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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, 2015
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 2, 2015 the last business day of the registrant's most recently completed second fiscal quarter was $4,149,143 based on the closing sale price of $0.65 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, 2016 was 11,177,316.


DOCUMENTS INCORPORATED BY REFERENCE:

 
Certain information from the Registrant's definitive proxy statement for the 2016 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, 2015

     
   

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 60-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.
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. 
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, 2015, Evans & Sutherland and its subsidiaries employed a total of 96 persons of which 90 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers of E&S as of December 31, 2015.
Name
Age
Position
David H. Bateman
73
President, Chief Executive Officer and Director
Paul L. Dailey
59
Chief Financial Officer and Corporate Secretary
Bob Morishita
65
Vice President Human Resources
Kirk D. Johnson
54
Vice President and General Manager of Digital Theater
Jonathan A. Shaw
59
President and Chief Executive Officer of Spitz, Inc.
David H. Bateman was appointed President and Chief Executive Officer of E&S in February 2007.  Mr. Bateman joined E&S as Director of Business Operations in May 1998. He was appointed Vice President – Business Operations in March 2000 and Interim President and Chief Executive Officer and a member of the Board of Directors in June 2006.
Paul L. Dailey was appointed Chief Financial Officer and Corporate Secretary of E&S 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 E&S's subsidiary, Spitz, Inc., where he started as Controller in 1983. Mr. Dailey is a Certified Public Accountant.
Bob Morishita was appointed Vice President of Human Resources in 2000.  He joined E&S as Compensation Manager in 1982 and was appointed Human Resources Director in 1997.
Kirk D. Johnson was appointed Vice President and General Manager of Digital Theater in January 2002.  He joined E&S in April 1990 and has held various engineering and management positions throughout his service at E&S. 
Jonathan A. Shaw was appointed President and Chief Executive Officer of E&S's subsidiary, Spitz, Inc., in November 2001, where he held various management positions since 1985. 

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

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, 2016, there were approximately 460 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, 2015 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 2015 and 2014. The quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
   
2015
   
2014
 
   
High
   
Low
   
High
   
Low
 
First Quarter
 
$
0.55
   
$
0.30
   
$
0.29
   
$
0.10
 
Second Quarter
   
0.95
     
0.42
     
0.61
     
0.21
 
Third Quarter
   
1.14
     
0.49
     
0.55
     
0.26
 
Fourth Quarter
   
1.21
     
0.72
     
0.45
     
0.24
 

ITEM 6.  CONSOLIDATED FINANCIAL DATA
Not applicable



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
On April 21, 2015, the Company executed agreements ("Pension Settlement Agreement") to terminate its Pension Plan and to settle the underlying pension liabilities. As a result of the Pension Plan termination, the plan's trust assets and benefit obligations have been transferred to the Pension Benefit Guaranty Corporation ("PBGC") thereby eliminating an underfunded pension plan liability on the Company's balance sheet which had a carrying value of approximately $36,000. In return, the Company issued to the PBGC shares of its common stock held in treasury valued at $70 and agreed to pay the PBGC a series of cash installments over twelve years totaling $10,500 (the "Pension Settlement Obligation").  The Pension Settlement Obligation is secured by all of the Company's assets subject to subordination agreements with the Company's senior lenders. This is a major milestone and completes a process that began over two years ago. It relieves the Company from the burden of a variable obligation to fund the Pension Plan benefits, which it clearly was unable to fulfill, and replaces it with a manageable fixed payment obligation.  The Company's goal in seeking a distress termination of the Pension Plan was to ensure that the pension benefits of all Pension Plan participants are paid up to federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from bankruptcy reorganization. We believe that the Pension Settlement Agreement has achieved that goal.
The year ended 2015 produced significantly improved sales and gross profit compared to 2014. The stronger sales and improved gross profit in 2015 were attributable to strong sales bookings in 2014 and 2015. The sales backlog remained healthy at the end of 2015 which supports an encouraging outlook for 2016. Operating expenses, except for a $3,620 charge for the settlement of the pension liabilities, were lower in 2015 as compared to 2014 primarily due to decreased pension expense in the period. The charge for the settlement of the pension liabilities is not a recurring expense item. Absent this charge, results would have been profitable for 2015. The 2015 results illustrate the profit potential of our business without the burden of the Pension Plan. With the healthy backlog and sales prospects, we anticipate sales at levels that should yield profitable results in 2016.
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 also 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 the new 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. This nearly eliminated our stockholders' deficit, which was $30,703 as of December 31, 2014 compared to $646 as of December 31, 2015. With the settlement of the Pension Plan liabilities, we expect our improved financial position to present opportunities for better results through the availability of credit and stronger qualification for customer projects.

Results of Operations

Consolidated Sales and Backlog

The following table summarizes our consolidated sales for the years ended December 31:
 
   
2015
   
2014
 
             
Sales
 
$
35,298
   
$
26,466
 
                 

 Sales increased 33% from 2014 to 2015 due to progress and deliveries on a higher volume of customer contracts. Sales were higher for essentially all of the Company's products with the largest increase coming from Digistar planetarium systems for science museums and universities.

The volume of new orders in 2015 was strong but lower than the exceptionally high volume of orders booked in 2014.  As a result, our sales backlog was $26,298 as of December 31, 2015 compared with $28,173 as of December 31, 2014. The sales backlog of domes for theme park attractions remained high at December 31, 2015, setting up 2016 for another strong year in sales to theme park attractions.  We anticipate that approximately 80% of the 2015 backlog will be converted to sales in 2016 and that we will receive sufficient new orders to produce total sales in 2016 comparable to 2015.

Gross Profit

The following table summarizes our gross profit and the percentage to total sales for the years ended December 31:

   
2015
   
2014
 
             
Gross profit
 
$
12,342
   
$
9,477
 
Gross profit percentage
   
35
%
   
36
%
 
Our gross profit percentage was slightly lower in 2015 when compared to 2014.  The lower gross margin percentage in 2015 was affected by higher than expected costs to complete two theme park projects; otherwise, efficiencies from the higher sales volume yielded improved margins on other customer projects.

Operating Expenses
The following table summarizes our operating expenses during the years ended December 31:
   
2015
   
2014
 
             
Selling, general and administrative
 
$
6,633
   
$
6,873
 
Research and development
   
2,262
     
2,187
 
Pension
   
522
     
1,147
 
Pension settlement
   
3,620
     
-
 
Total operating expense
 
$
13,037
   
$
10,207
 
Operating expenses were higher in 2015 compared to 2014 due to the $3,620 charge for the settlement of the Pension Plan liabilities in the second quarter.  While the settlement of Pension Plan liabilities resulted in this charge to operating expenses, it produced an extraordinary economic benefit to the Company which was reflected in the simultaneous recording of other comprehensive income in the amount of $31,776.
Selling, general and administrative expenses were slightly lower in 2015 compared to 2014. This was primarily due to decreased tradeshow activity and the redirection of resources from sales and marketing activities to content software production and research and development activities.
Research and development expenses were slightly higher in 2015 compared to 2014.  This was primarily due to redirecting resources from sales and marketing activities to research and development activities. Research and development activities consisted of 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 2015 compared to 2014 due to the termination of the Pension Plan in the second quarter of 2015. With the termination of the Pension Plan, future pension expense will be reduced to the expenses attributable to our Supplemental Executive Retirement Plan ("SERP").

