charge of $3,620, the pension settlement contributed $31,776 to comprehensive income bringing 2015 total comprehensive income to $29,946. The 2015 total comprehensive income combined with profitable results in 2016 eliminated our stockholders' deficit, which was $30,703 as of December 31, 2014, creating stockholders' equity of $1,597 as of December 31, 2016. As the Company continues to move forward, we expect our improved financial position to present opportunities for better results through the availability of credit and stronger qualification for customer projects.

Results of Operations

Consolidated Sales and Backlog

The following table summarizes our consolidated sales for the years ended December 31:
 
 
2016
 
2015
 
Sales
  $ 32,944     $ 35,298  

 

8

 Sales decreased 7% from 2015 to 2016 due to lower sales of planetarium products which was partially offset by an increase in sales of dome products to theme parks.
The volume of new orders in 2016 was strong but slightly lower than the high volume of orders booked in 2015.  As a result, our sales backlog was $24,444 as of December 31, 2016 compared with $26,298 as of December 31, 2015. The sales backlog of planetarium products improved while the backlog of domes for theme park attractions decreased but remained healthy at December 31, 2016, setting up 2017 for another strong year in sales with a more balanced contribution from our products.  We anticipate that approximately 75% of the 2016 backlog will be converted to sales in 2017 and that we will receive sufficient new orders to produce total sales in 2017 comparable to 2016.

Gross Profit

The following table summarizes our gross profit and the percentage to total sales for the years ended December 31:
 
   
2016
   
2015
 
Gross profit
  $  12,073     $ 12,342  
Gross profit percentage
    37%     35%
 
 
Our gross profit percentage was slightly higher in 2016 when compared to 2015.  The lower gross margin percentage in 2015 was affected by higher than expected costs to complete two theme park projects.

Operating Expenses
The following table summarizes our operating expenses during the years ended December 31:
   
2016
   
2015
 
Selling, general and administrative
  $ 7,115     $ 6,633  
Research and development
    2,344       2,262  
Pension     262       522  
Pension settlement
    -       3,620  
  Total operating expenses
  $ 9,721     $ 13,037  
 
Selling, general and administrative expenses were higher in 2016 compared to 2015. This was primarily due to the additional costs accrued in the third quarter of 2016 in connection with the severance compensation for our former Chief Executive Officer.
Research and development expenses were slightly higher in 2016 compared to 2015.  This was primarily due to redirecting resources from sales and marketing activities to research and development activities. Research and development activities consisted of exploration of new applications for our products, improvements to the software in our planetarium products, testing hardware to project high definition video on large dome screens, development of a graphical user interface device for dome theaters, improvements to theater lighting, testing of optical coatings for projection surfaces and developing techniques to make dome projection surfaces more uniform.
Pension expense was lower in 2016 compared to 2015 due to the termination of the Pension Plan in the second quarter of 2015. With the termination of the Pension Plan, the pension expense in 2016 and going forward is entirely the expenses attributable to our Supplemental Executive Retirement Plan ("SERP").
The Pension settlement expense of $3,620 reflects a one-time charge for the settlement of the Pension Plan liabilities in the second quarter of 2015.
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Other Expense, net
The following table summarizes our other expense during the years ended December 31:
   
2016
   
2015
 
Interest expense
  $ (510)   $ (429)
Other expense, net
    (6)     (163)
Interest expense in 2016 and 2015 consisted principally of imputed interest on the Pension Settlement Obligation. Interest expense also included interest paid on real estate debt in both years presented. Interest expense in 2017 is expected to be comparable to 2016.
The change in other expense, net was primarily attributable to higher realized currency losses in 2015.

Income Taxes

The income tax benefit (provision) consisted of federal and state income taxes as follows for the years ended December 31:
   
2016
   
2015
 
Income tax benefit (provision)
  $ (93)   $ 12
 
 
The 2016 income tax provision was for state income taxes resulting from Spitz' normal business activity in various jurisdictions.

Other Comprehensive Income
The following table summarizes other comprehensive income for the years ended December 31:
   
2016
   
2015
 
  Decrease (increase) to minimum pension liability
   $ 258      $ (555)
  Pension settlement
    -       31,776  
    Other comprehensive income
   $ 258      $ 31,221  
                 
The economic benefit to the Company from the settlement of Pension Plan liabilities was reflected in the financial statements as other comprehensive income of $31,776 in 2015. This offset the $3,620 charge to operating expenses from the same transaction. The other pension related charges and credits affecting other comprehensive income were attributable to the accounting for actuarial valuations of the pension liabilities. Other comprehensive income in future years is expected to be limited to accounting for potential changes in the actuarial valuation of the SERP liabilities.
Liquidity and Capital Resources
Outlook
As discussed in the executive summary above, we have made significant progress toward eliminating our history of operating losses.  We believe that the termination of the Pension Plan together with the settlement of the underlying pension liabilities achieved our goal of reducing our obligations to levels that make the business viable. As a result, we believe existing liquidity resources and funds generated from forecasted revenue will be sufficient to meet our current and long-term obligations. We continue to operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures.
10

Cash Flows
The following table summarizes our cash flows for the years ended December 31:
             
Net cash and cash equivalents provided by (used in):
 
2016
   
2015
 
     Operating activities
  $ 3,747     $ (2,943)
     Investing activities
    (174)     (173)
     Financing activities
    (484)     (188)
Increase (decrease) in cash and cash equivalents
  $ 3,089     $ (3,304)
 
Cash and cash equivalents increased $3,089 to $6,823 during 2016, due primarily to cash provided by operating activities.
Operating Activities
The net cash provided by operating activities in 2016 was attributable to a decrease in working capital of $912 plus $2,835 of cash provided by the $1,743 net income after the effect of $1,092 of non-cash charges.  The non-cash charges consisted primarily of $294 of depreciation, $258 of amortization of deferred pension costs, and $344 in the provision for excess and obsolete inventory.  The changes in working capital which used cash were largely attributable to the timing of progress payments on customer projects.
The net cash used in operating activities in 2015 was attributable to an increase in working capital of $6,006 less $3,063 of cash provided by the $1,275 net loss after the effect of $4,338 of non-cash charges.  The non-cash charges consisted primarily of the $3,620 pension settlement charge.  The changes in working capital which used cash were largely attributable to the timing of progress payments on customer projects. Other significant cash outlays were the initial installment payments of the Pension Settlement Obligation.
Investing Activities
Investing activities used $174 of cash during 2016 consisting entirely of purchases of property and equipment.
Investing activities used $173 of cash during 2015 consisting entirely of purchases of property and equipment.
Financing Activities
Financing activities used $484 of cash during 2016 consisting of $199 for principal payments on debt obligations, $356 for principal payments on the Pension Settlement Obligation and $71 in proceeds from the exercise of options.
Financing activities used $188 of cash during 2015 for principal payments on debt obligations.
Credit Facilities
The Company is a party to a line-of-credit agreement with a commercial bank which permits borrowings of up to $1,100 to fund Spitz working capital requirements. Under the line-of-credit agreement, interest is charged on amounts borrowed at the lender's prime rate less 0.25%.  Any borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The line-of-credit agreement and mortgage notes (with the same commercial bank) contain cross default provisions whereby a default on either agreement will result in a default on both agreements. There were no borrowings outstanding under the line-of-credit agreement as of December 31, 2016.

The ability to issue letters of credit and bank guarantees is an important tool to mitigate credit risk in our business. International sales are increasingly important to our business and, in many countries, letters of credit and bank guarantees serve as performance guarantees for customer contracts. Also, domestic sales sometimes require performance guarantees in the form of surety bonds.  We have relationships with licensed surety companies to provide performance bonds subject to certain limitations and collateral which we must provide for security. Letters of credit and bank guarantees are issued to serve as collateral and to ensure our performance for these purposes. Cash deposits or deferral of customer payments for performance guarantees can often be used as an alternative to letters of credit.
11


Under the terms of financing arrangements for letters of credit, the Company is required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit issued, plus other amounts necessary to adequately secure obligations with the financial institutions who issue the letters of credit.  As of December 31, 2016, there were outstanding letters of credit and bank guarantees of $600, which are scheduled to expire during the year ending December 31, 2017.

Mortgage Notes
Debt obligations include a first mortgage note payable to a commercial bank which represents the balance on a $3,200 note ("First Mortgage Note") issued on January 14, 2004 by Spitz. The First Mortgage Note requires repayment in monthly installments of principal and interest over 20 years.  On each third anniversary of the First Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over the Three-Year Constant Maturity Treasury Rate published by the United States Federal Reserve ("3YCMT").  The monthly installment is recalculated in the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term.  On January 14, 2016, the 3YCMT was 1.14% and the interest rate on the First Mortgage Note remained at 5.75% per annum.  The monthly installment amount remained unchanged at $23.

Debt obligations also include a second mortgage note payable to a commercial bank which represents the balance on a $500 note ("Second Mortgage Note") issued on September 11, 2008 by Spitz. The Second Mortgage Note requires repayment in monthly installments of principal and interest over 20 years.  On each 5-year anniversary, the interest rate is adjusted to the greater of 5.75% or 3% over 3YCMT.  The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. On September 11, 2013, the fifth anniversary of the Second Mortgage Note, the 3YCMT was 0.88%. As a result, interest continues at 5.75% until possible adjustment on the next 5-year anniversary. The monthly installment also remains unchanged at $4.

The Mortgage Notes are secured by the real property occupied by Spitz pursuant to a Mortgage and Security Agreement.  The real property had a carrying value of $4,215 as of December 31, 2016. The Mortgage Notes are guaranteed by E&S.

Land and building lease

In November 2014, the Company agreed to an extension of its lease for its corporate office buildings and its interest in the lease for the land occupied by the buildings for a term of 5 years. Base annual rent for the extended 5-year term is $549.

 The lease obligation is recorded as an operating lease for a term of five years commencing November 1, 2014.  The accounting for lease extension resulted in $620 gain on the disposition of leased assets under the prior lease which was deferred and is being amortized over the five-year term of the new operating lease. There was also a $1,526 gain from the extinguishment of a deferred rent credit related to the underlying land lease which is being amortized over the five-year term of the new operating lease. The amortization of the deferred gain and deferred rent credit reduces the rent expense attributable to the cash rent payments.

Other
In 2017, we expect capital expenditures similar to 2016.  There were no material capital expenditure commitments as of December 31, 2016, nor do we anticipate any over the next several years.
Our Board of Directors has authorized the repurchase of 1,600,000 shares of our common stock.  As of February 15, 2017, 463,500 shares remained available for repurchase under the plans approved by the Board of Directors.  No shares were repurchased during 2016 or 2015.  Stock may be acquired on the open market or through negotiated transactions depending on market conditions, share price and other factors.
12

We also maintain trade credit arrangements with certain suppliers.  The unavailability of a significant portion of, or the loss of, these trade credit arrangements from suppliers would have a material adverse effect on our financial condition and operations.
As of December 31, 2016, our total indebtedness was $1,975 on the mortgage notes.  Our cash and restricted cash, subject to various restrictions set forth in this annual report on Form 10-K, are available for working capital needs, capital expenditures, strategic investments, mergers and acquisitions, stock repurchases and other potential cash needs as they may arise.
Effects of Inflation
The effects of inflation were not considered material for the years 2016 and 2015, and are not expected to be material for the year 2017.
Application of Critical Accounting Estimates
The application of the accounting estimates discussed below is considered by management to be critical to an understanding of our consolidated financial statements.  Their application places significant demands on management's judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain.  Specific risks for these critical accounting estimates are described in the following paragraphs.  A summary of significant accounting policies can be found in Note 1, "Nature of Operations and Summary of Significant Accounting Policies," of Item 8, "Financial Statements and Supplementary Data," in this annual report on Form 10-K.  For all of these policies, management cautions that future results rarely develop exactly as forecast, and the best estimates routinely require adjustment.
Revenue Recognition
Revenue from long-term contracts requiring significant production, modification and customization is recorded using the percentage-of-completion method.  This method uses the ratio of costs incurred to management's estimate of total anticipated costs.  Our estimates of total costs include assumptions, such as man-hours to complete, estimated materials cost, and estimates of other direct and indirect costs.  Actual results may vary significantly from our estimates.  If the actual costs are higher than management's anticipated total costs, then an adjustment is required to reduce the previously recognized revenue as the ratio of costs incurred to management's estimate was overstated.  If actual costs are lower than management's anticipated total costs, then an adjustment is required to increase the previously recognized revenue as the ratio of costs incurred to management's estimate is understated.  Adjustments for revisions of previous estimates are made in the period they become known.
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
Billings on uncompleted long-term contracts may be greater than or less than incurred costs and estimated earnings.  As a result, these differences are recorded as an asset or liability on the balance sheet.  Since revenue recognized on these long-term contracts includes management's estimates of total anticipated costs, the amounts in costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts also include these estimates.
Inventories
Inventories include materials at standard costs, which approximate actual costs, and inventoried costs on programs, including material, labor, subcontracting costs, as well as an allocation of indirect costs.  We periodically review inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and then provide a reserve we consider sufficient to reduce inventories to net realizable values.  Reserve adequacy is based on estimates of future sales, product pricing, and requirements to complete projects.  Revisions of these estimates would result in adjustments to our operating results.
Allowance for Doubtful Accounts Receivable
We specifically analyze accounts receivable and consider historical experience, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and changes in payment terms when evaluating the adequacy of the allowance for doubtful accounts receivable.  Changes in these factors could result in material adjustments to the expense recognized for bad debts.
13

Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate our actual income taxes in each of the jurisdictions in which we operate.  This involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatments of items, such as accrued liabilities, for tax and accounting purposes.  These differences result in deferred income tax assets and liabilities, which are included in our consolidated balance sheets.  We must then assess the likelihood that our deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance.  To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must include a corresponding adjustment within the income tax provision in the statement of comprehensive income (loss).  Significant judgment by management is required to determine our provision for income taxes, our deferred income tax assets and liabilities and any valuation allowance recorded against our net deferred income tax assets.
Impairment of Long- Lived Assets
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the carrying values of the assets may not be fully recoverable. When this occurs, we review the value assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate.  When the expected future undiscounted cash flows from these assets do not exceed their carrying values, the Company determines the estimated fair value of such assets. Impairment is recognized to the extent the carrying values of the assets exceed their estimated fair values.  Assets held for sale are reported at the lower of their carrying values or fair values less costs to sell.
Straight-Line Rent and Contingent Obligation
We recognize scheduled rent increases on a straight-line basis over the lease term, which may include optional lease renewal terms, and deferred rent income and expense is recognized to reflect the difference between the rent paid or received in the current period and the calculated straight-line amount.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASU 2016-02").  ASU 2016-02 changes the accounting for leases.  In particular, lessees will recognize lease assets and lease liabilities for operating leases.  This update will have a minimal effect on lessor accounting.  ASU 2016-02 is not effective until 2019. The Company is currently assessing the impact on its financial reporting of implementing this guidance.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) ("ASU 2015-17").  ASU 2015-17 requires that all deferred income tax assets and liabilities be classified as non-current.  ASU 2015-17 is not effective until the 2017 fiscal year.  The Company has elected to prospectively adopt the accounting standard in the beginning of the fourth quarter of fiscal 2016. Prior periods in our Consolidated Financial Statements were not retrospectively adjusted.
In May 2014, the FASB issued ASU 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 the Company on January 1, 2018. 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 ASU 2014-09 will have on its consolidated financial statements and related disclosures.  During 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date ("ASU 2015-14"), which deferred the date of ASU 2014-09 by one year.
Forward-Looking Statements

The foregoing contains "forward-looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including among others, those statements preceded by, followed by or including the words "estimates," "believes," "expects," "plans," "projects," and similar expressions.
14

These forward-looking statements include, but are not limited to, the following statements:
·
Our belief that our range of products and services at various price and performance levels, our research and development investments and capabilities, and our ability to design and manufacture products will enable us to compete effectively.
·
Our belief that our facilities and operations are within standards fully acceptable to the Environmental Protection Agency and that all facilities and procedures are operated in accordance with environmental rules and regulations, and international, federal, state and local laws.
·
Our belief that our existing sources of liquidity, including marketable securities, will provide sufficient liquidity to meet our obligations through 2017 and beyond.
·
Our belief that our ability to include the wide range of complementary products offered by E&S and Spitz in the systems we sell, along with access to the legacy customer base of E&S and Spitz, provides a unique competitive advantage.
·
Our expectations for variable future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses.
·
Our belief that an improved financial position as a result of relief from the burden of the Pension Plan may present opportunities for better results through the availability of credit and stronger qualification for customer projects.
·
Our belief that any potential shortfalls in our forecasted revenues would be within a range whereby we could reduce variable costs in order to meet our 2017 obligations.
·
Our belief that the business has the potential for long-term profitability without the burden of the Pension Plan.
·
Our belief that capital expenditures during 2017 will be similar to the capital expenditures incurred during 2016.
·
Our belief that the effects of inflation will not be material for 2017.
·
Our belief that approximately 75% of our backlog will be converted to sales in 2017.
·
Our belief that our 2016 orders will continue at a level sufficient to recognize sales in 2017 comparable to 2016.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.  Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.  Our actual results could differ materially from these forward-looking statements.  Important factors to consider in evaluating such forward-looking statements include risks of product demand, market acceptance, economic conditions, competitive products and pricing, difficulties in product development, and product delays.  In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this annual report will, in fact, occur.
15

 ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
   
December 31,   
 
   
2016
   
2015
 
ASSETS
           
Current assets:
           
  Cash and cash equivalents
 
$
6,823
   
$
3,734
 
  Restricted cash
   
603
     
601
 
  Accounts receivable, net
   
3,271
     
4,825
 
  Current portion of lease receivable
   
252
     
-
 
  Costs and estimated earnings in excess of billings on uncompleted contracts
   
3,038
     
2,695
 
  Inventories, net
   
3,751
     
4,072
 
  Prepaid expenses and deposits
   
902
     
1,038
 
   Total current assets
   
18,640
     
16,965
 
Long-term lease receivable, net of current portion
   
1,083
     
-
 
Property and equipment, net
   
4,638
     
4,735
 
Goodwill
   
635
     
635
 
Intangible assets, net
   
-
     
27
 
Other assets
   
1,222
     
1,082
 
   Total assets
 
$
26,218
   
$
23,444
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current liabilities:
               
  Accounts payable
 
$
1,158
   
$
1,062
 
  Accrued liabilities
   
1,400
     
1,031
 
  Billings in excess of costs and estimated earnings on uncompleted contracts
   
6,500
     
3,995
 
  Customer deposits
   
2,238
     
3,232
 
  Current portion of retirement obligations
   
507
     
480
 
  Current portion of pension settlement obligation
   
382
     
356
 
  Current portion of long-term debt
   
211
     
199
 
   Total current liabilities
   
12,396
     
10,355
 
Pension and retirement obligations, net of current portion
   
4,344
     
4,839
 
Pension settlement obligation, net of current portion
   
4,886
     
5,268
 
Long-term debt, net of current portion
   
1,764
     
1,975
 
Deferred rent obligation
   
1,231
     
1,653
 
   Total liabilities
   
24,621
     
24,090
 
Commitments and contingencies (Notes 5, 6, 7 and 9)
               
Stockholders' equity (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; 11,616,866 and 11,441,666 shares issued, respectively
   
2,323
     
2,288
 
  Additional paid-in-capital
   
53,641
     
53,434
 
  Common stock in treasury, at cost, 264,350 shares
   
(3,532
)
   
(3,532
)
  Accumulated deficit
   
(48,689
)
   
(50,432
)
  Accumulated other comprehensive loss
   
(2,146
)
   
(2,404
)
   Total stockholders' equity (deficit)
   
1,597
     
(646
)
   Total liabilities and stockholders' equity (deficit)
 
$
26,218
   
$
23,444
 
                 
See notes to consolidated financial statements.
16

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
   
Years Ended December 31,
 
   
2016
   
2015
 
             
Sales
 
$
32,944
   
$
35,298
 
Cost of sales
   
(20,871
)
   
(22,956
)
     Gross profit
   
12,073
     
12,342
 
Operating expenses:
               
     Selling, general and administrative
   
(7,115
)
   
(6,633
)
     Research and development
   
(2,344
)
   
(2,262
)
     Pension
   
(262
)
   
(522
)
     Pension settlement
   
-
     
(3,620
)
          Total operating expenses
   
(9,721
)
   
(13,037
)
                 
          Operating income (loss)
   
2,352
     
(695
)
Interest expense
   
(510
)
   
(429
)
Other expense, net
   
(6
)
   
(163
)
Income (loss) before income tax benefit (provision)
   
1,836
     
(1,287
)
     Income tax benefit (provision)
   
(93
)
   
12
 
          Net income (loss)
 
$
1,743
   
$
(1,275
)
                 
Net income (loss) per common share – basic
 
$
0.16
   
$
(0.11
)
Net income (loss) per common share – diluted
 
$
0.15
   
$
(0.11
)
                 
Weighted average common shares outstanding – basic
   
11,214
     
11,150
 
Weighted average common shares outstanding – diluted
   
11,836
     
11,150
 
                 
Comprehensive income, net of tax:
               
  Net income (loss)
 
$
1,743
   
$
(1,275
)
  Pension settlement
   
-
     
31,776
 
  Decrease (increase) in minimum pension liability
   
258
     
(555
)
    Other comprehensive income
   
258
     
31,221
 
          Total comprehensive income
 
$
2,001
   
$
29,946
 
                 
See notes to consolidated financial statements.
17


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
                                 
Accumulated
       
               
Additional
               
Other
       
   
Common Stock
   
Paid-in
   
Treasury
   
Accumulated
   
Comprehensive
       
   
Shares
   
Amount
   
Capital
   
Stock
   
Deficit
   
Loss
   
Total
 
Balance, December 31, 2014
   
11,442
   
$
2,288
   
$
54,500
   
$
(4,709
)
 
$
(49,157
)
 
$
(33,625
)
 
$
(30,703
)
  Net loss
   
-
     
-
     
-
     
-
     
(1,275
)
   
-
     
(1,275
)
  Issuance of 88,117 shares from treasury for pension settlement
   
-
     
-
     
(1,107
)
   
1,177
     
-
     
-
     
70
 
  Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
31,221
     
31,221
 
  Stock-based compensation
   
-
     
-
     
41
     
-
     
-
     
-
     
41
 
Balance, December 31, 2015
   
11,442
   
$
2,288
   
$
53,434
   
$
(3,532
)
 
$
(50,432
)
 
$
(2,404
)
 
$
(646
)
Net income
   
-
     
-
     
-
     
-
     
1,743
     
-
     
1,743
 
  Issuance of shares on exercise of options
   
175
     
35
     
36
     
-
     
-
     
-
     
71
 
  Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
258
     
258
 
  Stock-based compensation
   
-
     
-
     
171
     
-
     
-
     
-
     
171
 
Balance, December 31, 2016
   
11,617
   
$
2,323
   
$
53,641
   
$
(3,532
)
 
$
(48,689
)
 
$
(2,146
)
 
$
1,597
 
                                                         
See notes to consolidated financial statements.

18

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

   
Years Ended December 31,
 
   
2016
   
2015
 
             
Cash flows from operating activities:
           
  Net income (loss)
 
$
1,743
   
$
(1,275
)
  Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
   Depreciation and amortization
   
294
     
291
 
   Amortization of deferred pension costs
   
258
     
106
 
   Pension settlement charge
   
-
     
3,620
 
   Provision for excess and obsolete inventory
   
344
     
155
 
   Other
   
196
     
166
 
  Changes in operating assets and liabilities:
               
   Decrease (increase) in restricted cash
   
(2
)
   
110
 
   Decrease (increase) in accounts receivable
   
1,533
     
(373
)
   Increase in lease receivable
   
(1,335
)
   
-
 
   Increase in inventories
   
(23
)
   
(64
)
   Decrease (increase) in costs and estimated earnings in excess of billings on uncompleted contracts, net
   
2,162
     
(2,177
)
   Increase in prepaid expenses and other assets
   
(4
)
   
(367
)
   Increase in accounts payable
   
96
     
352
 
   Increase (decrease) in accrued liabilities
   
369
     
(111
)
   Decrease in accrued pension and retirement liabilities
   
(468
)
   
(84
)
   Decrease in pension settlement obligation
   
-
     
(2,019
)
   Decrease in customer deposits
   
(994
)
   
(849
)
   Decrease in deferred rent obligation
   
(422
)
   
(424
)
    Net cash provided by (used in) operating activities
   
3,747
     
(2,943
)
                 
Cash flows from investing activities:
               
  Purchases of property and equipment
   
(174
)
   
(182
)
  Proceeds from sale of property and equipment
   
-
     
9
 
   Net cash used in investing activities
   
(174
)
   
(173
)
                 
Cash flows from financing activities:
               
  Proceeds from shares issued on exercise of options
   
71
     
-
 
  Principal payments on long-term debt
   
(199
)
   
(188
)
  Principal payments on pension settlement obligation
   
(356
)
   
-
 
   Net cash used in financing activities
   
(484
)
   
(188
)
                 
Net increase (decrease) in cash and cash equivalents
   
3,089
     
(3,304
)
Cash and cash equivalents as of beginning of the year
   
3,734
     
7,038
 
Cash and cash equivalents as of end of the year
 
$
6,823
   
$
3,734
 
                 
Supplemental disclosures of non-cash investing and financing activities
               
  Settlement of pension liability
 
$
-
   
$
35,870
 
  Increase in minimum pension and retirement obligations
   
-
     
661
 
                 
Supplemental disclosures of cash flow information
               
  Cash paid during the year for:
               
   Interest
 
$
516
   
$
364
 
   Income taxes
   
11
     
12
 
See notes to consolidated financial statements.
19

All dollar amounts are in thousands except share and per share information or unless otherwise indicated.
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Evans & Sutherland Computer Corporation, referred to in these notes as "Evans & Sutherland," "E&S," or the "Company," produces high-quality advanced visual display systems used primarily in full-dome video projection applications, dome projection screens and dome architectural treatments. E&S also produces unique content for planetariums, schools, science centers and other educational institutions and entertainment venues.  The Company's products include state of the art planetarium and dome theater systems consisting of proprietary hardware and software, and other unique visual display systems primarily used to project digital video on large curved surfaces.  Additionally, E&S manufactures and installs metal domes with customized optical coatings and acoustical properties that are used for planetarium and dome theaters as well as many other unique custom applications.  The Company operates in one business segment, which is the visual simulation market.
Basis of Presentation
The consolidated financial statements include the accounts of Evans & Sutherland and its wholly owned subsidiaries.  All inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  The accounting estimates that require management's most difficult and subjective judgments include revenue recognition based on the percentage-of-completion method, inventory reserves, allowance for doubtful accounts receivable, allowance for deferred income tax assets, impairment of long-lived assets, pension and retirement obligations and useful lives of depreciable assets.  Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three or fewer months to be cash equivalents.  The Company maintains cash balances in bank accounts that, at times, exceed federally insured limits.  The Company has not experienced any losses in these accounts and believes it is not exposed to any significant risk with respect to cash.  As of December 31, 2016, cash deposits as reported by the banks, including restricted cash, exceeded the federally insured limits by approximately $7,118.
Restricted Cash
Restricted cash that guarantees letters of credit that mature or expire within one year is reported as a current asset.  Restricted cash that guarantees letters of credit that mature or expire after more than one year is reported as a long-term asset.  There was no restricted cash included in other assets as of December 31, 2016 and 2015.
Trade Accounts Receivable
In the normal course of business, E&S provides unsecured credit terms to its customers.  Accordingly, the Company maintains an allowance for doubtful accounts for possible losses on uncollectible accounts receivable.  The Company routinely analyzes accounts receivable and costs and estimated earnings in excess of billings, and considers history, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and changes in payment terms when evaluating the adequacy of the allowance for doubtful accounts receivable.  Changes in these factors could result in material differences to bad debt expense.  Past due balances are determined based on contractual terms and are reviewed individually for collectability. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when management determines the probability of collection is remote.
20

The table below represents changes in E&S's allowance for doubtful accounts receivable for the years ended December 31:
   
2016
   
2015
 
             
Beginning balance
 
$
286
   
$
217
 
Write-off of accounts receivable
   
(47
)
   
(64
)
Increase in estimated losses on accounts receivable
   
20
     
133
 
  Ending balance
 
$
259
   
$
286
 
Inventories
Inventories include materials at standard costs, which approximate actual costs, as well as inventoried costs on programs and long-term contracts.  Inventoried costs include material, direct engineering and production costs, and applicable overhead, not in excess of estimated realizable value.  Spare parts and general stock materials are stated at cost not in excess of realizable value.  E&S periodically reviews inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and provides a reserve sufficient to reduce inventories to net realizable values.  Revisions of these estimates could impact net loss.
During the years ended December 31, 2016 and 2015, E&S recognized impairment losses on inventory of $344 and $155, respectively.
Inventories as of December 31, were as follows:
   