Other Expense, net
The following table summarizes our other income and expense during the years ended December 31:
   
2015
   
2014
 
             
Interest expense
 
$
(429
)
 
$
(629
)
Other income (expense)
   
(163
)
   
77
 
Interest expense in 2014 consisted principally of imputed interest on a financing lease obligation which was extinguished in October 2014. Interest expense in 2015 consisted principally of imputed interest on the Pension Settlement Obligation recorded in the second quarter of 2015. Interest expense also included interest paid on real estate debt in both years presented. Interest expense in 2016 is expected to be comparable to 2015.
The change in other income (expense) was primarily attributable to an increase in 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:
 
   
2015
   
2014
 
             
Income tax benefit (provision)
 
$
12
   
$
(23
)
 
The 2014 income tax provision was for state income taxes resulting from Spitz' normal business activity in various jurisdictions.

Other Comprehensive Income (Loss)
The following table summarizes other comprehensive income (loss) for the years ended December 31:
   
2015
   
2014
 
             
Decrease (increase) to minimum pension liability
 
$
(555
 
$
(16,422
)
Reclassification of pension expense to net loss
   
-
     
406
 
Pension settlement
   
31,776
     
-
 
Other comprehensive income (loss)
 
$
31,221
   
$
(16,016
)
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. This offset the $3,620 charge to operating expenses from the same transaction. The other pension related charges and credits affecting other comprehensive income (loss) were attributable to the accounting for actuarial valuations of the pension liabilities. Other comprehensive income (loss) in future years is expected to be limited to accounting for potential changes in the actuarial valuation of the SERP liabilities for much less significant amounts than 2015 and 2014.

Liquidity and Capital Resources

Outlook
As discussed in the executive summary above, we have made significant progress in reducing 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.
Cash Flows
The following table summarizes our cash flows for the years ended December 31:
   
2015
   
2014
 
Net cash and cash equivalents provided by (used in):
       
Operating activities
 
$
(2,943
)
 
$
4,005
 
Investing activities
   
(173
)
   
(166
)
Financing activities
   
(188
)
   
(177
)
Increase (decrease) in cash and cash equivalents
 
$
(3,304
)
 
$
3,662
 
Cash and cash equivalents decreased $3,304 to $3,734 during 2015, due primarily to cash used in operating activities.
Operating Activities
The net cash used in operating activities in 2015 was attributable to a decrease 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.
The net cash provided by operating activities in 2014 was attributable to changes in working capital of $4,052 less $47 of cash used in the $1,305 net loss after the effect of $1,258 of non-cash charges.  The primary changes in working capital which provided cash were decreases in restricted cash, accounts receivable and costs and estimated earnings in billings on uncompleted contracts along with an increase in customer deposits. This reflects an aggregate increase in advance progress payments received on customer orders in 2014. We began using some of the cash provided from customers in 2014 to purchase materials for the projects which is reflected in an increase in inventories.
Investing Activities
Investing activities used $173 of cash during 2015 consisting entirely of purchases of property and equipment.
Investing activities used $166 of cash during 2014 consisting of $229 of proceeds from the sale of marketable securities which was offset by $395 for purchases of property and equipment.
Financing Activities
Financing activities used $188 of cash during 2015 for principal payments on debt obligations.
Financing activities used $177 of cash during 2014 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. On October 3, 2014, the commercial bank notified the Company that it was no longer obligated to make advances under the line-of-credit agreement and elected to suspend future advances because of events of default on loan covenants resulting from the statutory liens placed on the Company's assets by the Pension Plan. In September 2015, the bank confirmed that the defaults were cured as a result of the settlement of the pension liabilities. There were no borrowings outstanding under the line-of-credit agreement as of December 31, 2015.

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.

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, 2015, there were outstanding letters of credit and bank guarantees of $600, which are scheduled to expire during the year ending December 31, 2016.

Mortgage Notes
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 $4,301 as of December 31, 2015. The Mortgage Notes are guaranteed by E&S.

On October 3, 2014, the commercial bank, notified the Company that the statutory liens placed on the Company's assets by the Pension Plan constituted an event of default under the mortgage note agreements. The commercial bank agreed to forbear from exercising any further remedies, other than suspension of advances under the working capital line of credit, until August 31, 2015 by which time the process of withdrawing the Pension Plan statutory liens was completed in accordance with terms of the settlement of the Pension Plan liabilities thereby curing the default.  The agreement to forbear from exercising any further remedies was subject to the Company continuing to make debt service payments under the mortgage note agreements, the occurrence of no further adverse events in the condition of the Company and the Company's agreement to the incorporation of the financial covenants in the line of credit agreement as additional covenants in the mortgage note agreements effective immediately and continuing until the mortgage notes are paid in full. One of the covenants requires Spitz to maintain tangible net worth of at least $6,000 measured upon issuance of quarterly and annual financial statements. As of the end of the second and third quarter of 2014, Spitz's tangible net worth measured $5,914 and $5,801, respectively. As of December 31, 2014, Spitz's tangible net worth measured $5,744.  The commercial bank granted a waiver of the event of default for the failure to maintain Spitz's tangible net worth of at least $6,000 as of the end of the second and third quarters of 2014 and as of December 31, 2014. At the end of each fiscal quarter of 2015 Spitz tangible net worth exceeded the $6,000 covenant compliance threshold.  The Company believes that it will be in compliance with the additional covenants in future periods.

Sale-Leaseback Financing

In November 2009, the Company completed a purchase agreement with a buyer, Wasatch Research Park I, LLC ("Wasatch"), to sell its corporate office buildings and its interest in the lease for the land occupied by the buildings in Utah for $2,500.  Under the agreement, E&S transferred legal title of the buildings including improvements and assigned the related land lease to Wasatch. E&S also entered into a sublease agreement to lease back the land and building for rent of $501 per year, of which $126 represents the land lease and $375 represents the building lease.   The sublease agreement had a term of 5 years with an option for two subsequent 5-year renewal periods.  The agreement provided the Company with a 5-year option to repurchase all of the buildings under lease or only one of the buildings known as the Substation along with the lease interest in the land. In 2011, Rocky Mountain Power ("RMP"), a public utility company, obtained a decree of condemnation of the Substation so that RMP may repurpose the Substation for public use. As such, the Company no longer had the option to buy the Substation.
 

The arrangement was accounted for as a financing and no sale was recorded because the Company had the right to repurchase the property.  Therefore, the assets representing the building and improvements remained in property and equipment and the Company recorded the net proceeds of the sale as long-term debt. The $126 portion of the sublease payment attributable to the land lease was equivalent to the payment under the assigned land lease and therefore was subject to the same rent escalations the Company was bound to before the assignment. The land lease portion of the sublease payment was recorded as rent expense consistent with the treatment of the prior land lease payment before the assignment of the lease. The $375 portion of the sublease agreement attributable to the building lease was accounted for as debt service under the financing transaction.  The net proceeds of the financing amounted to $2,329 consisting of the $2,500 sales price less a security deposit of $125, prorated building rent of $15 and the first monthly payment of $31. E&S recorded interest expense at a rate of approximately 20% imputed from the estimated cash flows assuming it would exercise the option to repurchase the property at the end of the 5-year term.

The repurchase transaction was required to have been completed by October 31, 2014. On November 4, 2014, the Company agreed to an extension of its current lease for a term of 5 years. As a condition of the extension the Company will no longer have a right to repurchase the buildings. Base annual rent for the extended 5-year term is $549. Base annual rent prior to the lease extension was $509.

The extension of the lease for five years without a repurchase option was recorded as a disposition of building assets along with the extinguishment of lease debt obligation in the amount of $3,152 and the deferred rent obligation on the land lease of $1,525. The book value of the disposed building amounted to $2,532. As a result, the gain on the disposal of the building assets was $620. The new lease obligation is recorded as an operating lease for a term of five years commencing November 1, 2014. Accounting for a sale leaseback transaction was applied and as a result the $620 gain on the disposition of the building assets was deferred and will be amortized over the five-year term of the new operating lease. Likewise, the $1,525 gain from the extinguishment of the deferred rent credit is being amortized over the five-year term of the new operating lease.

Other
In 2016, we expect capital expenditures similar to 2015.  There were no material capital expenditure commitments as of December 31, 2015, 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 28, 2016, 463,500 shares remained available for repurchase under the plans approved by the Board of Directors.  No shares were repurchased during 2015 or 2014.  Stock may be acquired on the open market or through negotiated transactions depending on market conditions, share price and other factors.
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, 2015, our total indebtedness was $2,174 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 2015 and 2014, and are not expected to be material for the year 2016.
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.
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 November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 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 is currently assessing the impact, if any, on its financial reporting of implementing this guidance.
In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03").  To simplify presentation of debt issuance costs, the amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03.  For public companies, ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early adoption is permitted for financial statements that have not been previously issued.  The Company is currently assessing the impact, if any, on its financial reporting of implementing this guidance.
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 annual and interim periods beginning on or after December 15, 2016. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted. The Company has not yet selected a transition method and is in the process of evaluating the effect 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.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). This standard sets forth management's responsibility to evaluate, each reporting period, whether there is substantial doubt about the entity's ability to continue as a going concern, and if so, to provide related note disclosures. ASU 2014-15 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within annual periods ending after December 15, 2016. The Company is currently assessing the impact, if any, on its financial reporting of implementing this guidance.

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.
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 2016 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 2016 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 2016 will be similar to the capital expenditures incurred during 2015.
·
Our belief that the effects of inflation will not be material for 2016.
·
Our belief that approximately 80% of our backlog will be converted to sales in 2016.
·
Our belief that our 2016 orders will continue at a level sufficient to recognize sales in 2016 comparable to 2015.
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.
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
   
December 31,
 
   
2015
   
2014
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
3,734
   
$
7,038
 
Restricted cash
   
601
     
711
 
Accounts receivable, net
   
4,825
     
4,586
 
Costs and estimated earnings in excess of billings on
               
uncompleted contracts
   
2,695
     
1,699
 
Inventories, net
   
4,072
     
4,163
 
Prepaid expenses and deposits
   
1,038
     
635
 
Total current assets
   
16,965
     
18,832
 
Property and equipment, net
   
4,735
     
4,803
 
Goodwill
   
635
     
635
 
Intangible assets, net
   
27
     
68
 
Other assets
   
1,082
     
1,118
 
Total assets
 
$
23,444
   
$
25,456
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities:
               
Accounts payable
 
$
1,062
   
$
710
 
Accrued liabilities
   
1,031
     
1,142
 
Billings in excess of costs and estimated earnings on
               
uncompleted contracts
   
3,995
     
5,176
 
Customer deposits
   
3,232
     
4,081
 
Current portion of retirement obligations
   
480
     
535
 
Current portion of pension settlement obligation
   
356
     
-
 
Current portion of long-term debt
   
199
     
2,362
 
Total current liabilities
   
10,355
     
14,006
 
Pension and retirement obligations, net of current portion
   
4,839
     
40,076
 
Pension settlement obligation, net of current portion
   
5,268
     
-
 
Long-term debt, net of current portion
   
1,975
     
-
 
Deferred rent obligation
   
1,653
     
2,077
 
Total liabilities
   
24,090
     
56,159
 
Commitments and contingencies (Notes 4, 5, 6 and 8)
               
Stockholders' deficit:
               
Preferred stock, no par value: 10,000,000 shares authorized;
               
no shares outstanding
   
-
     
-
 
Common stock, $0.20 par value: 30,000,000 shares authorized;
               
11,441,666 shares issued
   
2,288
     
2,288
 
Additional paid-in-capital
   
53,434
     
54,500
 
Common stock in treasury, at cost, 264,350 and 352,467
               
shares, respectively
   
(3,532
)
   
(4,709
)
Accumulated deficit
   
(50,432
)
   
(49,157
)
Accumulated other comprehensive loss
   
(2,404
)
   
(33,625
)
Total stockholders' deficit
   
(646
)
   
(30,703
)
Total liabilities and stockholders' deficit
 
$
23,444
   
$
25,456
 
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
   
Years Ended December 31,
 
   
2015
   
2014
 
             
Sales
 
$
35,298
   
$
26,466
 
Cost of sales
   
(22,956
)
   
(16,989
)
     Gross profit
   
12,342
     
9,477
 
Operating expenses:
               
     Selling, general and administrative
   
(6,633
)
   
(6,873
)
     Research and development
   
(2,262
)
   
(2,187
)
     Pension
   
(522
)
   
(1,147
)
     Pension settlement
   
(3,620
)
   
-
 
          Total operating expenses
   
(13,037
)
   
(10,207
)
                 
          Operating loss
   
(695
)
   
(730
)
Interest expense
   
(429
)
   
(629
)
Other income (expense), net
   
(163
)
   
77
 
Loss before income tax benefit (provision)
   
(1,287
)
   
(1,282
)
     Income tax benefit (provision)
   
12
     
(23
)
          Net loss
 
$
(1,275
)
 
$
(1,305
)
                 
Net loss per common share – basic and diluted
 
$
(0.11
)
 
$
(0.12
)
                 
Weighted average common shares outstanding – basic
   
11,150
     
11,089
 
Weighted average common shares outstanding – diluted
   
11,150
     
11,089
 
                 
Comprehensive income (loss), net of tax:
               
  Net loss
 
$
(1,275
)
 
$
(1,305
)
  Reclassification of pension expense to net loss
   
-
     
406
 
  Pension settlement
   
31,776
     
-
 
  Increase in minimum pension liability
   
(555
)
   
(16,422
)
    Other comprehensive income (loss)
   
31,221
     
(16,016
)
          Total comprehensive income (loss)
 
$
29,946
   
$
(17,321
)
See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(In thousands)
                                 
Accumulated
       
               
Additional
               
Other
       
   
Common Stock
   
Paid-in
   
Treasury
   
Accumulated
   
Comprehensive
       
   
Shares
   
Amount
   
Capital
   
Stock
   
Deficit
   
Loss
   
Total
 
                                           
Balance, December 31, 2013
   
11,442
   
$
2,288
   
$
54,484
   
$
(4,709
)
 
$
(47,852
)
 
$
(17,609
)
 
$
(13,398
)
Net loss
   
-
     
-
     
-
     
-
     
(1,305
)
   
-
     
(1,305
)
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(16,016
)
   
(16,016
)
Stock-based compensation
   
-
     
-
     
16
     
-
     
-
     
-
     
16
 
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
)

See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
   
Years Ended December 31,
 
   
2015
   
2014
 
             
Cash flows from operating activities:
           
Net loss
 
$
(1,275
)
 
$
(1,305
)
Adjustments to reconcile net loss to net cash provided
               
by (used in) operating activities:
               