2016
   
2015
 
             
Raw materials
 
$
5,427
   
$
5,958
 
Work in process
   
1,120
     
1,265
 
Finished goods
   
326
     
220
 
Reserve for obsolete inventory
   
(3,122
)
   
(3,371
)
  Inventories, net
 
$
3,751
   
$
4,072
 
                 
Property and Equipment
Property and equipment are stated at cost.  Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the related assets.  Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized.  Leasehold improvements are assigned useful lives based on the shorter of their useful lives or the term of the related leases, including renewal options likely to be exercised.  Routine maintenance, repairs and renewal costs are expensed as incurred.  When property is retired or otherwise disposed of, the carrying values are removed from the property and equipment and related accumulated depreciation and amortization accounts.  Depreciation and amortization are included in cost of sales, research and development or selling, general and administrative expenses depending on the nature of the asset.
21

Depreciation expense was $267 and $250 for the years ended December 31, 2016 and 2015, respectively.  The cost and estimated useful lives of property and equipment and the total accumulated depreciation and amortization were as follows as of December 31:
   
Estimated
             
   
Useful Lives
   
2016
   
2015
 
                   
Land
   
n/a
   
$
2,250
   
$
2,250
 
Buildings and improvements
 
5 - 40 years
     
3,065
     
3,028
 
Manufacturing machinery and equipment
 
3 - 8 years
     
5,434
     
5,301
 
Office furniture and equipment
 
3 - 8 years
     
779
     
779
 
  Total
           
11,528
     
11,358
 
Less accumulated depreciation and amortization
           
(6,890
)
   
(6,623
)
  Net property and equipment
         
$
4,638
   
$
4,735
 
Goodwill
The Company tests its recorded goodwill for impairment on an annual basis during the fourth quarter, or more often if indicators of potential impairment exist, by determining if the carrying value of each reporting unit exceeds its estimated fair value. Factors that could trigger impairment include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the Company's overall business and significant negative industry or economic trends. Future impairment reviews may require write-downs in the Company's goodwill and could have a material adverse impact on the Company's operating results for the periods in which such write-downs occur.

Intangible Assets

E&S amortizes the cost of intangible assets over their estimated useful lives. Amortizable intangible assets are reviewed at least annually to determine whether events and circumstances warrant a revision to the remaining period of amortization.  Amortization expense was $27 and $41 for the years ended December 31, 2016 and 2015, respectively.

Software Development Costs

Software development costs, if material, are capitalized from the date technological feasibility is achieved until the product is available for general release to customers.  Such costs were not material for the years presented.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the carrying values of the assets may not be fully recoverable. When this occurs, the Company reviews the values assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate.  When the expected future undiscounted cash flows from these assets do not exceed their carrying values, the Company estimates the fair values of such assets. Impairment is recognized to the extent the carrying values of the assets exceed their estimated fair values.  Assets held for sale are reported at the lower of their carrying values or fair values less costs to sell.
 
Warranty Reserve
 
E&S provides a warranty reserve for estimated future costs of servicing products under warranty agreements extending for periods from 90 days to one year.  Anticipated costs for product warranties are based upon estimates derived from experience factors and are recorded at the time of sale or over the period revenues are recognized for long-term contracts.  Warranty reserves are classified as accrued liabilities in the accompanying consolidated balance sheets.
22

The table below represents changes in E&S's warranty reserve for the years ended December 31:
   
2016
   
2015
 
             
Beginning balance
 
$
127
   
$
125
 
Additions to warranty reserve
   
227
     
149
 
Warranty costs
   
(231
)
   
(147
)
  Ending balance
 
$
123
   
$
127
 
Revenue Recognition
Sales include revenues from system hardware, software, database products and service contracts.  The following table provides information on revenues by recognition method applied during the years:
 
   
2016
   
2015
 
             
Percentage of completion
 
$
18,248
   
$
19,827
 
Completed contract
   
12,845
     
13,653
 
Other
   
1,851
     
1,818
 
  Total sales
 
$
32,944
   
$
35,298
 
The following methods are used to record 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 the 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) to its estimate of total anticipated costs.   This ratio is then utilized to determine the amount of gross profit earned based on its estimate of total gross profit at completion.  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 consolidated balance sheets.
Completed Contract . Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method.  Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss have transferred, 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 visual display systems, domes, show content and various service and maintenance elements.  Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements.  Relative fair values of elements are generally determined based on actual and estimated selling price.  Delivery times of such contracts typically occur within a three to six-month time period.
Other .  Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single element to customers.  Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized over the period of performance under the contract.
Anticipated Losses .  For contracts with anticipated losses at completion, a provision is recorded when the loss is probable.  After an anticipated loss is recorded, subsequent revenue and cost of sales are recognized in equal, offsetting amounts as contract costs are incurred.
23

Net Income (Loss) per Common Share
Basic net income (loss) per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted net income per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares include shares that may be issued by the Company for outstanding stock options determined using the treasury stock method. In periods resulting in a net loss, potential common shares are anti-dilutive and therefore are not included.  Net income (loss) per common share has been computed based on the following:
   
2016
   
2015
 
             
Numerator
           
Net Income (loss)
 
$
1,743
   
$
(1,275
)
                 
Denominator
               
Weighted-average number of common shares outstanding - basic
   
11,214
     
11,150
 
Incremental shares assumed for stock options
   
622
     
-
 
 Weighted-average number of common shares outstanding - dilutive
   
11,836
     
11,150
 
Basic net income (loss) per common share
 
$
0.16
   
$
(0.11
)
Diluted net income (loss) per common share
 
$
0.15
   
$
(0.11
)
                 
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.  Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases and operating loss and income tax credit carry-forwards.  Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in the period that includes the enactment date.
Other Comprehensive Income
On a net basis for 2016 and 2015, there were deferred income tax assets resulting from items reflected in comprehensive income.  However, E&S has determined that it is more likely than not that it will not realize such net deferred income tax assets and has therefore established a valuation allowance against the full amount of the net deferred income tax assets.  Accordingly, the net income tax effect of the items included in other comprehensive income is zero.  Therefore, the Company has included no income tax expense or benefit in relation to items reflected in other comprehensive income.  The accumulated other comprehensive loss at the end of 2015 and 2016 consists of minimum pension liability attributable to the Supplemental Executive Retirement Plan ("SERP") (see Note 6).

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASU 2016-02").  ASU 2016-02 changes the accounting for leases.  In particular, lessees will recognize lease assets and lease liabilities for operating leases.  This update will have a minimal effect on lessor accounting.  ASU 2016-02 is not effective until 2019. The Company is currently assessing the impact on its financial reporting of implementing this guidance.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) ("ASU 2015-17").  ASU 2015-17 requires that all deferred income tax assets and liabilities be classified as non-current.  ASU 2015-17 is not effective until the 2017 fiscal year.  The Company has elected to prospectively adopt the accounting standard in the beginning of the fourth quarter of fiscal 2016. Prior periods in our Consolidated Financial Statements were not retrospectively adjusted.
24

In May 2014, the FASB issued ASU 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 the Company on January 1, 2018. 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 ASU 2014-09 will have on its consolidated financial statements and related disclosures.  During 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date ("ASU 2015-14"), which deferred the date of ASU 2014-09 by one year.
Note 2 – Goodwill

Goodwill of $635 resulted from the acquisition of the Company's wholly owned subsidiary, Spitz, and was measured as the excess of the $2,884 purchase consideration paid over the fair value of the net assets acquired. The Company has made its annual assessment of impairment of goodwill and has concluded that goodwill is not impaired as of December 31, 2016.

Note 3 - Costs and Estimated Earnings on Uncompleted Contracts
Comparative information with respect to uncompleted contracts as of December 31:
   
2016
   
2015
 
             
Total accumulated costs and estimated earnings on uncompleted contracts
 
$
31,634
   
$
33,445
 
Less total billings on uncompleted contracts
   
(35,096
)
   
(34,745
)
 Ending balance
 
$
(3,462
)
 
$
(1,300
)
The above amounts are reported in the consolidated balance sheets as of December 31 as follows:
   
2016
   
2015
 
             
Costs and estimated earnings in excess of billings on uncompleted contracts
 
$
3,038
   
$
2,695
 
Billings in excess of costs and estimated earnings on uncompleted contracts
   
(6,500
)
   
(3,995
)
 Ending balance
 
$
(3,462
)
 
$
(1,300
)
 
Note 4 – Lease Receivable
In 2016, the Company entered into a lease agreement with a customer whereby the Company will be the Lessor and the customer will be the lessee of a Planetarium System produced, delivered and installed by the Company. The lease term is 5 years and requires the customer to make rent payments to the Company over the lease term in accordance with the fixed schedule in the agreement.  The equipment will be returned to the Company at the end of the lease term at which time the Company estimates that the system will have no residual value.  The customer obtained control of the leased assets upon delivery and acceptance of the system on December 7, 2016.  The lease is accounted for as a sales-type lease since the lease term is for substantially all of the economic life of the system, the present value of the lease payments amounts to substantially all of the fair value of the underlying assets, and the customer will retain the control with substantially all of the risks and awards of ownership of the system.  The discounted present value of the payments to be made under the lease agreement, using an annual rate of 6%, amounts to $1,754. This amount represents the fair value of the equipment of $1,678 and the maintenance services E&S is to provide over the terms of the lease valued at $76.  In 2016, the Company recorded the sale of the system of $1,678.  Also, $76 of deferred revenue was recorded representing the value of the maintenance services.

 
25

The balance of lease receivable as of December 31, 2016 is recorded as follows:

   
2016
 
       
Lease receivable
 
$
252
 
Lease receivable long term
   
1,083
 
 Total
 
$
1,335
 
 
Note 5 – Leases and deferred gain on disposal of building assets
The Company occupies real property and uses certain equipment under lease arrangements that are accounted for as operating leases.  The Company's real property leases contain escalation clauses.  Rental expense for all operating leases for 2016 and 2015 was $194 and $216, respectively.
In November 2014, the Company agreed to an extension of its lease for its corporate office buildings and its interest in the lease for the land occupied by the buildings for a term of 5 years. Base annual rent for the extended 5-year term is $549. The new lease obligation is recorded as an operating lease for a term of five years which commenced November 1, 2014.  The accounting for the lease extension resulted in a $620 gain on the disposition of leased assets under the prior lease which was deferred and is being amortized over the five-year term of the new operating lease. There was also a $1,526 gain from the extinguishment of a deferred rent credit related to the underlying land lease which is being amortized over the five-year term of the new operating lease. The amortization of the deferred gain and deferred rent credit reduces the rent expense attributable to the cash rent payments.

Future minimum rent expense payments under the new operating lease and the remaining deferred gain from the disposal of the building assets and deferred rent credit to be recognized are as follows:
Years Ending
 
Rent
   
Gain on
   
Deferred
   
Net Rent
 
December 31,
 
Expense
   
Building
   
Rent Credit
   
Expense
 
                         
2017
 
$
549
   
$
(124
)
 
$
(305
)
 
$
120
 
2018
   
565
     
(124
)
   
(305
)
   
136
 
2019
   
475
     
(108
)
   
(265
)
   
102
 
Total
 
$
1,589
   
$
(356
)
 
$
(875
)
 
$
358
 
                                 
There are no other lease obligations that have initial or remaining non-cancelable lease terms in excess of one year.
Note 6 - Employee Retirement Benefit Plans
Settlement of Pension Plan Liabilities
On April 21, 2015, the Company, as the administrator of its qualified defined benefit pension plan ("Pension Plan"), and the Pension Benefit Guaranty Corporation ("PBGC") entered into an Agreement For Appointment of Trustee and Termination of Plan (the "Termination Agreement") (a) terminating the Pension Plan, (b) establishing March 8, 2013 as the Plan's termination date and (c) appointing the PBGC as statutory trustee of the Pension Plan.
In connection with the Termination Agreement, on April 21, 2015, the Company entered into the Pension Settlement Agreement with the PBGC to settle all liabilities of the Pension Plan including any termination premium resulting from the Pension Plan termination (the "Settled ERISA Liabilities"). Pursuant to the Pension Settlement Agreement, the Company agreed to (a) pay to the PBGC a total of $10,500, with $1,500 due within ten days following the effective date of the Pension Settlement Agreement and the remainder paid in twelve annual installments of $750 beginning on October 31, 2015 (the "Pension Settlement Obligation") and (b) issue within ten days following the effective date of the Pension Settlement Agreement 88,117 shares of the Company's treasury stock in the name of the PBGC. The Pension Settlement Agreement further provides that the PBGC will be deemed to have released the Company from all Settled ERISA Liabilities upon payment of the Pension Settlement Obligation. In the event of a default by the Company of its obligations under the Pension Settlement Agreement or the underlying agreements which secure the Pension Settlement Obligation, the PBGC may enforce payment of the Settled ERISA Liabilities, which would accrue interest at various rates until payment is made and be reduced by any payments made by the Company pursuant to the Pension Settlement Agreement.  The estimated total Settled ERISA Liabilities as of the settlement date is $46,000.
26


To secure the Company's obligations under the Pension Settlement Agreement, on April 21, 2015, the Company also entered into a Security Agreement with the PBGC (the "Security Agreement"), and executed an Open-End Mortgage in favor of the PBGC (the "Mortgage") on certain real property owned by the Company's subsidiary, Spitz, Inc. ("Spitz"). The Security Agreement and Mortgage grant to the PBGC a security interest on all of the Company's presently owned and after-acquired property and proceeds thereof, free and clear of all liens and other encumbrances, except those described therein (the "Senior Liens"). The PBGC's security interest in the Company's property is subordinate to the Company's two senior lenders pursuant to the Security Agreement and agreements between the PBGC and the lenders (the "Intercreditor Agreements"). The Intercreditor Agreements provide for the lenders to extend credit to the Company, secured by the Senior Liens, up to specified limits. The Intercreditor Agreement between the lender of the mortgage notes and line of credit (see Note 7) and the PBGC provides for total aggregate loans of up to $6,500 secured by Senior Liens on Spitz assets. The second Intercreditor Agreement between another lender and the PBGC provides for up to $3,000 of letter of credit indebtedness secured by Senior Liens on cash deposits.