Depreciation and amortization
   
291
     
465
 
Amortization of deferred pension costs
   
106
     
406
 
Pension settlement charge
   
3,620
     
-
 
Provision for excess and obsolete inventory
   
155
     
197
 
Other
   
166
     
190
 
Changes in assets and liabilities:
               
Decrease in restricted cash
   
110
     
309
 
Decrease (increase) in accounts receivable
   
(373
)
   
979
 
Increase in inventories
   
(64
)
   
(1,335
)
Decrease (increase) in costs and estimated earnings in excess of
               
excess of billings on uncompleted contracts, net
   
(2,177
)
   
2,510
 
Decrease (increase) in prepaid expenses and other assets
   
(367
)
   
326
 
Increase (decrease) in accounts payable
   
352
     
(723
)
Decrease in accrued liabilities
   
(111
)
   
(29
)
Increase (decrease) in accrued pension and retirement liabilities
   
(84
)
   
91
 
Decrease in pension settlement obligation
   
(2,019
)
   
-
 
Increase (decrease) in customer deposits
   
(849
)
   
1,924
 
Decrease in deferred rent obligation
   
(424
)
   
-
 
Net cash provided by (used in) operating activities
   
(2,943
)
   
4,005
 
                 
Cash flows from investing activities:
               
Purchases of property and equipment
   
(182
)
   
(395
)
Proceeds from sale of property and equipment
   
9
     
-
 
Proceeds from sale of marketable securities
   
-
     
229
 
Net cash used in investing activities
   
(173
)
   
(166
)
                 
Cash flows from financing activities:
               
Principal payments on long-term debt
   
(188
)
   
(177
)
Net cash used in financing activities
   
(188
)
   
(177
)
                 
Net increase (decrease) in cash and cash equivalents
   
(3,304
)
   
3,662
 
Cash and cash equivalents as of beginning of the year
   
7,038
     
3,376
 
Cash and cash equivalents as of end of the year
 
$
3,734
   
$
7,038
 
                 
Supplemental disclosures of non-cash investing and financing activities
               
Settlement of pension liability
 
$
35,870
   
$
-
 
Increase in minimum pension and retirement obligations
   
661
     
16,422
 
Disposal of building and accrued lease obligations
   
-
     
9,378
 
                 
Supplemental disclosures of cash flow information
               
Cash paid during the year for:
               
Interest
 
$
364
   
$
425
 
Income taxes
   
12
     
22
 

See notes to consolidated financial statements.
21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2015, cash deposits as reported by the banks, including restricted cash, exceeded the federally insured limits by approximately $4,022.
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, 2015 and 2014.
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.
22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below represents changes in E&S's allowance for doubtful accounts receivable for the years ended December 31:
   
2015
   
2014
 
             
Beginning balance
 
$
217
   
$
277
 
Write-off of accounts receivable
   
(64
)
   
(47
)
Increase (decrease) in estimated losses on accounts receivable
   
133
     
(13
)
Ending balance
 
$
286
   
$
217
 
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, 2015 and 2014, E&S recognized impairment losses on inventory of $155 and $197, respectively.
Inventories as of December 31, were as follows:
   
2015
   
2014
 
             
Raw materials
 
$
5,958
   
$
5,468
 
Work in process
   
1,265
     
1,678
 
Finished goods
   
220
     
233
 
Reserve for obsolete inventory
   
(3,371
)
   
(3,216
)
Inventories, net
 
$
4,072
   
$
4,163
 
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.
23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation expense was $250 and $418 for the years ended December 31, 2015 and 2014, 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
   
2015
   
2014
 
                   
Land
 
n/a
 
 
$
2,250
   
$
2,250
 
Buildings and improvements
 
5 - 40 years
     
3,028
     
3,028
 
Manufacturing machinery and equipment
 
3 - 8 years
     
5,301
     
5,183
 
Office furniture and equipment
 
3 - 8 years
     
779
     
779
 
Total
         
11,358
     
11,240
 
Less accumulated depreciation and amortization
         
(6,623
)
   
(6,437
)
Net property and equipment
       
$
4,735
   
$
4,803
 
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 $41 and $47 for the years ended December 31, 2015 and 2014, 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.
24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below represents changes in E&S's warranty reserve for the years ended December 31:
   
2015
   
2014
 
             
Beginning balance
 
$
125
   
$
150
 
Additions to warranty reserve
   
149
     
98
 
Warranty costs
   
(147
)
   
(123
)
Ending balance
 
$
127
   
$
125
 
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:
   
2015
   
2014
 
             
Percentage of completion
 
$
19,827
   
$
14,085
 
Completed contract
   
13,653
     
10,670
 
Other
   
1,818
     
1,711
 
Total sales
 
$
35,298
   
$
26,466
 
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.
25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Loss per Common Share
Net loss per common share is computed based on the weighted-average number of common shares and, as appropriate, dilutive common stock equivalents outstanding during the year.  Stock options are common stock equivalents.
Basic loss per common share is based upon the average number of shares of common stock outstanding during the year. Potentially dilutive securities from stock options are discussed in Note 9.
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 Loss
On a net basis for 2015 and 2014, there were deferred income tax assets resulting from items reflected in comprehensive loss.  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 (loss) is zero.  Therefore, the Company has included no income tax expense or benefit in relation to items reflected in other comprehensive income (loss).
The components of accumulated other comprehensive loss were as follows as of December 31:
   
2015
   
2014
 
             
Additional minimum pension liability
 
$
(2,404
)
 
$
(33,625
)
Total accumulated other comprehensive loss
 
$
(2,404
)
 
$
(33,625
)
Leases
The Company recognizes scheduled rent increases on a straight-line basis over the lease term, which may include optional lease renewal terms. Deferred rent income and expense are 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 November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 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 is currently assessing the impact, if any, on its financial reporting of implementing this guidance.
In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03").  To simplify presentation of debt issuance costs, the amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03.  For public companies, ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early adoption is permitted for financial statements that have not been previously issued.  The Company is currently assessing the impact, if any, on its financial reporting of implementing this guidance.
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
26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recognition guidance. ASU 2014-09 is effective for annual and interim periods beginning on or after December 15, 2016. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted. The Company has not yet selected a transition method and is in the process of evaluating the effect 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.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). This standard sets forth management's responsibility to evaluate, each reporting period, whether there is substantial doubt about the entity's ability to continue as a going concern, and if so, to provide related note disclosures. ASU 2014-15 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within annual periods ending after December 15, 2016. The Company is currently assessing the impact, if any, on its financial reporting of implementing this guidance.

Liquidity

The Company has experienced recurring annual losses since 2007, except for 2013. On April 21, 2015, the Company executed an agreement (the "Pension Settlement Agreement") which terminated its defined benefit pension plan (the "Pension Plan") and settled the Pension Plan's liabilities in exchange for an obligation to pay to the Pension Benefit Guaranty Corporation ("PBGC") $10,500 over twelve years and issue to the PBGC 88,117 shares of E&S treasury stock (see Note 5). In addition, the Pension Settlement Agreement has led to a new banking relationship and improved credit capacity. Aided by prior cost reduction efforts and improved sales volume, for the year ended December 31, 2015, the Company has generated profitable results before recording the pension expense and a charge for the settlement of the Pension Plan. The Company is no longer incurring expenses related to the terminated Pension Plan but as of December 31, 2015 is responsible for eleven annual installment payments of $750 to the PBGC. Management believes that the Company's unrestricted cash balances totaling $3,734 as of December 31, 2015 and improved credit capacity and forecasted operations provide sufficient resources to meet the Company's obligations, including the terms of the Pension Settlement Agreement, through at least the end of 2016.

Note 2 – Definite-Lived Intangible Assets and Goodwill

Definite-lived intangible assets consisted of the following as of December 31, 2015 and 2014:

         
December 31,
 
         
2015
   
2014
 
                               
   
Weighted Avg.
   
Gross
         
Gross
       
   
Amortization
   
Carrying
   
Accumulated
   
Carrying
   
Accumulated
 
   
Period in Years
   
Amount
   
Amortization
   
Amount
   
Amortization
 
Class
                             
Maintenance and legacy customers
   
10
   
$
350
   
$
(335
)
 
$
350
   
$
(308
)
Planetarium shows
   
10
     
280
     
(268
)
   
280
     
(254
)
Total
         
$
630
   
$
(603
)
 
$
630
   
$
(562
)
 
Amortization expense for the years ended December 31, 2015 and 2014 was $41 and $47, respectively.

Maintenance and legacy customers and planetarium shows represent the value of definite-lived intangibles that were identified in the acquisition of Spitz in 2006.

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The remaining balance of definite-lived intangible assets is expected to be amortized to expense in 2016. 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, 2015.

Note 3 - Costs and Estimated Earnings on Uncompleted Contracts
Comparative information with respect to uncompleted contracts as of December 31:
   
2015
   
2014
 
             
Total accumulated costs and estimated earnings on uncompleted contracts
 
$
33,445
   
$
29,629
 
Less total billings on uncompleted contracts
   
(34,745
)
   
(33,106
)
Ending balance
 
$
(1,300
)
 
$
(3,477
)
                 
The above amounts are reported in the consolidated balance sheets as of December 31 as follows:
   
2015
   
2014
 
             
Costs and estimated earnings in excess of billings on uncompleted contracts
 
$
2,695
   
$
1,699
 
Billings in excess of costs and estimated earnings on uncompleted contracts
   
(3,995
)
   
(5,176
)
Ending balance
 
$
(1,300
)
 
$
(3,477
)
Note 4 – Leases and 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 2015 and 2014 was $216 and $230, respectively.
On November 4, 2014, the Company agreed to an extension of its real estate lease for its corporate office buildings for a term of 5 years. The previous lease term included a repurchase option and was recorded as a financing obligation (see Note 6). Under the lease extension, the repurchase option expired and the extended lease term is recorded as an operating lease. Base annual rent for the extended 5-year term is $549.

The extension of the lease for five years without a repurchase option was recorded as a disposal of building assets with a book value of $2,532. The extinguishment of the lease obligation recorded as debt in the amount of $3,152 represented consideration received for the disposal. The disposal of the building assets and extinguishment of the lease financing obligation resulted in a gain on the disposal of the building assets in the amount of $620. Accounting for a sale leaseback transaction was applied and, as a result, the $620 gain on the disposal of the building assets was deferred and will be recognized ratably, as a credit against rent expense, over the five-year term of the new operating lease. The amount of the gain on the building asset disposal recognized in 2014 was $21.

There was also a deferred rent credit of $1,526 which was extinguished as a result of the new operating lease. The deferred rent credit represented previously recorded but unpaid rent expense for the prior long-term land lease in accordance with straight-line lease accounting. Because, under the new five-year operating lease, the Company will no longer be obligated or expected to pay the unpaid rent expense reflected in the deferred rent credit, the $1,526 balance is extinguished and represents additional gain as a result of the new lease extension.  The $1,526 gain from the extinguishment of the deferred rent credit will be recognized ratably over the five-year term as a credit against rent expense of the new operating lease. The amount of the gain from the extinguishment of the deferred rent credit recognized in 2014 was $51.

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:
28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ending
 
Rent
   
Gain on
   
Deferred
   
Net Rent
 
December 31,
 
Expense
   
Building
   
Rent Credit
   
Expense
 
                         
2016
 
$
549
   
$
(124
)
 
$
(305
)
 
$
120
 
2017
   
549
     
(124
)
   
(305
)
   
120
 
2018
   
565
     
(124
)
   
(305
)
   
136
 
2019
   
475
     
(106
)
   
(260
)
   
109
 
Total
 
$
2,138
   
$
(478
)
 
$
(1,175
)
 
$
485
 
There are no other lease obligations that have initial or remaining non-cancelable lease terms in excess of one year.

Note 5 - Employee Retirement Benefit Plans
Settlement of Pension Plan Liabilities
On January 7, 2013, the Company submitted a PBGC Form 600 Distress Termination, Notice of Intent to Terminate, to the PBGC. The notice filing initiated an application process by the Company with the PBGC for the distress termination of the Pension Plan. The Pension Plan benefits are guaranteed by the ERISA Title IV insurance fund, which is administered by the PBGC. The Company proposed a termination date of March 8, 2013. Through the application process, the Company's intent was to demonstrate to the PBGC that it qualified for a distress termination of the Pension Plan under either of two of the criteria of Section 4041(c)(2) of ERISA (inability to continue in business absent termination and unreasonably increased pension costs) and applicable PBGC regulations. To satisfy the criteria, the Company and its wholly owned subsidiary each had to demonstrate to the satisfaction of the PBGC that, unless the termination occurred, the Company would be unable to pay its debts when they came due and would be unable to continue in business, or that the costs of the Pension Plan had become unreasonably burdensome solely as a result of a decline in the workforce covered by the Pension Plan. A distress termination under Section 4041(c)(2) of ERISA transfers the Pension Plan's benefit obligations to the PBGC, up to ERISA guaranteed limits, without requiring reorganization under bankruptcy law. The Pension Plan's actuary informed the Company that following termination of the Pension Plan and subject to the PBGC's review of participant benefits, all of the benefits earned by participants as of the date of plan termination are expected to fall within ERISA guaranteed limits.
The Company's goal in seeking a distress termination of the Pension Plan was to ensure that the pension benefits of all Pension Plan participants are paid up to federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from reorganization.
Pursuant to a determination by the PBGC that the requirements of the distress termination of the Pension Plan had been met, on April 21, 2015, the Company, as the administrator of the Pension Plan, and the PBGC entered into an Agreement For Appointment of Trustee and Termination of Plan (the "Termination Agreement") (a) terminating the Plan, (b) establishing March 8, 2013 as the Plan's termination date and (c) appointing the PBGC as statutory trustee of the 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. On April 23, 2015, the Company issued to the PBGC the 88,117 shares of stock and on May 1, 2015 it paid the initial $1,500 amount due to the PBGC. On October 22, 2015, the Company made the first of the twelve annual installments.  The Pension Settlement Agreement further provides that the PBGC will be deemed to have
29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.

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 6) 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 Pension Settlement Agreement also required that the PBGC withdraw all lien notices with respect to the statutory liens it previously perfected on behalf of the Pension Plan with respect to all real and personal property of the Company as soon as reasonably practicable after the 91st day after the perfection of all consensual liens granted to the PBGC by the Security Agreement and Mortgage.  In August 2015, the PBGC's lien notices with respect to the statutory liens were withdrawn.