The termination of the Pension Plan and settlement of its underlying liabilities enabled the Company to satisfy the previously disclosed unfunded liability attributable to the Pension Plan by the issuing to the PBGC the 88,117 shares of stock from treasury and making the fixed installment payments of the Pension Settlement Obligation. As of the date of the Pension Settlement Agreement, the balance of the unfunded liability attributable to the Pension Plan, which was previously reported with Pension and Retirement Obligations, was $35,870, of which $31,776 was attributable to accumulated other comprehensive loss. The market value of the 88,117 shares of stock issued to the PBGC from treasury on April 23, 2015 was $70. The Pension Settlement Obligation was recorded as a liability of the Company as of April 21, 2015 in the amount of $7,643, reflecting the present value of the installments at an interest rate of 7%, which the Company believes represents the fair market interest rate for junior secured debt with similar secured terms of the Security Agreement. The unfunded Pension Plan liability of $35,870 exceeded the $7,714 combined value of the stock issued to the PBGC and the Pension Settlement Obligation by $28,156. There are no income tax consequences of the settlement since no tax deduction was taken for the pension expense that gave rise to the Pension Plan liability. Accordingly, the settlement of the Pension Plan Liabilities was recorded as of April 21, 2015 as follows:

 
Unfunded Pension Plan Liability
 
$
35,870
 
         
Market value of common shares issued from treasury
   
(70
)
Pension Settlement Obligation
   
(7,644
)
  Total consideration to PBGC
   
(7,714
)
         
  Total gain from settlement of  Pension Plan Liabilities
 
$
28,156
 
         
Gain recorded as:
       
Charge to statement of operations
 
$
(3,620
)
Other comprehensive Income
   
31,776
 
  Contribution to total comprehensive income
 
$
28,156
 

 
27

The balance of the Pension Settlement Obligation is recorded on the balance sheet as of December 31, 2016 and 2015 as follows:

   
2016
   
2015
 
Current portion of pension settlement obligation
 
$
382
   
$
356
 
Pension settlement obligation, net of current portion
   
4,886
     
5,268
 
  Total Pension Settlement Obligation
 
$
5,268
   
$
5,624
 
 
As a result of the settlement of Pension Plan liabilities on April 21, 2015, the Company's only remaining pension obligation is the SERP. The Company recorded expense of $326 related to the Pension Plan for the first quarter of 2015 prior to the Termination Agreement executed on April 21, 2015.
Supplemental Executive Retirement Plan
The SERP provides eligible former executives, employed by the Company prior to 2002, defined pension benefits based on average salary, years of service and age at retirement.  The SERP was amended in 2002 to discontinue further SERP gains from future salary increases and close the SERP to new participants.
401(k) Deferred Savings Plan
The Company has a deferred savings plan that qualifies under Section 401(k) of the Internal Revenue Code.  The 401(k) plan covers all employees of the Company who have at least one year of service and who are age 18 or older.  Matching contributions are made on employee contributions after the employee has achieved one year of service.  Extra matching contributions can be made based on profitability and other financial and operational considerations.  Effective January 1, 2017, the Company started making a 3% profit sharing contribution in addition to the matching contribution.  Contributions to the 401(k) plan for 2016 and 2015 were $182 and $168, respectively.
Obligations and Funded Status for Pension Plan and SERP
E&S uses a December 31 measurement date for the SERP.
Information concerning the obligations, plan assets and funded status of employee retirement defined benefit plans are provided below:
   
Pension Plan   
   
SERP   
 
Changes in plan assets
 
2016
   
2015
   
2016
   
2015
 
                         
Fair value of plan assets - beginning of year
 
$
-
   
$
29,721
   
$
-
   
$
-
 
Actual return on plan assets
   
-
     
1,547
     
-
     
-
 
Contributions
   
-
     
-
     
475
     
497
 
Benefits paid
   
-
     
(339
)
   
(475
)
   
(497
)
Transfer out upon termination
   
-
     
(30,929
)
   
-
     
-
 
  Fair value of plan assets - end of year
 
$
-
   
$
-
   
$
-
   
$
-
 
 
   
Pension Plan   
   
SERP   
 
Changes in benefit obligation
 
2016
   
2015
   
2016
   
2015
 
                         
Projected benefit obligation - beginning of year
 
$
-
   
$
64,831
   
$
5,320
   
$
4,871
 
Interest cost
   
-
     
617
     
190
     
177
 
Actuarial loss (gain)
   
-
     
1,690
     
(184
)
   
769
 
Benefits paid
   
-
     
(339
)
   
(475
)
   
(497
)
Transfer of benefit obligation upon termination
   
-
     
(66,799
)
   
-
     
-
 
  Projected benefit obligation - end of year
 
$
-
   
$
-
   
$
4,851
   
$
5,320
 
 
28

   
Pension Plan   
   
SERP   
 
Net amount recognized
 
2016
   
2015
   
2016
   
2015
 
                         
Unfunded status
 
$
-
   
$
-
   
$
(4,851
)
 
$
(5,320
)
Unrecognized net actuarial loss
   
-
     
-
     
2,146
     
2,415
 
Unrecognized prior service cost
   
-
     
-
     
-
     
(11
)
  Net amount recognized
 
$
-
   
$
-
   
$
(2,705
)
 
$
(2,916
)
Amounts recognized in the consolidated balance sheets consisted of:
   
Pension Plan   
   
SERP   
 
   
2016
   
2015
   
2016
   
2015
 
                         
Accrued liability
 
$
-
   
$
-
   
$
(4,851
)
 
$
(5,320
)
Accumulated other comprehensive loss
   
-
     
-
     
2,146
     
2,404
 
  Net amount recognized
 
$
-
   
$
-
   
$
(2,705
)
 
$
(2,916
)
Components of net periodic benefit cost:
   
Pension Plan   
   
SERP   
 
   
2016
   
2015
   
2016
   
2015
 
                         
Interest cost
 
$
-
   
$
617
   
$
190
   
$
177
 
Expected return on assets
   
-
     
(585
)
   
-
     
-
 
Amortization of actuarial loss
   
-
     
195
     
82
     
68
 
Amortization of prior year service cost
   
-
     
-
     
(10
)
   
(49
)
Net periodic benefit expense
   
-
     
227
     
262
     
196
 
Insurance premium due PBGC
           
99
     
-
     
-
 
   
$
-
   
$
326
   
$
262
   
$
196
 
Additional information
Pension expense was $262 for the year ended December 31, 2016, which consisted of net periodic benefit expense of $262 for the SERP.  Pension expense was $522 for the year ended December 31, 2015, which included net periodic benefit expense of $227 for the Pension Plan, $196 for the SERP and $99 of insurance premiums due to the PBGC.
The SERP minimum liability recorded in other comprehensive loss decreased $258 in 2016 compared to an increase of $750 in 2015.  The decrease in 2016 was primarily due to the death of one participant.  The increase in 2015 reflected the decrease to the discount rate used to measure the SERP as of December 31, 2015 of 3.7% compared to 3.8% as of December 31, 2014 and the use of more current mortality tables.
Assumptions
The weighted average assumptions used to remeasure benefit obligations as of December 31, 2016 and 2015 included a discount rate of 3.7% and 3.8%, respectively, for the SERP.  The weighted average assumptions used to determine net periodic cost for the years ended December 31, 2016 and 2015 included a discount rate of 3.7% and 3.8%, respectively, in each year for the SERP.
Cash Flows
Employer contributions
The Company is not currently required to fund the SERP.  All benefit payments are made by E&S 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 benefits of approximately $507 related to the SERP in 2017.
29

Estimated future benefit payments
As of December 31, 2016, the following benefits are expected to be paid based on actuarial estimates and prior experience:
Years Ending December 31,
 
SERP
 
2017
 
$
507
 
2018
   
510
 
2019
   
423
 
2020
   
417
 
2021
   
411
 
2022-2026
   
1,937
 

Note 7 –Debt
Long-term debt consisted of the following as of December 31, 2016 and 2015:
   
2016
   
2015
 
First mortgage note payable due in monthly installments of $23 (interest   at 5.75%) through January 1, 2024; payment and rate subject to   adjustment every 3 years, next adjustment January 14, 2019
 
$
1,611
   
$
1,789
 
Second mortgage note payable due in monthly installments of $4 (interest   at 5.75%) through October 1, 2028; payment and rate subject to   adjustment every 5 years, next adjustment October 1, 2018
   
364
     
385
 
       Total debt
   
1,975
     
2,174
 
  Current portion of long-term debt
   
(211
)
   
(199
)
         Long-term debt, net of current portion
 
$
1,764
   
$
1,975
 

Principal maturities on total debt are as follows:
Years Ending December 31,
     
2017
 
$
211
 
2018
   
224
 
2019
   
237
 
2020
   
251
 
2021
   
267
 
Thereafter
   
785
 
Total debt
 
$
1,975
 

30

Mortgage Notes

The first mortgage note payable represents the balance on a $3,200 note ("First Mortgage Note") issued on January 14, 2004 by Spitz. The First Mortgage Note requires repayment in monthly installments of principal and interest over 20 years.  On each third anniversary of the First Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over the Three-Year Constant Maturity Treasury Rate published by the United States Federal Reserve ("3YCMT").  The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term.  On January 14, 2016, the 3YCMT was 1.14% and the interest rate on the First Mortgage Note remained at 5.75% per annum. As a result, the monthly installment amount remained at $23.

The second mortgage note payable represents the balance on a $500 note ("Second Mortgage Note") issued on September 11, 2008 by Spitz. The Second Mortgage Note requires repayment in monthly installments of principal and interest over 20 years.  On each fifth anniversary of the Second Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over 3YCMT.  The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term.  On September 11, 2013, the fifth anniversary of the Second Mortgage Note, the 3YCMT was 0.88%. As a result, interest continues at 5.75% until possible adjustment on the next 5-year anniversary. The monthly installment also remains unchanged at $4.

The Mortgage Notes are secured by the real property occupied by Spitz pursuant to a Mortgage and Security Agreement.  The real property had a carrying value of $4,215 as of December 31, 2016. The Mortgage Notes are guaranteed by E&S.

Line of Credit

The Company is a party to a line-of-credit agreement with a commercial bank which permits borrowings of up to $1,100 to fund Spitz working capital requirements. Under the line of credit agreement, interest is charged on amounts borrowed at the lender's prime rate less 0.25%.  Any borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The line-of-credit agreement and mortgage notes (with the same commercial bank) contain cross default provisions whereby a default on either agreement will result in a default on both agreements. There were no borrowings outstanding under the line-of-credit agreement as of December 31, 2016.

Note 8 - Income Taxes
Income tax for 2016 and 2015 consisted of an expense of $93 and a benefit of $12, respectively, of federal and state income taxes. The actual expense differs from the expected tax provision (benefit) as computed by applying the U.S. federal statutory income tax rate of 34 percent for 2016 and 2015, as follows:
   
2016
   
2015
 
             
Income tax provision (benefit) at U.S. federal statutory rate
 
$
624
   
$
(440
)
State tax provision (benefit), net of federal income tax
   
48
     
14
 
Change in valuation allowance attributable to operations
   
(936
)
   
(4,146
)
Change in effective tax rate
   
-
     
4,064
 
Pension settlement
   
(213
)
   
466
 
Adjustments to federal tax carryforwards / deductions
   
548
     
-
 
Other, net
   
22
     
30
 
  Income tax provision (benefit)
 
$
93
   
$
(12
)
31

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities as of December 31, 2016 and 2015 are as follows:
   
2016
   
2015
 
             
Property and equipment, principally due to differences in depreciation
 
$
(643
)
 
$
(722
)
Inventory reserves and other inventory-related temporary basis differences
   
614
     
696
 
Warranty, vacation, deferred rent and other liabilities
   
687
     
883
 
Retirement liabilities
   
1,032
     
1,088
 
Net operating loss carryforwards
   
62,484
     
62,194
 
Credit carryforwards
   
36
     
817
 
Other
   
1,037
     
1,227
 
  Total deferred income tax
   
65,247
     
66,183
 
  Less valuation allowance
   
(65,247
)
   
(66,183
)
Net deferred income tax
 
$
-
   
$
-
 
Worldwide income (loss) before income taxes consisted of the following:
   
2016
   
2015
 
             
United States
 
$
1,836
   
$
(1,296
)
International
   
-
     
-
 
  Total
 
$
1,836
   
$
(1,296
)

Income tax benefit (provision) consisted of the following:
   
2016
   
2015
 
Current
           
  U.S. federal
 
$
10
   
$
-
 
  State
   
83
     
(12
)
   Total current expense (benefit)
 
$
93
   
$
(12
)
Deferred
               
  U.S. federal
 
$
937
   
$
4,068
 
  State
   
(1
)
   
78
 
   Total
   
936
     
4,146
 
Valuation allowance increase
   
(936
)
   
(4,146
)
   Total deferred expense (benefit)
   
-
     
-
 
                 
Total income tax expense (benefit)
 
$
93
   
$
(12
)
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
E&S has total federal net operating loss carryforwards of approximately $169,300 which expire from 2020 through 2036. The Company has federal minimum tax credit carryforwards of approximately $36 which do not expire. The Company has $3,200 of federal research credits that begin to expire in 2019 and $2,400 of state research credits that begin to expire in 2017. The Company has not recorded a benefit for these research credits in the financial statements because it does not meet the more-likely-than-not position recognition threshold. E&S also has state net operating loss carryforwards of approximately $149,300 that expire at various dates depending on the rules of the states to which the loss or credit is allocated.
32

The Company evaluates its deferred tax assets for realizability based on all of the available positive and negative evidence. Due to cumulative losses and the significance of the carryforwards, the Company determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, a valuation allowance has been established to offset the net deferred tax assets. During the years ended December 31, 2016 and 2015, the valuation allowance on deferred tax assets decreased  by $936 and $4,146, respectively.

Pursuant to the guidelines of the recently issued ASU 2015-17 ("the Update"), all deferred tax assets and liabilities are to be classified as non-current. The effective date of the Update for public companies is for annual periods beginning after December 15, 2016 and later dates for all other entities. Early adoption is permitted. To comply with the guidance, the Company elected to adopt this Update for the annual period ending December 31, 2016. The guidance indicates that the Update may be applied either prospectively or retrospectively. The Company chose to apply the Update prospectively.
The Company is subject to audit by the IRS and various states for tax years dating back to 2013.  No federal or state tax return are currently under audit. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Note 9 - Commitments and Contingencies

Letters of Credit

Under   the terms of financing arrangements for letters of credit, E&S is required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit or bank guarantees issued, plus other amounts necessary to adequately secure obligations with the financial institution.  As of December 31, 2016, there were outstanding letters of credit and bank guarantees of $600, which are scheduled to expire in 2017.  There was no restricted cash included in other assets as of December 31, 2016 or 2015.