The termination of the Pension Plan and settlement of its underlying liabilities enables 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
 
30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
After applying the first $1,500 installment made on May 1, 2015, and the first annual installment on October 22, 2015, and recording imputed interest expense at 7%, the balance of the Pension Settlement Obligation is recorded with liabilities on the balance sheet as follows as of December 31, 2015:

Current portion of pension settlement obligation
 
$
356
 
Pension settlement obligation, net of current portion
   
5,268
 
Total Pension Settlement Obligation
 
$
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 Supplemental Executive Retirement Plan ("SERP"). The Company recorded expense of $326 related to the Pension Plan for the first quarter prior to the Termination Agreement executed on April 21, 2015.
Supplemental Executive Retirement Plan
The SERP provides eligible executives defined pension benefits, outside the Pension Plan, 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.  No extra matching contributions have been made to date.  Contributions to the 401(k) plan for 2015 and 2014 were $168 and $197, respectively.
Obligations and Funded Status for Pension Plan and SERP
E&S uses a December 31 measurement date for both the Pension Plan and the SERP.
Information concerning the obligations, plan assets and funded status of employee retirement defined benefit plans are provided below:

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
Pension Plan
   
SERP
 
Changes in benefit obligation
 
2015
   
2014
   
2015
   
2014
 
                         
Projected benefit obligation - beginning of year
 
$
64,831
   
$
48,091
   
$
4,871
   
$
4,846
 
Service cost
   
-
     
-
     
-
     
-
 
Interest cost
   
617
     
2,275
     
177
     
218
 
Actuarial loss
   
1,690
     
14,942
     
769
     
308
 
Benefits paid
   
(339
)
   
(477
)
   
(497
)
   
(501
)
Transfer of benefit obligation upon termination
   
(66,799
)
   
-
     
-
     
-
 
Projected benefit obligation - end of year
 
$
-
   
$
64,831
   
$
5,320
   
$
4,871
 
   
Pension Plan
   
SERP
 
Changes in plan assets
 
2015
   
2014
   
2015
   
2014
 
                         
Fair value of plan assets - beginning of year
 
$
29,721
   
$
29,073
   
$
-
   
$
-
 
Actual return on plan assets
   
1,547
     
1,125
     
-
     
-
 
Contributions
   
-
     
-
     
497
     
501
 
Benefits paid
   
(339
)
   
(477
)
   
(497
)
   
(501
)
Transfer out upon termination
   
(30,929
)
   
-
     
-
     
-
 
Fair value of plan assets - end of year
 
$
-
   
$
29,721
   
$
-
   
$
-
 
   
Pension Plan
   
SERP
 
Net amount recognized
 
2015
   
2014
   
2015
   
2014
 
                         
Unfunded status
 
$
-
   
$
(35,111
)
 
$
(5,320
)
 
$
(4,871
)
Accrued PBGC insurance premiums
   
-
     
(629
)
   
-
     
-
 
Unrecognized net actuarial loss
   
-
     
31,971
     
2,415
     
1,713
 
Unrecognized prior service cost
   
-
     
-
     
(11
)
   
(59
)
Net amount recognized
 
$
-
   
$
(3,769
)
 
$
(2,916
)
 
$
(3,217
)
Amounts recognized in the consolidated balance sheets consisted of:
   
Pension Plan
   
SERP
 
   
2015
   
2014
   
2015
   
2014
 
                         
Accrued liability
 
$
-
   
$
(35,111
)
 
$
(5,320
)
 
$
(4,871
)
Accrued PBGC insurance premiums
   
-
     
(629
)
   
-
     
-
 
Accumulated other comprehensive loss
   
-
     
31,971
     
2,404
     
1,654
 
Net amount recognized
 
$
-
   
$
(3,769
)
 
$
(2,916
)
 
$
(3,217
)
Components of net periodic benefit cost:
   
Pension Plan
   
SERP
 
   
2015
   
2014
   
2015
   
2014
 
                         
Service cost
 
$
-
   
$
-
   
$
-
   
$
-
 
Interest cost
   
617
     
2,275
     
177
     
218
 
Expected return on assets
   
(585
)
   
(2,298
)
   
-
     
-
 
Amortization of actuarial loss
   
195
     
406
     
68
     
50
 
Amortization of prior year service cost
   
-
     
-
     
(49
)
   
(49
)
Net periodic benefit expense
   
227
     
383
     
196
     
219
 
Insurance premium due PBGC
   
99
     
545
     
-
     
-
 
   
$
326
   
$
928
   
$
196
   
$
219
 
Additional information
Pension expense was $522 for the year ended December 31, 2015, which included net periodic benefit expense of $227 for the pension, $196 for the SERP and $99 of insurance premiums due to the PBGC.  Pension expense was $1,147 for the year ended December 31, 2014, which included net periodic benefit expense of $383 for the pension, $219 for the SERP, $394 of insurance premiums due to the PBGC and $151 of federal excise tax related to non-payment of minimum pension funding requirements.
32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There was an unrecognized net actuarial loss of $15,710 in 2014 due to a decrease in the discount rate used to remeasure the Pension Plan of 4.8% as of December 31, 2013 compared to 3.8% as of December 31, 2014.  The discount rate is estimated based on an index of similar fixed income securities.
The SERP minimum liability recorded in other comprehensive loss increased $750 in 2015 compared to an increase of $307 in 2014.  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, 2015 and 2014 included a discount rate of 3.8% and 4.8%, respectively, for the Pension Plan and SERP.  The weighted average assumptions used to determine net periodic cost for the periods ended December 31, 2015 and 2014 included a discount rate of 3.8% and 4.8%, respectively, in each period for the Pension Plan and SERP. The weighted average assumption used to determine an expected long-term rate of return on Pension Plan assets was 8.0%.
The long-term rate of return on plan assets was estimated as the weighted average expected return of each of the asset classes in the target allocation of plan assets.  The expected return of each asset class is based on historical market returns.
Pension Plan Assets
The Pension Plan's weighted-average asset allocations and weighted-average targeted asset allocations for each of the years presented were as follows:
         
2015
   
2014
 
Asset allocation category of plan assets
 
Target %
   
Actual %
   
Actual %
 
Mutual funds - equity securities
   
60
     
n/a
 
   
61
 
Mutual funds - debt securities
   
25
     
n/a
 
   
39
 
Real estate investment trust
   
5
     
n/a
 
   
-
 
Hedge funds
   
10
     
n/a
 
   
-
 
 
The asset allocation policy, consistent with the long-term growth objectives of the Pension Plan, was to invest on a diversified basis among various asset classes as determined by the Pension Plan Administrative Committee.  Assets were invested in a manner intended to provide for long-term growth with a goal to achieve returns equal to or greater than applicable benchmarks.  Investments were managed by registered investment advisors.

No securities of the Company were part of the Pension Plan assets at any time.

Fair Value Measurements

The Pension Plan assets included a significant amount of mutual funds invested in equity and debt securities that were classified within Level 1 because the underlying investments had readily available market prices. Fair values of real estate investments within the real estate investment trust were classified as Level 3 because they were valued using real estate valuation techniques and other methods that include reference to third-party sources and sales comparables where available.  Hedge fund investments were classified in Level 2 and the fair values were generally calculated from pricing models with market input parameters from third-party sources.  The Pension Plan assets fair value measurements are summarized below:

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
December 31,
                   
   
2014
   
Level 1
   
Level 2
   
Level 3
 
Pension Plan Assets:
                       
Mutual funds - equity securities
 
$
18,227
   
$
18,227
   
$
-
   
$
-
 
Mutual funds - debt securities
   
11,449
     
11,449
     
-
     
-
 
Money market mutual funds
   
45
     
45
     
-
     
-
 
Total
 
$
29,721
   
$
29,721
   
$
-
   
$
-
 
 
Cash Flows
Employer contributions
Through September 15, 2012, the Company's funding policy was to contribute to the Pension Plan trust amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. Beginning in October 2012, the Company discontinued this policy in order to preserve the necessary liquidity for its operations. As a result, a statutory lien in favor of the PBGC was placed against the assets of the Company to secure aggregate unpaid contributions which amounted to $6,979, including interest, as of January 15, 2015, which is the date the most recent contribution was due. However, under the Pension Settlement Agreement all of the Pension Plan's liabilities, including the unpaid contributions were settled for an amount substantially less than the total and the PBGC statutory lien was withdrawn in favor of new consensual liens which are subordinate to the Company's senior lenders (see Settlement of Pension Plan Liabilities above).
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 $480 related to the SERP in 2016.
Estimated future benefit payments
As of December 31, 2015, the following benefits are expected to be paid based on actuarial estimates and prior experience:
Years Ending
     
December 31,
 
SERP
 
2016
 
$
480
 
2017
   
516
 
2018
   
507
 
2019
   
449
 
2020
   
441
 
2021-2025
   
2,195
 
34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 –Debt
 
Long-term debt consisted of the following as of December 31, 2015 and 2014:
 
   
2015
   
2014
 
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
 
$
1,789
   
$
1,957
 
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
   
385
     
405
 
       Total debt
   
2,174
     
2,362
 
  Current portion of long-term debt
   
(199
)
   
(2,362
)
         Long-term debt, net of current portion
 
$
1,975
   
$
-
 

Principal maturities on total debt are as follows:
Years Ending
     
December 31,
     
2016
 
$
199
 
2017
   
211
 
2018
   
224
 
2019
   
237
 
2020
   
251
 
Thereafter
   
1,052
 
Total debt
 
$
2,174
 
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 $4,301 as of December 31, 2015. The Mortgage Notes are guaranteed by E&S.

On October 3, 2014, the holder of the mortgage notes, a commercial bank, notified the Company that the statutory liens placed on the Company's assets by the Pension Plan constituted an event of default under the mortgage note agreements. The commercial bank agreed to forbear from exercising any further remedies, other than suspension of advances under the working capital line of credit, until August 31, 2015 by which time the process of withdrawing the statutory Pension Plan liens was completed in accordance with terms of the Pension Settlement Agreement (see Note 5) curing the default.  The agreement to forbear from exercising any further remedies was subject to the Company continuing to make debt service payments under the mortgage note agreements, the occurrence of no further adverse events in the condition of the Company and the Company's agreement to the incorporation of the financial covenants in the line of credit agreement as additional covenants in the mortgage note agreements effective immediately and continuing until the mortgage notes are paid in full. One of the covenants requires Spitz to maintain tangible net worth of at least $6,000 measured upon issuance of quarterly and annual financial statements. As of the end of the second and third quarter of 2014, Spitz's tangible net worth measured $5,914 and $5,801, respectively. As of December 31, 2014, Spitz's tangible net worth measured $5,744.  The commercial bank granted a waiver of the event of default for the failure to maintain Spitz's tangible net worth of at least $6,000 as of the end of the second and third quarters of 2014 and as of December 31, 2014. At the end of each fiscal quarter of 2015 Spitz tangible net worth exceeded the $6,000 covenant compliance threshold.  The Company believes that it will be in compliance with the additional covenants in future periods.
35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
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. On October 3, 2014, the commercial bank notified the Company that it was no longer obligated to make advances under the line-of-credit agreement and elected to suspend future advances because of events of default on loan covenants resulting from the statutory liens placed on the Company's assets by the Pension Plan. In September 2015, the bank confirmed that the defaults were cured as a result of the settlement of the pension liabilities. There were no borrowings outstanding under the line-of-credit agreement as of December 31, 2015.
Sale/Leaseback Financing

In November 2009, the Company completed a purchase agreement with a buyer, Wasatch Research Park I, LLC ("Wasatch") to sell its corporate office buildings and its interest in the lease for the land occupied by the buildings in Utah for $2,500.  Under the agreement, E&S transferred legal title of the buildings including improvements and assigned the related land lease to Wasatch. E&S also entered into a sublease agreement to lease back the land and building for rent of $501 per year, of which $126 represents the land lease and $375 represents the building lease.   The sublease agreement had a term of 5 years with an option for two subsequent 5-year renewal periods.  The agreement provided the Company with a 5-year option to repurchase all of the buildings under lease or only one of the buildings known as the Substation along with the lease interest in the land. In 2011, Rocky Mountain Power ("RMP"), a public utility company, obtained a decree of condemnation of the Substation so that RMP may repurpose the Substation for public use. As such, the Company no longer had the option to buy the Substation.
The arrangement was accounted for as a financing and no sale was recorded because the Company had the right to repurchase the property.  Therefore, the assets representing the building and improvements remained in property and equipment and the Company recorded the net proceeds of the sale as long-term debt. The $126 portion of the sublease payment attributable to the land lease was equivalent to the payment under the assigned land lease and therefore was subject to the same rent escalations the Company was bound to before the assignment. The land lease portion of the sublease payment was recorded as rent expense consistent with the treatment of the prior land lease payment before the assignment of the lease. The $375 portion of the sublease agreement attributable to the building lease was accounted for as debt service under the financing transaction.  The net proceeds of the financing amounted to $2,329 consisting of the $2,500 sales price less a security deposit of $125, prorated building rent of $15 and the first monthly payment of $31. E&S recorded interest expense at a rate of approximately 20% imputed from the estimated cash flows assuming it would exercise the option to repurchase the property at the end of the 5-year term.
36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The repurchase transaction was required to have been completed by October 31, 2014. On November 4, 2014, the Company agreed to an extension of its current lease for a term of 5 years. As a condition of the extension, the Company no longer has a right to repurchase the buildings. Base annual rent for the extended 5-year term is $549.

The extension of the lease for 5 years without a repurchase option resulted in a new operating lease and the extinguishment of the lease debt obligation in the amount of $3,152 along with the disposal of building assets amounting to $2,532. As a result, there was a gain on the disposal of the building assets in the amount of $620 which was deferred under sale leaseback accounting rules (see Note 4).

Note 7 - Income Taxes
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.  The Company is subject to audit by the IRS and various states for tax years dating back to 2011.  The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Income tax for 2015 and 2014 consisted of a benefit of $12 and expense of $23, respectively, of federal and state income taxes. The actual expense differs from the expected tax benefit (provision) as computed by applying the U.S. federal statutory income tax rate of 34 percent for 2015 and 2014, as follows:
   
2015
   
2014
 
             
Income tax benefit at U.S. federal statutory rate
 
$
440
   
$
436
 
State tax benefit (provision) (net of federal income tax benefit)
   
(14
)
   
42
 
Change in valuation allowance attributable to operations
   
4,146
     
(332
)
Change in effective tax rate
   
(4,064
)
   
-
 
Pension settlement
   
(466
)
   
-
 
Other, net
   
(31
)
   
(169
)
Income tax benefit (provision)
 
$
12
   
$
(23
)
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities as of December 31, 2015 and 2014 are as follows:
   
2015
   
2014
 
             
Property and equipment, principally due to differences in depreciation
 
$
(722
)
 
$
845
 
Inventory reserves and other inventory-related temporary basis differences
   
696
     
663
 
Warranty, vacation, deferred rent and other liabilities
   
883
     
1,114
 
Retirement liabilities
   
1,088
     
2,427
 
Net operating loss carryforwards
   
62,194
     
63,511
 
Credit carryforwards
   
817
     
825
 
Other
   
1,227
     
944
 
Total deferred income tax assets
   
66,183
     
70,329
 
Less valuation allowance
   
(66,183
)
   