Note 10 - Stock Option Plan

In 2014, stockholders approved the adoption of the Evans & Sutherland Computer Corporation 2014 Stock Incentive Plan ("2014 Plan") which replaced the expired 2004 Stock Incentive Plan of Evans & Sutherland Computer Corporation ("2004 Plan").  The 2014 Plan is a stock incentive plan that provides for the grant of options and restricted stock awards to employees and for the grant of options to non-employee directors essentially the same as the 2004 Plan.  Under the 2014 Plan, non-employee directors may continue to receive an annual option grant for no more than 10,000 shares.  New non-employee directors may also continue to receive an option grant for no more than 10,000 shares upon their appointment or election.  With the adoption of the 2014 Plan, no additional options can be issued under the 2004 Plan.  Options granted under the 2004 Plan are still held by recipients and will continue to be subject to the terms and conditions of the 2004 plan which are essentially the same as the 2014 Plan. The 2014 Plan continues a minimum exercise price for options of 110% of fair market value on the date of grant.  Restricted stock awards may be qualified as a performance-based award that conditions a participant's award upon achievement by the Company or its subsidiaries of performance goals established by the Board of Directors' Compensation Committee.

The number of shares, terms, and exercise periods of option grants are determined by the Board of Directors on an option-by-option basis. Options generally vest ratably over three years and expire ten years from the date of grant.  As of December 31, 2016, options to purchase 973,981 shares of common stock were authorized and reserved for future grant.
33


A summary of activity follows (shares in thousands):

   
2016 
   
2015  
 
         
Weighted-
         
Weighted-
 
         
Average
         
Average
 
   
Number
   
Exercise
   
Number
   
Exercise
 
   
of Shares
   
Price
   
of Shares
   
Price
 
                         
Outstanding as of beginning of the year
   
1,470
   
$
1.53
     
1,333
   
$
2.08
 
Granted
   
512
     
0.90
     
221
     
0.39
 
Exercised
   
(175
)
   
0.40
     
-
     
-
 
Forfeited or expired
   
(182
)
   
6.59
     
(84
)
   
7.23
 
Outstanding as of end of the year
   
1,625
     
0.88
     
1,470
     
1.53
 
                                 
Exercisable as of end of the year
   
1,056
     
0.95
     
1,065
     
2.01
 
                                 
The weighted average fair value of options granted during 2016 and 2015 was $0.79 and $0.39, respectively.  As of December 31, 2016, options exercisable and options outstanding had a weighted average remaining contractual term of 4.1 and 5.8 years with aggregate intrinsic value of $728 and $1,038, respectively. As of December 31, 2015, options exercisable and options outstanding had a weighted average remaining contractual term of 3.4 and 4.8 years with aggregate intrinsic value of $330 and $591, respectively. The aggregate intrinsic value of the options exercised in 2016 was $137.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the grants made in 2016 and 2015:

   
2016
   
2015
 
Expected life (in years)
   
3.5
     
3.5
 
Risk free interest rate
   
1.04
%
   
0.91
%
Expected volatility
   
229
%
   
340
%
Dividend yield
   
-
     
-
 
 
Expected option lives and volatilities are based on historical data of the Company.  The risk free interest rate is calculated as the average US Treasury bill rate that corresponds with the option life.  Historically, the Company has not declared dividends and there are no plans to do so.

As of December 31, 2016, there was approximately $198 of total unrecognized share-based compensation cost related to grants collectively under the 2004 Plan and 2014 Plan that will be recognized over a weighted-average period of 3.8 years.  As of December 31, 2015, there was approximately $35 of total unrecognized share-based compensation cost related to grants collectively under the 2004 Plan and 2014 Plan that will be recognized over a weighted-average period of 1.9 years.

Share-based compensation expense, from awards collectively under the 2004 Plan and 2014 Plan  for the years ended December 31, 2016 and 2015 amounted to $171 and $41, respectively, and was recorded as general and administrative expense.

Note 11 - Preferred Stock

Class A Preferred Stock

The Company has 5,000,000 authorized shares of Class A Preferred stock.  As of December 31, 2016 and 2015, there were no Class A Preferred shares outstanding.
34


Class B Preferred Stock

The Company has 5,000,000 authorized shares of Class B Preferred stock.  As of December 31, 2016 and 2015, there were no Class B Preferred shares outstanding.

 

Note 12 - Geographic Information

The table below presents sales by geographic location:
             
   
2016
   
2015
 
             
United States
 
$
24,994
   
$
16,809
 
International
   
7,950
     
18,489
 
  Total sales
 
$
32,944
   
$
35,298
 
                 

Note 13 - Significant Customers
As of December 31, 2016, Customers A and G represented 19% and 29% of accounts receivable, respectively, and Customers D and F represented 48% and 18% of costs and estimated earnings in excess of billings, respectively.
As of December 31, 2015, Customers A, B, C and D represented 14%, 14%, 13% and 13% of accounts receivable, respectively, and Customers E and F represented 41% and 12% of costs and estimated earnings in excess of billings, respectively.
For the year ended December 31, 2016, Customer D represented 23% of total sales.  For the year ended December 31, 2015, no individual customer represented 10% or more of total sales.



35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Evans & Sutherland Computer Corporation

We have audited the accompanying consolidated balance sheets of Evans & Sutherland Computer Corporation (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income (loss), stockholders' equity (deficit) and cash flows for the years then ended.   These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Evans & Sutherland Computer Corporation as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Tanner LLC

Salt Lake City, Utah
March 10, 2017
36

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

ITEM 9A.        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 recognized that any control system cannot provide absolute assurance, however, that the objectives of the control 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 have been detected.

Management's Annual Report on Internal Control over Financial Reporting. 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes of U.S. generally accepted accounting principles.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2016.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (1992).  Based on this evaluation, our management, with the participation of the Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2016, our internal control over financial reporting was effective based on those criteria.
This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed above that occurred during the year ended December 31, 2016, or subsequent to that date, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

ITEM 9B.      OTHER INFORMATION
None
37

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information required by Item 401 of Regulation S-K will be included under the caption "Election of Directors" in the Proxy Statement for our 2017 Annual Meeting of Stockholders and that information is incorporated herein by reference.  Information required by Item 405 of Regulation S-K will be included under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement for our 2017 Annual Meeting of Stockholders and that information is incorporated herein by reference.  Certain information required by Item 401 of Regulation S-K is included in Part I of this Form 10-K under the caption "Executive Officers of the Registrant." The information required by Item 407(c)(3), 407(d)(4) and 407(d)(5) of Regulation S-K will be included under the caption "Election of Directors" in the Proxy Statement for our 2016 Annual Meeting of Stockholders and that information is herein incorporated by reference.

Code of Ethics
 
Evans & Sutherland maintains a Code of Ethics and Business Conduct which is applicable to all employees, including all officers, and including our independent non-employee directors with regard to Evans & Sutherland related activities.  The Code of Ethics and Business Conduct incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. It also incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the Securities and Exchange Commission and other public communications.  In addition, they incorporate our expectations of our employees concerning prompt internal reporting of violations of our Code of Ethics and Business Conduct.
The full text of the Evans & Sutherland Code of Ethics and Business Conduct is published on our Investors Relations website at www.es.com.  We intend to disclose future amendments to certain provisions of our Code of Ethics and Business Conduct or waivers of such provisions granted to executive officers and directors on this website within four business days following the date of such amendment or waiver.

ITEM 11.    EXECUTIVE COMPENSATION
The information required by this item will be included under the captions, "Executive Compensation," and, "Election of Directors," in the Proxy Statement for our 2017 Annual Meeting of Stockholders and that information is herein incorporated by reference.
38


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 403 of Regulation S-K will be included under the caption, "Security Ownership of Certain Beneficial Owners and Management," in the Proxy Statement for our 2017 Annual Meeting of Stockholders and that information is herein incorporated by reference.

Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2016:
               
Number of securities
 
   
Number of securities
         
remaining available for
 
   
to be issued upon
   
Weighted average
   
future issuance
 
   
exercise of
   
exercise price of
   
under equity compensation
 
   
outstanding options,
   
outstanding options,
   
plans (excluding securities
 
   
warrants and rights
   
warrants and rights
   
reflected in column (a))
 
   
(a)
   
(b)
   
(c)
 
 
                 
Equity compensation plans approved by security holders
   
1,624,500
   
$
0.88
     
973,981
 
 
                       
Equity compensation plans not approved by security holders
   
-
     
-
     
-
 
    Total
   
1,624,500
   
$
0.88
     
973,981
 

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 404 of Regulation S-K will be included under the caption, "Certain Relationships and Related Party Transactions," in the Proxy Statement for our 2017 Annual Meeting of Stockholders and that information is herein incorporated by reference.  The information required by Item 407(a) of Regulation S-K will be included under the caption, "Election of Directors," in the Proxy Statement for our 2017 Annual Meeting of Stockholders and that information is herein incorporated by reference

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included under the caption, "Report of the Audit Committee of the Board of Directors," in the Proxy Statement for our 2017 Annual Meeting of Stockholders and that information is herein incorporated by reference.

39

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
List of documents filed as part of this report
1.   Financial Statements
The following consolidated financial statements are included in Part II, Item 8 of this report on Form 10-K.
·
Consolidated Balance Sheets as of December 31, 2016 and 2015
·
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016 and 2015
·
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2016 and 2015
·
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015
·
Notes to Consolidated Financial Statements
2.   Financial Statement Schedules
There are no schedules filed because of the absence of conditions under which they are required or because the required information is presented in the consolidated financial statements or the notes thereto.
3.
Exhibits
Articles of Incorporation and Bylaws
3.1.1
Articles of Incorporation, as amended, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation's Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 25, 1987, and incorporated herein by reference.
3.1.2
Amendments to Articles of Incorporation filed as Exhibit 3.1.1 to Evans & Sutherland Computer Corporation's Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 30, 1988, and incorporated herein by reference.
3.1.3
Certificate of Designation, Preferences and Other Rights of the Class B-1 Preferred Stock of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation's Form 10-Q, SEC File No. 000-08771, for the quarter ended September 25, 1998, and incorporated herein by reference.
3.2.1
Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.2 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.
3.2.2
Amendment No. 1 to the Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.3 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.
3.2.3
Amendment No. 2 to the Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on November 31, 2015, and incorporated herein by reference.
Material contracts
Management contracts and compensatory plans
10.1
Evans & Sutherland Computer Corporation 2004 Stock Incentive Plan, filed as Annex A to Evans & Sutherland's Form 14A, SEC File No. 001-14667, filed on April 19, 2004 and incorporated herein by reference.
10.2
Amended and Restated Evans & Sutherland Computer Corporation's Supplemental Executive Retirement Plan (SERP), dated May 16, 2002, filed as Exhibit 10.38 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
40

10.3
Evans & Sutherland Computer Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on May 16, 2014, and incorporated herein by reference.
10.4
Form of Incentive Stock Option Award Agreement under the Evans & Sutherland Computer Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on May 16, 2014, and incorporated herein by reference.
10.5
Form of Non-Qualified Stock Option Award Agreement under the Evans & Sutherland Computer Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.3 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on May 16, 2014, and incorporated herein by reference.
10.6
Form of Indemnification Agreement, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on September 2, 2016, and incorporated herein by reference.
10.7
Separation and Release Agreement between Evans & Sutherland Computer Corporation and David H. Bateman, dated September 2, 2016, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on September 2, 2016, and incorporated herein by reference.
10.7
Employment Agreement by and between Evans & Sutherland Computer Corporation and Jonathan Shaw, dated September 2, 2016, filed as Exhibit 10.3 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on September 2, 2016, and incorporated herein by reference.
10.8
Employment Agreement by and between Evans & Sutherland Computer Corporation and Kirk Johnson, dated September 2, 2016, filed as Exhibit 10.4 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on September 2, 2016, and incorporated herein by reference.
10.9
Employment Agreement, by and between Evans & Sutherland Computer Corporation and Paul Dailey, dated December 15, 2016, filed herein.
10.10
First Amendment to Employment Agreement, by and between Evans & Sutherland Computer Corporation and Jonathan Shaw, dated January 9, 2017 filed herein.
10.11
First Amendment to Employment Agreement, by and between Evans & Sutherland Computer Corporation and Kirk Johnson, dated January 9, 2017, filed herein.
 
Other material contracts
10.12
Guaranty, dated April 28, 2006, by Evans and Sutherland Computer Corporation, filed as Exhibit 10.7 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.13
Pledge Agreement, dated April 28, 2006, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.8 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
41

10.14
Security Agreement, dated April 28, 2006, by and between Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.9 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.15
Open-end Mortgage and Security Agreement, dated April 28, 2006, by and between Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.10 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.16
Mortgage Note dated January 14, 2004, of Transnational Industries, Inc. and Spitz, Inc. to First Keystone Bank filed as Exhibit 10.25 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.17
Open-End Mortgage and Security Agreement dated January 14, 2004, between Spitz, Inc. and First Keystone Bank filed as Exhibit 10.26 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.18
Loan Agreement dated as January 14, 2004, between First Keystone Bank, Transnational Industries, Inc. and Spitz, Inc filed as Exhibit 10.27 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.19
First Modification Agreement to Mortgage Loan Agreements, dated March 30 2007, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.28 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.20
Guaranty, dated March 30, 2007 by Evans and Sutherland Computer Corporation, filed as Exhibit 10.30 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.21
First Amendment to Sublease Agreement dated November 4, 2014, by and between Evans &       Sutherland Computer Corporation and Wasatch Research Park I, LLC, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended September 26, 2014 and incorporated herein by reference.
10.22
Line of Credit Agreement between Spitz, Inc. and Bryn Mawr Trust Company dated March 15, 2012 filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended September 26, 2014 and incorporated herein by reference.
10.23
Settlement Agreement, dated April 21, 2015, between Pension Benefit Guaranty Corporation, Evans & Sutherland Computer Corporation and Spitz, Inc., filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on April 24, 2015, and incorporated herein by reference.
10.24
Agreement for Appointment of Trustee and Termination of Plan, dated April 21, 2015, between Pension Benefit Guaranty Corporation and Evans & Sutherland Computer Corporation, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on April 24, 2015, and incorporated herein by reference.
10.25
Security Agreement, dated April 21, 2015, between Pension Benefit Guaranty Corporation, Evans & Sutherland Computer Corporation and Spitz, Inc., filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on April 24, 2015, and incorporated herein by reference.
10.26
Open-End Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated April 21, 2015, executed by Spitz, Inc. in favor of Pension Benefit Guaranty Corporation, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 8-K filed with the Commission on April 24, 2015, and incorporated herein by reference.
Subsidiaries of the registrant
21.1
Subsidiaries of Registrant, filed herein.
Consent of experts and counsel
23.1
Consent of Independent Registered Public Accounting Firm, filed herein.
42

Rule 13a-14(a)/15d-14(a) Certifications
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein.
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein.
Section 1350 Certifications
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 herein.
TRADEMARKS USED IN THIS FORM 10-K
E&S, Digistar, SciDome and NanoSeam are trademarks or registered trademarks of Evans & Sutherland Computer Corporation or Spitz.  All other product, service, or trade names or marks are the properties of their respective owners.