(70,329
)
Net deferred income tax assets
 
$
-
   
$
-
 
37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Worldwide income (loss) before income taxes consisted of the following:
   
2015
   
2014
 
             
United States
 
$
(1,296
)
 
$
(1,282
)
International
   
-
     
-
 
Total
 
$
(1,296
)
 
$
(1,282
)

Income tax benefit (provision) consisted of the following:
   
2015
   
2014
 
Current
           
U.S. federal
 
$
-
   
$
-
 
State
   
12
     
(23
)
Total
 
$
12
   
$
(23
)
Deferred
               
U.S. federal
 
$
(4,068
)
 
$
985
 
State
   
(78
)
   
(653
)
Total
   
(4,146
)
   
332
 
Valuation allowance (increase) decrease
   
4,146
     
(332
)
Total
 
$
-
   
$
-
 
E&S has total federal net operating loss carryforwards of approximately $168,400 which expire from 2018 through 2033.  No federal net operating loss carryforwards expired in 2015 or 2014.  The Company has various federal tax credit carryforwards of approximately $800, a portion of which expire between 2015 and 2016.  E&S also has state net operating loss carryforwards of approximately $149,700 that expire at various dates depending on the rules of the states to which the loss or credit is allocated.
During the years ended December 31, 2015 and 2014, the valuation allowance on deferred income tax assets decreased by $4,146 and increased by $332, respectively.  Valuation allowances were established according to the belief that it is more likely than not that these net deferred income tax assets will not be realized.

Note 8 - 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, 2015, there were outstanding letters of credit and bank guarantees of $600, which are scheduled to expire in 2016.  There was no restricted cash included in other assets as of December 31, 2015 or 2014.

Note 9 - 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.
38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2015, options to purchase 1,303,713 shares of common stock were authorized and reserved for future grant.

A summary of activity follows (shares in thousands):

   
2015
   
2014
 
         
Weighted-
         
Weighted-
 
         
Average
         
Average
 
   
Number
   
Exercise
   
Number
   
Exercise
 
   
of Shares
   
Price
   
of Shares
   
Price
 
                         
Outstanding as of beginning of the period
   
1,333
   
$
2.08
     
1,235
   
$
2.62
 
Granted
   
221
     
0.39
     
200
     
0.13
 
Exercised
   
-
     
-
     
-
     
-
 
Forfeited or expired
   
(84
)
   
7.23
     
(102
)
   
4.85
 
Outstanding as of end of the period
   
1,470
     
1.53
     
1,333
     
2.08
 
                                 
Exercisable as of end of the period
   
1,065
     
2.01
     
996
     
2.74
 
 
The weighted average fair value of options granted during 2015 and 2014 was $0.39 and $0.13, 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, respectively, and no aggregate intrinsic value. As of December 31, 2014, options exercisable and options outstanding had a weighted average remaining contractual term of 3.4 and 4.7 years, respectively, and no aggregate intrinsic value.

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 2015 and 2014:

   
2015
   
2014
 
Expected life (in years)
   
3.5
     
3.5
 
Risk free interest rate
   
0.91
%
   
0.74
%
Expected volatility
   
340
%
   
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, 2015, there was approximately $35 of total unrecognized share-based compensation cost related to grants under the plan that will be recognized over a weighted-average period of 1.9 years.  As of December 31, 2014, there was approximately $10 of total unrecognized share-based compensation cost related to grants under the plan that will be recognized over a weighted-average period of 1.9 years.

Share-based compensation expense, from awards under the 2004 Plan for the years ended December 31, 2015 and 2014 amounted to $41 and $16, respectively, and was recorded as general and administrative expense.
39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Preferred Stock

Class A Preferred Stock

The Company has 5,000,000 authorized shares of Class A Preferred stock.  As of December 31, 2015 and 2014, there were no Class A Preferred shares outstanding.

Class B Preferred Stock

The Company has 5,000,000 authorized shares of Class B Preferred stock.  As of December 31, 2015 and 2014, there were no Class B Preferred shares outstanding.

 
Note 11 - Geographic Information

The table below presents sales by geographic location:
   
2015
   
2014
 
             
United States
 
$
16,809
   
$
11,639
 
International
   
18,489
     
14,827
 
Total sales
 
$
35,298
   
$
26,466
 
Note 12 - Significant Customers
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.
As of December 31, 2014, Customers E and G represented 23% and 12% of accounts receivable, respectively, and Customers E and H represented 37% and 15% of costs and estimated earnings in excess of billings, respectively.
For the years ended December 31, 2015 and 2014, no individual customer represented 10% or more of total sales.



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, 2015 and 2014, and the related consolidated statements of comprehensive income (loss), stockholders' 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, 2015 and 2014, and the consolidated results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Tanner LLC

Salt Lake City, Utah
March 16, 2016
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, 2015.  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, 2015, 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, 2015, 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
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 2016 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 2016 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 2016 Annual Meeting of Stockholders and that information is herein incorporated by reference.
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 2016 Annual Meeting of Stockholders and that information is herein incorporated by reference.

Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2015:
               
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
   
1,469,968
   
$
1.53
     
1,303,713
 
Equity compensation plans not approved by
                       
  security holders
   
-
     
-
     
-
 
    Total
   
1,469,968
   
$
1.53
     
1,303,713
 

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 2016 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 2016 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 2016 Annual Meeting of Stockholders and that information is herein incorporated by reference.
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, 2015 and 2014
·
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015 and 2014
·
Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 2015 and 2014
·
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015 and 2014
·
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.
 
10.3 Employment agreement between Evans & Sutherland Computer Corporation and Kirk Johnson, dated August 26, 2002, filed as Exhibit 10.14 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2004, and incorporated herein by reference.
10.4 Employment Agreement, dated February 8, 2006, by and between Evans & Sutherland Computer Corporation and Jonathan Shaw, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.5 Employment Agreement dated February 8, 2006, by and between Evans & Sutherland Computer Corporation and Paul Dailey, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.6 Employment Agreement, dated August 26, 2002, by and between Evans & Sutherland Computer Corporation and David H. Bateman, filed as Exhibit 10.13 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.7 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.
10.8 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.
10.9 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.
Other material contracts
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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 as Exhibit 21.1 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2007, and incorporated herein by reference.
Consent of experts and counsel
23.1
Consent of Independent Registered Public Accounting Firm, filed herein.
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.  All other product, service, or trade names or marks are the properties of their respective owners.

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/ DAVID H. BATEMAN 
David H. Bateman
Chief Executive Officer and Director

March 16, 2016

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/           David H. Bateman 
Chief Executive Officer
and Director
(Principal Executive Officer)
 
March 16, 2016
David H. Bateman
 
/s/           Paul L. Dailey
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
 
March 16, 2016
Paul L. Dailey
 
 
/s/           L. Tim Pierce
 
Director
 
March 16, 2016
L. Tim Pierce
 
/s/           William Schneider, Jr. 
 
Director
 
March 16, 2016
William Schneider, Jr.
 
/s/           James P. McCarthy 
 
Director
 
March 16, 2016
James P. McCarthy
 
/s/           E. Michael Campbell 
 
Director
 
March 16, 2016
E. Michael Campbell
 
/s/           William E. Stringham 
 
Director
 
March 16, 2016
William E. Stringham


49