43

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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


By    /s/ JONATHAN SHAW  
Jonathan Shaw
Chief Executive Officer and Director

March 10, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature
Title
Date
/s/           JONATHAN SHAW
 
Chief Executive Officer
and Director
(Principal Executive Officer)
 
March 10, 2017
Jonathan Shaw
 
/s/            Paul L. Dailey
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
 
March 10, 2017
Paul L. Dailey
 
 
/s/           L. Tim Pierce
 
Director
 
March 10, 2017
L. Tim Pierce
 
/s/            William Schneider, Jr.  
 
Director
 
March 10, 2017
William Schneider, Jr.
 
/s/           James P. McCarthy  
 
Director
 
March 10, 2017
James P. McCarthy
 
/s/           E. Michael Campbell  
 
Director
 
March 10, 2017
E. Michael Campbell
 
/s/           William E. Stringham  
 
Director
 
March 10, 2017
William E. Stringham


44


 
Exhibit 10.9
 





Paul Dailey
Spitz Inc.
700 Brandywine Drive,
Chadds Ford, PA 19317

Re:   Employment Agreement
Dear Paul:
This letter agreement sets forth the terms of your employment with Evans & Sutherland Computer Corporation, a Utah corporation (" E&S " or the " Company "), effective as of the date set forth in Section 2 below (the " Effective Date "). This letter agreement supersedes and replaces all prior employment agreements between you and the Company, which are void.
1.
Position and Duties .
(a)
You will be employed by the Company as its Executive Vice President and Chief Financial Officer. In such position, you will have the duties and authority consistent with the duties and authority of a chief financial officer of a public company in the information technology industry of a size comparable to E&S. The Company's Chief Executive Officer (" CEO "), in his sole discretion, may alter, modify, or change your duties, offices, positions, responsibilities and obligations set forth in this Agreement at any time, consistent with the status of a senior executive of the Company. You accept employment with the Company on the terms and conditions set forth in this Agreement, and you agree to devote your full business time, judgment, energy and skills exclusively to the advancement of the business interests of the Company and its affiliates and to discharge your duties and responsibilities for them. You shall report directly to the CEO. Your principal place of employment will be in Chadds Ford, Pennsylvania, except for required travel on Company business, including travel to the Company's headquarters in Salt Lake City, Utah, as necessary and appropriate.  You will use best efforts to travel to the Company's headquarters in Salt Lake City, Utah, not less frequently that you have historically.
(b)
You will agree to serve, without additional compensation, if elected or appointed thereto, in one or more executive offices of the Company or any affiliate of the Company, or as a member of the board of directors of any affiliate of the Company; provided, however , that you are indemnified for serving in any and all such capacities on a basis no less favorable that is currently provided in the Company's bylaws, or otherwise.

2.
Term of Employment . You will be employed by the Company commencing on December 15, 2016, until December 31, 2019, after which your employment term will automatically renew for additional terms of one (1) year each; provided that either you or the Company may give written notice of non-renewal, which notice period shall be a minimum of three (3) months before the end of the then-current term, and further provided, that either you or the Company may terminate your employment at any time, with or without cause, subject to the provisions of Sections 4, 5 and 6 below.

3.
Compensation . You will be compensated for your services to the Company as follows:
(a)
Base Salary :  Commencing on the Effective Date, your annual base salary (" Base Salary ") shall be Two Hundred Eighty Thousand dollars ($280,000) payable bi-weekly in accordance with the Company's normal payroll practices.  Base Salary shall be subject to periodic review and adjustment during the Term of this Agreement, but in no event shall Base Salary be reduced below Two Hundred Eighty Thousand dollars ($280,000).
(b)
Award of Options :  As of the Effective Date, you will be granted incentive stock options to purchase up to Sixty Thousand (60,000) in shares of the Company's common stock. Pursuant to the Company's 2014 Equity Incentive Plan (the " Equity Plan "), the options granted pursuant to this paragraph shall vest on each of the following dates: 20% on January 1, 2017; 20% on January 1, 2018; 20% on January 1, 2019; 20% on January 1, 2020; and 20% on January 1, 2021, all as more fully described in the Option Award Agreement dated as of the Effective Date between you and the Company. The above notwithstanding, in the event of a Change in Control all unvested equity grants, including options granted above, shall become immediately vested.  The Option Award Agreement shall reflect the full vesting of options upon Change in Control.
(c)
Incentive Bonus : As determined annually by the Compensation Committee, you will be eligible to receive an annual bonus under the E&S Management Incentive Plan (the " MIP "). Your bonus under the MIP will be based upon the Company's and your achievement of various financial goals established and approved annually by the Board of Directors (the " Board ") or the Compensation Committee of the Board.  Nothing in this Agreement shall guaranty that you will receive an annual bonus or that any bonus awarded will be for a particular amount. Any bonus for a fiscal year will be paid within 90 days after the close of that fiscal year. The Company reserves the right to amend, change, or cancel the MIP at its sole discretion.
(d)
Benefits :  You will have the right, on the same basis as other similarly-situated employees of the Company, to participate in and to receive benefits under any applicable benefit plans, as well as under the Company's business expense reimbursement and other policies.  Your participation will be subject to the terms of the applicable plan documents and generally applicable Company policies, as the same may be in effect from time to time, and any other restrictions or limitations imposed by law, including without limitation, applicable tax rules.  You will accrue paid vacation in accordance with the Company's vacation policy.  The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.
2

(e)
Withholding :  All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.
4.
Voluntary Termination .  In the event that you voluntarily resign from your employment with the Company without Good Reason (as defined in Section 5 ) you will be entitled to no compensation or benefits from the Company other than those earned under Section 3(a) and (e) through the date of your termination.  You agree that if you voluntarily terminate your employment with the Company without Good Reason, you will provide the Company with 60 days' written notice of your resignation.  The Company may, in its sole discretion, elect to waive all or any part of such notice period and accept your resignation at an earlier date.
5.
Resignation for Good Reason .  During your employment with the Company, you may terminate your employment for Good Reason within thirty (30) days of the event constituting Good Reason by delivering to the Company a notice specifying that you are terminating your employment for Good Reason, setting forth in reasonable detail the facts and circumstances you claim give you Good Reason, and giving the Company thirty (30) days to cure the circumstances you claim give you Good Reason.  If you deliver such a notice and the Company fails to cure the circumstances you claim give you Good Reason within thirty (30) days resulting in a Separation (as defined in Section 6(c) ) then the Company shall pay you the same severance pay and benefits you would have received if your employment had been terminated without cause pursuant Section 6(b) of this Agreement, provided however , that you must sign a general release of known and unknown claims in the form attached hereto as Exhibit A in order to receive such severance.  For purposes of this Agreement, " Good Reason " shall mean any of the following events if effected by the Company without your consent:  (i) a material diminution of your duties, responsibilities, or authority; (ii) a material reduction of your Base Salary; (iii) a requirement that you report to a corporate officer or employee instead of reporting directly to the CEO; (iv) a material change in the geographic location where you work; (v) the Company's failure to secure the written assumption of its material obligations under this Agreement from any successor to the Company; or (vi) a material breach of this Agreement by the Company which is not remedied within fifteen (15) business days following written notice from you.
6.
Other Termination .  Your employment may be terminated by the Company under the circumstances set forth below.
(a)
Termination for Cause :  If your employment is terminated by the Company for cause as defined below, you shall be entitled to no compensation or benefits from the Company other than those earned under Section 3(a) and (e) through the date of your termination for cause.
3

For purposes of this Agreement, a termination "for cause" occurs if you are terminated for any of the following reasons: (i) theft, dishonesty or falsification of any employment or Company records; (ii) improper disclosure of the Company's confidential or proprietary information resulting in damage to the Company; (iii) any action or omission by you that constitutes a knowing and material violation of the Company's policies and procedures; (iv) your failure or inability to perform any assigned duties after written notice from the Company to you of, and a reasonable opportunity to cure, such failure or inability; (v) your conviction (including any plea of guilty or no contest) of a felony, or of any other criminal act if that act impairs your ability to perform your duties under this Agreement or (vi) your failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested your cooperation. For purposes of this paragraph, "Company" shall mean E&S and its affiliates.
(b)
Termination Without Cause, Death or Disability :  If a Separation occurs because your employment is terminated by the Company without cause or as a result of your death or Disability (as defined below), and if you sign a general release of known and unknown claims in form attached hereto as Exhibit A , you will receive severance payments equal to one hundred thirty-five percent (135%) of your Base Salary at the time of such termination; less applicable withholding, payable over a period of twelve (12) months after the date of the Separation. Severance payments will be made periodically in accordance with the Company's normal payroll schedule.  You, your personal representative or guardian, as applicable, must execute and return the form of release attached hereto as Exhibit A to receive severance payments.  The severance payments will commence on the date in which the release becomes irrevocable in accordance with its terms or applicable law. During the twelve-month severance period, the Company will also pay the premiums to continue your group health insurance coverage under COBRA if you are eligible for COBRA and have elected continuation coverage under the applicable rules.  However, the Company's COBRA obligations shall immediately cease to the extent you become eligible for benefits from a subsequent employer.
(c)
Termination following Change of Control .  If a Change of Control (as defined in the Equity Plan) occurs and within twelve (12) months following such Change of Control, your employment with the Company or its successor is terminated:  (i) by the Company or its successor without cause; (ii) as a result of your death or Disability; or (iii) following your resignation for Good Reason, you shall be entitled to all separation payment and benefit set forth in Section 6(b) ; provided however , that the severance payments shall be made in a single lump sum upon execution and non-revocation of the form of release attached hereto as Exhibit A .
(d)
Definition of Separation . For purposes of this Agreement, " Separation " means a "separation from service," as defined in the regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the " Code "). For purposes of this Agreement, " Disability " means (i) your inability, by reason of physical or mental illness or other cause, to perform your duties hereunder on a full‑time basis for a period of ninety (90) days in any one year period, or (ii) in the discretion of the CEO, as such term is defined in any disability insurance policy in effect at the Company during the time in question.
4

(e)
Commencement of Payments .  For purposes of Section 409A of the Code, each salary continuation payment under Section 5 or 6(b) above is hereby designated as a separate payment.  If the Company determines that you are a "specified employee" under Section 409A(a)(2)(B)(i) of the Code at the time of your Separation, then (i) the salary continuation payments under Section 5 or 6(b) above, to the extent that they are subject to Section 409A of the Code, will commence during the seventh month after your Separation and (ii) the installments that otherwise would have been paid during the first six months after your Separation will be paid in a lump sum when the salary continuation payments commence.
7.
Termination Obligations .
(a)
Return of Property .  You agree that all property (including, without limitation, all equipment, tangible proprietary information, documents, records, notes, contracts and computer-generated materials) furnished to you by the Company or any affiliate or created or prepared by you in the course of your employment belongs to the Company and shall be promptly returned to the Company upon termination of your employment.
(b)
Resignation and Cooperation .  Following any termination of employment, you shall cooperate with the Company in the winding up of pending work on behalf of the Company or any affiliate and the orderly transfer of work to other employees. You shall also cooperate with the Company and any affiliate in the defense of any action brought by any third party against the Company that relates to your employment by the Company. The Company shall reimburse you for your time and reasonable expenses incurred in connection with such cooperation.
8.
Confidential Information .
(a)
You acknowledge that because of your position with the Company, you will have access to Confidential Information (as defined below) of the Company and its affiliates.  Accordingly, you hereby agree that, during your employment and at all times thereafter, you will hold the Confidential Information of the Company and its affiliates in strict confidence and will neither use (for yourself or any third party) the information nor furnish, make available or disclose it to anyone, except to the extent necessary to carry out your responsibilities as an employee of the Company or as specifically authorized in writing by the CEO.  As used in this Agreement, " Confidential Information " means any information relating to the business or affairs of the Company and its affiliates, including, but not limited to information relating to financial statements, operations manuals, systems manuals, customer identities, customer profiles, customer preferences, partner or investor identities, employees, suppliers, advertising programs, target markets, servicing methods, equipment, programs, strategies and information, market analyses, profit margins, past, current or future marketing strategies, or any other proprietary information used by the Company or its affiliates; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no act or omission by you.  You acknowledge that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and that you are under a contractual and common law duty to not disclose the Confidential Information to any third party at any time.  You acknowledge and agree that your non-disclosure obligation applies to all Confidential Information of the Company, no matter when you obtained knowledge of or access to such Confidential Information.  You further acknowledge that the Company would not employ you or provide you with access to its Confidential Information, but for your promises and covenants contained in this Section 8 and elsewhere in this Agreement. Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order. You shall promptly provide written notice of any such order to the CEO.
5

(b)
Notice of Immunity under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 .  Notwithstanding any other provision of this Agreement:
(i)
You will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that: (A) is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
(ii)
If you file a lawsuit for retaliation by the Company for reporting a suspected violation of law, you may disclose the Company's trade secrets to your attorney and use the trade secret information in the court proceeding if you: (A) file any document containing the trade secret under seal; and (B) do not disclose the trade secret, except pursuant to court order.
9.
Ownership of Information and Property .  You agree that all information and property of the Company or its affiliates that comes into your control or possession due to your relationship with the Company or any of its affiliates, including without limitation any Confidential Information, are and shall remain the property of the Company or an Affiliate, as applicable, and, at the Company's request, you shall promptly return all such information and property to the Company and provide to Company a written certificate confirming that all such information and property have been returned to the Company.
10.
Non-Competition and Non-Solicitation Covenants .
(a)
Prohibited Activities .  During the Term of your employment and for twelve (12) months thereafter (the " Restricted Period "), in addition to your other obligations hereunder, you shall not, in any manner, directly or indirectly, (i) engage or invest in, (ii) own, manage, operate, finance, control, (iii) participate in the ownership, management, operation, financing, or control of, or (iv) be employed by, work for or with, or in any way assist any business or any person or entity that engages in the Restricted Business (as defined below) in the Restricted Territory (as defined below).  For purposes of this Agreement, (x) " Restricted Business " means the business and operations that are the same or similar to those engaged in by the Company or its affiliates during your employment with the Company, or in which any of the Company or its affiliates has material plans to engage of which you are aware during the period of your employment with the Company, which business and operations include the business of advanced computer graphics technology for digital planetariums and full dome digital cinemas worldwide, full-dome education including projection systems, software, curriculum, lighting and audio and dome screens, and other architectural domes, spheres, and freeform structures; and (y) " Restricted Territory " means the geographic area where the Company and its affiliates conduct business. For purposes of this paragraph, " Company " shall mean E&S and its affiliates.  For avoidance of doubt, a Restricted Business may take the form of a sole proprietorship, corporation, partnership, limited liability company, governmental or private entity or any other entity of whatever kind (including without limitation, a private equity fund) that engages in a Restricted Business.
6

(b)
Communication of Contents of Covenants .  During the Restricted Period, you will communicate the contents of this Agreement to any person or entity that you intend to be retained or employed by, associated with, or represent and which you know is engaged in the Restricted Business or in a business that competes with the Company in the Restricted Business.
(c)
Non-Solicitation of Customers .  You understand and acknowledge that because of your experience with and relationship to the Company, you will have access to and learn about much or all of the Company's customer information. " Customer Information " includes, but is not limited to, names, phone numbers, addresses, e-mail addresses, order history, order preferences, chain of command, pricing information and other information identifying facts and circumstances specific to the customer and relevant to sales and services. You understand and acknowledge that loss of these customer relationships or goodwill will cause significant and irreparable harm to the Company.  You agree and covenant that during the Restricted Period, you will not directly or indirectly solicit, contact (including but not limited to e-mail, regular mail, express mail, telephone, fax, and instant message), attempt to contact or meet with the Company's current, former or prospective customers for purposes of offering or accepting goods or services similar to or competitive with those offered by the Company.
(d)
Tolling of Covenants .  If it is judicially determined that you have violated any of your obligations under this Agreement, then the Restricted Period will automatically be extended by a period of time equal in length to the period during which such violation or violations occurred.
(e)
Non-disparagement .  You and the Company both agree and covenant that neither will at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments or statements concerning the other or its businesses, or any of its employees, officers, and existing and prospective customers, suppliers and other associated third parties. This section does not, in any way, restrict or impede you from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order.
7

(f)
Acknowledgments .  You understand that the nature of your position gives you access to and knowledge of Confidential Information and places you in a position of trust and confidence with the Company. You further understand and acknowledge that the Company's ability to reserve these for the exclusive knowledge and use of the Company is of great competitive importance and commercial value to the Company, and that improper use or disclosure by you is likely to result in unfair or unlawful competitive activity. You acknowledges that your obligations under this Section 10   (including the geographic boundaries, scope of prohibited activities and the time duration of the provisions) are reasonable in the context of the nature of the Restricted Business and the competitive injuries likely to be sustained by the Company if you were to violate such obligations, and are no broader than are necessary to protect the legitimate business interests of the Company.  You further acknowledge that the Company would not have employed you in the absence of this Section 10 and your other covenants and representations and warranties made herein, which you acknowledge constitutes good, valuable and sufficient consideration.
11.
Severability .  If any provision of this Agreement is deemed invalid, illegal or unenforceable, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected.
12.
Assignment .  In view of the personal nature of the services to be performed under this Agreement by you, you cannot assign or transfer any of your obligations under this Agreement.
13.
Entire Agreement .  This Agreement and the agreements referred to above constitute the entire agreement between you and the Company regarding the terms and conditions of your employment, and they supersede all prior negotiations, representations or agreements between you and the Company regarding your employment, whether written or oral.
14.
Modification .  This Agreement may only be modified or amended by a supplemental written agreement signed by you and an authorized representative of the Company.
15.
Governing Law .  This Agreement, and all matters relating hereto, including any matter or dispute arising out of the Agreement, shall be interpreted, governed, and enforced according to the laws of the State of Utah, without regard to conflict of laws principals.
8

16.
Remedies and Jurisdiction .
(a)   You hereby acknowledge and agree in addition to all other remedies available to the Company for a breach of this Agreement (including, without limitation, the right to recover damages), the Company shall be entitled to seek injunctive relief.  To enforce the provisions of this Section 16(a) , the Company may seek relief from any court with proper jurisdiction.
(b)   All claims, disputes and other matters in question between the parties arising under this Agreement, shall, unless otherwise provided herein, be decided by binding arbitration before a single independent arbitrator selected pursuant to Section 16(d) .  TO THE EXTENT ALLOWABLE UNDER APPLICABLE LAW, ALL DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT DISCRIMINATION, BREACH OF CONTRACT OR POLICY, OR EMPLOYMENT TORT COMMITTED BY THE COMPANY OR A REPRESENTATIVE OF THE COMPANY, INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS AGREEMENT AND THERE SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A JURY TRIAL.  The arbitration hearing shall occur at a time and place convenient to the parties in Minneapolis, Minnesota, within thirty (30) days of selection or appointment of the arbitrator.  The arbitration shall be governed by the National Rules for the Resolution of Employment Disputes of AAA in effect on the date of the first notice of demand for arbitration.  The arbitrator shall issue written findings of fact and conclusions of law, and an award, within fifteen (15) days of the date of the hearing unless the parties otherwise agree.
(c)   In cases of breach of contract or policy, damages shall be limited to contract damages.  In cases of discrimination claims prohibited by statute, the arbitrator may direct payment consistent with the applicable statute.  Issues of procedure, arbitrability, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1‑16.
(d)   The parties shall select the arbitrator from a panel list made available by the AAA.  If the parties are unable to agree to an arbitrator within ten (10) days of receipt of a demand for arbitration, the arbitrator will be chosen by alternatively striking from a list of five (5) arbitrators obtained by the Company from AAA.  The Executive shall have the first strike.
17.
Attorneys' Fees .  In any arbitration, court action or other adjudicative proceeding arising out of or relating to this Agreement or Employee's employment with the Company, each party shall pay its own attorneys', accountants', and experts' fees and costs of such proceeding(s).
18.
Section Headings .  The section headings of this Agreement are inserted only for convenience and in no way define, limit, or describe the scope or intent of this Agreement nor affect its terms and provisions.
9

19.
Construction .  The parties hereto have participated jointly in the negotiation and drafting of this Agreement and no provision of this Agreement shall be construed against either party as the drafter thereof.
20.
Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original of this Agreement, but all of which together shall constitute one and the same instrument.
21.
EMPLOYEE ACKNOWLEDGEMENT .  YOU HAVE HAD THE OPPORTUNITY TO CONSULT LEGAL COUNSEL CONCERNING THIS AGREEMENT AND HAVE OBTAINED AND CONSIDERED THE ADVICE OF SUCH LEGAL COUNSEL TO THE EXTENT YOU DEEMS NECESSARY OR APPROPRIATE.  YOU HAVE READ AND UNDERSTANDS THE AGREEMENT, ARE FULLY AWARE OF ITS LEGAL EFFECT, AND HAVE ENTERED INTO IT FREELY BASED ON YOUR OWN JUDGMENT AND NOT BASED ON ANY REPRESENTATIONS OR PROMISES OTHER THAN THOSE CONTAINED IN THIS AGREEMENT.

[Remainder of page left intentionally blank.
Signature page follows.]
10

Please sign and date this letter on the spaces provided below to acknowledge your acceptance of the terms of this Agreement.

EVANS & SUTHERLAND COMPUTER CORPORATION

By:  /s/ Jonathan Shaw
Title: Chief Executive Officer

Accepted and agreed this 15 day of December, 2016:
EMPLOYEE

By:  /s/ Paul Dailey
             Paul Dailey
11


EXHIBIT A

EXECUTIVE SEPARATION AND GENERAL RELEASE AGREEMENT
This Confidential Executive Separation and General Release Agreement (" Agreement ") is between Paul Dailey (" Executive ") and Evans & Sutherland Computer Corporation, a Utah corporation (" E&S " or the " Company "), as well as each and all of its parents, subsidiaries, and affiliates. Executive has been serving as Executive Vice President and Chief Financial Officer of the Company pursuant to an Employment Agreement dated as of December 15, 2016, as amended (the " Employment Agreement "). In consideration of the mutual promises recited in this Agreement, Executive and Company hereby agree:
1.   General Terms of Termination .   Executive's employment relationship with Company will terminate on [                ] (the " Separation Date "). Executive understands and acknowledges that through and including the Separation Date, that all of Company's human resources policies and practices remain in effect, and that Executive will continue to receive current base salary and will be entitled to participate in the same employee benefit and incentive compensation plans/programs as other similarly situated employees, subject to any restriction, limitation and discretionary authority specified in such plans and programs.
2.   Other Compensation and Benefits .   Executive understands that except as expressly provided for herein by this Agreement, all other compensation and benefit plans, policies and programs in which Executive participates in as a result of employment with Company, shall be administered pursuant to their terms, provisions and administrative practices and policies that are then in effect, as interpreted and applied by Company or the plan administrator(s) as applicable.
3.   Separation Payment and Benefits .   Company agrees to provide Executive with separation payment and benefits and described as follows:
(a)   Separation Payment .  Company will pay separation payments in the amount of [              ], which represents one hundred thirty-five percent (135%) of Executive's Base Salary as determined on the date of this Agreement.  Payment of such amount shall commence immediately following the expiration of the revocation period set forth in Section 15 and shall be made [over a period of twelve (12) months][in a single lump sum].

(b)   Vesting of Equity Compensation .  Subject to the terms of the Company's 2014 Stock Incentive Plan (the " Equity Plan "), applicable awards and applicable law, Company will cause any outstanding, qualified option, non-qualified stock option, restricted stock unit and/or other equity awards provided pursuant to the Equity Plan to become vested to the extent not current vested.  The shares associated with any vested awards (less any applicable tax withholding) will be issued or delivered to Executive in accordance with the terms of the applicable awards, the Equity Plan, and applicable law.
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(c)   COBRA Continuation .  If Executive properly and timely elects to continue his medical, dental and vision insurance coverage (collectively, " health insurance coverage ") under Company's group medical, dental and vision insurance plans (collectively, " Continuation Coverage ") pursuant to the Consolidated Omnibus Budget Reconciliation Act (" COBRA "), Company shall reimburse Executive for payments made by him for such Continuation Coverage for him and his dependents who qualify for continuation coverage under COBRA for one (1) year following the Separation Date (the " COBRA Pay Period ").  If Executive elects to continue COBRA coverage after the end of the COBRA Pay Period, such Continuation Coverage shall be entirely at his own expense.  Notwithstanding the foregoing, if, during the COBRA Pay Period, Executive obtains insurance coverage through a new employer or Medicare, the Company shall have no further obligation to pay any portion of the premiums for Continuation Coverage under the Company's group health insurance plans.
4.   General Release .  In consideration of the promises, covenants and agreements contained herein, Executive, for himself and his heirs, successors, and assigns, hereby releases and forever discharges Company and its officers, shareholders, directors, employees, agents, representatives, attorneys, parent, subsidiary and affiliated companies, successors and assigns, and each of them, of and from any and all claims, losses, demands, actions, causes of action, obligations, debts and/or liabilities (the " Released Claims ") relating to any matters of any kind, presently known or unknown, in law or in equity, arising out of any acts, omissions, events or facts which have occurred up to, and including the time of, the Effective Date.  The Released Claims released pursuant to the foregoing paragraph include, without limitation, any claims, losses, demands, actions, causes of action, obligations, debts, and/or liabilities resulting from or arising out of Executive's employment by Company, the termination thereof, or any transaction, event, action, dispute and/or activity related thereto, as well as any claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Equal Pay Act of 1963, the Americans with Disabilities Act, the Family and Medical Leave Act, the Employment Retirement Income Security Act, the Utah Anti-Discrimination Act, the Utah Payment of Wages Act, or any other federal, state or local statute prohibiting employment discrimination, harassment, or retaliation, or any claim for general, special, or other compensatory damages, consequential damages, punitive damages, back or front pay, fringe benefits, attorneys' fees, costs, or other damages or expenses, or any claim for injunctive relief or other equitable relief, or any claim for alleged wrongful discharge, breach of express or implied contract, breach of the covenant of good faith and fair dealing, termination in violation of public policy, negligence, negligent hiring, retention, or employment, invasion of privacy, defamation, intentional or negligent infliction of emotional distress, fraudulent representation, fraudulent omission, assault, battery, interference with contract or other economic opportunity, failure to pay wages due or other monies owed, failure to pay pension benefits, conversion, breach of duty, vicarious liability, any claim arising under any federal or state statute or local ordinance regulating the health and/or safety of the workplace, or any other tort, contract or statutory claim.
5.   Exclusions from General Release .  This Agreement's general release provisions exclude: claims arising after Executive signs this Agreement; claims for breach of this Agreement; any claim for coverage under E&S's Directors and Officers insurance policy or any applicable indemnification agreement or policy; and claims that cannot be waived, such as for unemployment or worker's compensation.
2

6.   Protected Rights .  Employee understands that nothing contained in this Agreement limits Employee's ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (" Government Agencies "). Employee further understands that this Agreement does not limit Employee's ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Employee's right to receive an award for information provided to any Government Agencies.
7.   Cooperation and Assistance .   Executive agrees to cooperate and assist in the investigation, prosecution or defense of any potential claims or concerns regarding Company's or any affiliates' business about which he has relevant knowledge, including:  (i) by providing truthful information and testimony as reasonably requested by Company; and (ii) by providing truthful information and testimony with Government Agencies on matters pertaining to any investigation, litigation or administrative proceeding concerning Company or its affiliates.  Company will reimburse Executive for reasonable time, travel and out‑of‑pocket expenses incurred in providing such cooperation and assistance after the Separation Date.
Except as provided for in Section 18 with regard to governmental reporting, Executive further agrees to inform Company of all subpoenas, correspondence, telephone calls, and requests for information, inquiries or other contacts he may receive from third parties, concerning any fact or circumstances known to him during his employment.  Executive agrees to inform E&S within three (3) business days of each such contact.  All notices and other communications Executive may provide Company as required to accomplish this obligation shall be in writing and shall be given by Executive in hand or by overnight delivery, with a signed receipt, shall be deemed effective as of the date delivered.
8.   Indemnification .   Company shall defend and indemnify Executive with respect to Executive's actions in the performance of Executive's duties arising from his employment and performance as an officer and employee through the Separation Date to the fullest extent permitted by the Company's Bylaws as in effect from time to time.
9.   Non-Disparagement .  Executive agrees not to criticize, make any negative comment about or otherwise disparage Company and its current officers and directors in any manner, whether orally or in writing and directly or indirectly, that when viewed objectively, appears calculated to disrupt or impair their normal, ongoing business operations, or to harm their reputation with employees, suppliers, customers, agents, shareholders or the public.  Company agrees that it will instruct its executive officers and Directors, not to criticize, make any negative comment about or otherwise disparage Executive in any manner, whether orally or in writing and directly or indirectly, that when viewed objectively, appears calculated to disrupt or impair or to harm his reputation with prospective employers, employees, suppliers, customers, agents, shareholders or the public.
Executive further agrees not to provide testimony as an expert or paid witness on behalf of a party adverse to Company or its affiliates.  This paragraph does not prohibit Executive from testifying pursuant to a subpoena or from accepting witness fees accompanying a subpoena, and this paragraph in no way limits Executive's right to report possible violations of law or regulation to Government Agencies; to file a charge with any governmental administrative agency or participate in any such agency investigation; nor from making other disclosures that are protected under whistleblower provisions of state or federal law or regulation.
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10.   Reference .   Executive agrees to direct all inquiries regarding employment, including those from prospective employers to [                       ].
11.   Obligations Regarding Trade Secret and Company Confidential Information .   Executive acknowledges that during his employment, he developed and has been exposed to trade secrets or Confidential Information (as defined in the Employment Agreement) regarding Company and its affiliates.  Company considers such Confidential Information to be valuable and proprietary.  Except as provided for in Section 18 with regard to governmental reporting, Executive acknowledges that he is under a continuing obligation to keep confidential, not disclose and not use any Confidential Information, except as specifically authorized by Company, pursuant to Section 8 of the Employment Agreement, which continues to be enforceable by Company according to its terms.
12.   Obligations Regarding Non-Solicitation and Non-Competition .  Executive acknowledges that he is obligated, during the Restricted Period (as defined in the Employment Agreement), not to directly or indirectly solicit, contact, attempt to contact or meet with the Company's current, former or prospective customers as more fully described in Section 10 of the Employment Agreement, which continues to be enforceable by Company according to its terms.  Executive further acknowledges that he is obligated, during the Restricted Period not to engage in any Restricted Business (as defined in the Employment Agreement) in the Restricted Territory (as defined in the Employment Agreement) as more fully described in Section 10 of the Employment Agreement, which continues to be enforceable by Company according to its terms.
13.   Breach by Executive .   In the event of a breach by Executive of any of the provisions of this Agreement, including without limitation the duty to cooperate, confidentiality, non-solicitation, non-competition or non-disparagement provisions of this Agreement, Company's obligation to make any payment under this Agreement will immediately cease.  Executive acknowledges that irreparable harm would result from any breach by Executive of the provisions of this Agreement, and that monetary damages alone would not provide adequate relief for any such breach.  Accordingly, if Executive breaches or threatens to breach this Agreement, Executive consents to injunctive relief in favor of Company without the necessity of Company posting a bond.
14.   Advice to Consult Legal Counsel .   Since this Agreement includes a waiver of rights, including those rights falling under the Age Discrimination in Employment Act, Executive has been advised to consult an attorney before signing this Agreement.
15.   Period to Consider Agreement .  Executive agrees that he has at least twenty‑one (21) days from the day that he has been given this Agreement, not counting the day upon which he received it, to consider whether to sign the Agreement. If he signs the Agreement before the end of the 21‑day period, he agrees that he will have done so knowingly and voluntarily, without undue influence, duress or any type of pressure by Company.
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16.   Right to Revoke Agreement .   Executive may rescind this Agreement at any time within seven (7) days after signing it, not counting the day upon which he signs it.  This Agreement will not become effective or enforceable unless and until the 7‑day rescission period has expired without Executive rescinding it.
17.   Procedure for Accepting or Rescinding the Agreement .   To accept the terms of this Agreement, Executive agrees that he must deliver the Agreement, after having signed and dated it, to Company by hand or mail.  If he decides to rescind the acceptance, the Executive must deliver to Company by hand or by mail a written, signed statement to announce that acceptance of this Agreement is rescinded.  This statement must be delivered to Company within the 7‑day rescission period.  Executive understands that all deliveries of acceptance or rescission to Company must be made to [                       ].
18.   Executive Acknowledgments .  By signing this Separation Agreement, Executive agrees that: he has been advised to consult with legal counsel concerning the terms of this Agreement prior to signing it; that he is entering into this Separation Agreement knowingly and voluntarily; that he has been paid for all time worked; and that he has paid for all unused accrued paid vacation leave in accordance with Company's vacation leave policy.  Executive also acknowledges and agrees to cooperate in the return of all property belonging to Company, including but not limited to identification badge, keys, key cards, files (in whatever form – including electronic files), records, computer access codes, computer passwords, computer hardware, computer programs, instruction manuals, business plans, as well as other documents prepared or received and other property used in connection with his employment.
19.   Confidentiality .   The parties mutually agree to keep the existence and terms of this Agreement, and the discussions between them regarding this Agreement, confidential and agree that neither the existence, the terms, nor the discussions with regarding this Agreement shall be disclosed or communicated in any manner except (i) as required by legal proceedings to secure compliance with or enforcement of the terms of this Agreement; (ii) in response to any proper subpoena, court order, or lawful discovery request in litigation; (iii) to Employee's spouse, domestic partner, or financial/legal advisors, all of whom shall agree to keep such information confidential; or (iv) as required by law.  This provision also does not prohibit or restrict Executive (or his attorney) from responding to any inquiry about this Agreement or its underlying facts and circumstances by the Securities and Exchange Commission (" SEC ") or any other Government Agencies, nor does this confidentiality obligation require Executive to notify Company regarding any such reporting, disclosure or cooperation with SEC or any other entity or agency of the government.
20.   Non-Admissions .   The fact and terms of this Separation Agreement are not an admission by Company or by the Executive of liability or other wrongdoing under any law.
21.   Internal Revenue Code Section 409A .   The Parties agree that the separation payment made pursuant to this Agreement does not constitute deferred compensation for purposes of Section 409A of the Internal Revenue Code of 1986 and its accompanying regulations (" Section 409A ").  Specifically, the separation payment described in this Agreement will be made in a manner that will cause it to be a short-term deferral as described in Treas. Reg. § 1.409A-1(b)(4).  This Agreement shall be implemented and construed in a manner to give effect to the foregoing.  In no event whatsoever shall Company or any of its affiliates be liable for any tax, interest or penalties that may be imposed on Executive pursuant to Section 409A.  Neither Company nor any of its affiliates have any obligation to indemnify or otherwise hold Executive harmless from any such taxes, interest or penalties, or liability for any damages related thereto.
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22.   Entire Agreement and Enforceability .   The Parties agree that this Agreement is the entire Agreement between them regarding the termination of their employment relationship, and that if any part of this Agreement is found to be invalid, the rest of the Agreement will be enforceable between them.  Any changes to this Agreement after it was first presented to Executive, whether material or immaterial, do not restart the decision period described in the Section entitled "Period to Consider Agreement."  Further, both parties agree that this Agreement shall be interpreted and enforced in accordance with the laws of the State of Utah. Notwithstanding any other provision of this Separation Agreement, it is expressly understood and agreed by the parties that Section 16 of the Employment Agreement shall remain in full force and effect.


                                                          
Executive Signature
Date:                                                  

EVANS & SUTHERLAND COMPUTER CORPORATION

By:   _______________________
Title: _______________________   
Date:                                                         


6

 
Exhibit 10.10
 

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This First Amendment to Employment Agreement (this " Amendment ") dated as of January 9, 2017 (the " Effective Date ") is by and among Evans & Sutherland Computer Corporation, a Utah corporation (" E&S ") and Jonathan Shaw (" You " or the " Executive ").

WHEREAS, you and E&S entered into that certain Employment Agreement, dated September 2, 2016 (the " Agreement "); and

WHEREAS, the parties hereto desire to amend the Agreement on the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.   Definitions .  Capitalized terms used and not defined in this Amendment have the respective meanings assigned to them in the Agreement.
2.   Amendment to the Agreement . As of the Effective Date, Section 1(a) of the Agreement shall be amended by deleting the second sentence in its entirety and replacing it with the following:
"In such position, you will have the duties and authority consistent with the duties and authority of a chief executive officer of a public company in the information technology industry of a size comparable to E&S."
3.   Date of Effectiveness; Limited Effect . This Amendment is effective as of the Effective Date. Except as expressly provided in this Amendment, all of the terms and provisions of the Agreement are and will remain in full force and effect, and are hereby ratified and confirmed by the parties hereto. Without limiting the generality of the foregoing, the amendments contained herein will not be construed as an amendment to or waiver of any other provision of the Agreement or as a waiver of or consent to any further or future action on the part of either party hereto that would require the waiver or consent of the other party. On and after the Effective Date, each reference in the Agreement to "this Agreement," "the Agreement," "hereunder," "hereof," "herein" or words of like import will mean and be a reference to the Agreement as amended by this Amendment.
4.   Miscellaneous .
(a)   This Amendment is governed by, and construed in accordance with, the laws of the State of Utah, without regard to the conflict of laws provisions of such State.
(b)   This Amendment shall inure to the benefit of and be binding upon each of the Parties and each of their respective successors and assigns.
(c)   This Amendment may be executed in counterparts, each of which is deemed an original, but all of which constitutes one and the same agreement. Delivery of an executed counterpart of this Amendment electronically or by facsimile shall be effective as delivery of an original executed counterpart of this Amendment.
[SIGNATURE PAGES FOLLOW]
1



IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above by their respective officers thereunto duly authorized.



E&S:

Evans & Sutherland Computer Corporation,
a Utah corporation


By:  /s/ L. Tim Pierce  
        L. Tim Pierce, Board Chairman


EXECUTIVE:


By:  /s/ Jonathan Shaw  
 Jonathan Shaw

2



 
 
Exhibit 10.11
 

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This First Amendment to Employment Agreement (this " Amendment ") dated as of January 9, 2017 (the " Effective Date ") is by and among Evans & Sutherland Computer Corporation, a Utah corporation (" E&S ") and Kirk D Johnson (" You " or the " Executive ").

WHEREAS, you and E&S entered into that certain Employment Agreement, dated September 2, 2016 (the " Agreement "); and

WHEREAS, the parties hereto desire to amend the Agreement on the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.   Definitions .  Capitalized terms used and not defined in this Amendment have the respective meanings assigned to them in the Agreement.
2.   Amendment to the Agreement . As of the Effective Date, Section 1(a) of the Agreement shall be amended by deleting the second sentence in its entirety and replacing it with the following:
"In such position, you will have the duties and authority consistent with the duties and authority of a president and chief operating officer of a public company in the information technology industry of a size comparable to E&S."
3.   Date of Effectiveness; Limited Effect . This Amendment is effective as of the Effective Date. Except as expressly provided in this Amendment, all of the terms and provisions of the Agreement are and will remain in full force and effect, and are hereby ratified and confirmed by the parties hereto. Without limiting the generality of the foregoing, the amendments contained herein will not be construed as an amendment to or waiver of any other provision of the Agreement or as a waiver of or consent to any further or future action on the part of either party hereto that would require the waiver or consent of the other party. On and after the Effective Date, each reference in the Agreement to "this Agreement," "the Agreement," "hereunder," "hereof," "herein" or words of like import will mean and be a reference to the Agreement as amended by this Amendment.
4.   Miscellaneous .
(a)   This Amendment is governed by, and construed in accordance with, the laws of the State of Utah, without regard to the conflict of laws provisions of such State.
(b)   This Amendment shall inure to the benefit of and be binding upon each of the Parties and each of their respective successors and assigns.
(c)   This Amendment may be executed in counterparts, each of which is deemed an original, but all of which constitutes one and the same agreement. Delivery of an executed counterpart of this Amendment electronically or by facsimile shall be effective as delivery of an original executed counterpart of this Amendment.
[SIGNATURE PAGES FOLLOW]
1



IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above by their respective officers thereunto duly authorized.



E&S:

Evans & Sutherland Computer Corporation,
a Utah corporation


By:  /s/ Jonathan Shaw  
       Jonathan Shaw, Chief Executive Officer


EXECUTIVE:


By: /s/ Kirk D. Johnson  
Kirk D Johnson

2


 
 
Exhibit 21.1
 
EVANS & SUTHERLAND COMPUTER CORPORATION
SUBSIDIARIES OF THE REGISTRANT
   
 
Subsidiary Name
 
State or Other Jurisdiction of Incorporation or Organization
 
Names Under Which Each Subsidiary Does Business
 
 
 
 
 
Spitz, Inc.
 
Delaware
 
Spitz, Inc.





Exhibit 23.1
 
 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
Evans & Sutherland Computer Corporation


We hereby consent to the incorporation by reference in Registration Statement No. 333 - 118277 and No. 333-202728   on Form S - 8 and Registration Statement No. 333 - 137637 on Form S - 3 of Evans & Sutherland Computer Corporation of our report dated March 10, 2017 , with respect to the consolidated balance sheets of Evans & Sutherland Computer Corporation as of December 31, 2 0 16 and 2015, and the related consolidated statements of comprehensive income (loss) , stockholders' equity (deficit) , and cash flows for the years then ended, which report appears in the December 31, 2 0 16 Annual Report on Form 1 0- K of Evans & Sutherland Computer Corporation.

 

Salt Lake City , Utah
March 10, 2 0 17


Exhibit 31.1
Rule 13a-14 Certification
CERTIFICATIONS*
I, Jonathan Shaw, certify that:
1.
I have reviewed this annual report on Form 10-K 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: March 10 , 2017
/s/ Jonathan Shaw
Jonathan Shaw
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 annual report on Form 10-K 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: March 10 , 2017
 /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, Jonathan Shaw, 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-K of Evans & Sutherland Computer Corporation for the fiscal year ended December 31, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Evans & Sutherland Computer Corporation.

Date: March 10, 2017   By:            /s/ Jonathan Shaw  
Jonathan Shaw
            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-K of Evans & Sutherland Computer Corporation for the fiscal year ended December 31, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Evans & Sutherland Computer Corporation.

Date: March 10, 2017   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.