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Evans & Sutherland Computer 10-Q 2007

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q

(Mark One)

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

For the quarterly period ended June 29, 2007

or

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

For the transition period from                    to                    

Commission file number 001-14677


EVANS & SUTHERLAND COMPUTER CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Utah

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o

 

Accelerated filer  o

 

Non-accelerated filer  x

 

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

The number of shares of the registrant’s Common Stock (par value $0.20 per share) outstanding on July 31, 2007 was 11,089,199.

 

 




 

FORM 10-Q

Evans & Sutherland Computer Corporation

Quarter Ended June 29, 2007

 

 

 

 

 

 

 

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 29, 2007 and December 31, 2006

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 29, 2007 and June 30, 2006

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2007 and June 30, 2006

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

 

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

 

 

 

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

 

 

 

 

 

 

SIGNATURES

 

 

 

 

 

 

2




 

PART I — FINANCIAL INFORMATION

Item 1.                          FINANCIAL STATEMENTS

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

 

 

June 29,

 

December 31,

 

 

 

2007

 

2006

 

ASSETS

 

Current assets:

 

 

 

 

 

Cash

 

$

8,855

 

$

15,549

 

Restricted cash

 

1,222

 

633

 

Accounts receivable, less allowances for doubtful receivables of $325 and $328, respectively

 

6,753

 

5,698

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

1,588

 

1,366

 

Inventories

 

8,023

 

6,713

 

Prepaid expenses and deposits

 

1,432

 

1,644

 

Total current assets

 

27,873

 

31,603

 

Property, plant and equipment, net

 

12,424

 

12,689

 

Prepaid pension and retirement

 

9,659

 

9,449

 

Goodwill

 

635

 

635

 

Intangible assets, net

 

842

 

950

 

Other assets

 

31

 

55

 

Total assets

 

$

51,464

 

$

55,381

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

1,801

 

$

2,104

 

Accrued liabilities

 

4,201

 

6,260

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

3,789

 

1,976

 

Customer deposits

 

4,849

 

4,234

 

Current portion of long-term debt

 

88

 

793

 

Total current liabilities

 

14,728

 

15,367

 

Deferred rent obligation

 

1,756

 

1,727

 

Long term debt

 

2,798

 

2,845

 

Pension and retirement obligations

 

12,926

 

13,060

 

Total liabilities

 

32,208

 

32,999

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, no par value; authorized 10,000,000 shares; no issued and no outstanding shares

 

 

 

Common stock, $0.20 par value; 30,000,000 shares authorized; 11,441,666 shares issued

 

2,288

 

2,288

 

Additional paid-in-capital

 

53,945

 

53,759

 

Common stock in treasury, at cost; 352,467 shares

 

(4,709

)

(4,709

)

Accumulated deficit

 

(25,467

)

(21,875

)

Accumulated other comprehensive loss

 

(6,801

)

(7,081

)

Total stockholders’ equity

 

19,256

 

22,382

 

Total liabilities and stockholders’ equity

 

$

51,464

 

$

55,381

 

 

 

3




 

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 29,

 

June 30,

 

June 29,

 

June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

6,547

 

$

2,546

 

$

10,904

 

$

6,313

 

Cost of sales

 

4,606

 

2,109

 

7,605

 

4,533

 

Gross profit

 

1,941

 

437

 

3,299

 

1,780

 

Expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

2,332

 

3,886

 

4,401

 

4,462

 

Research and development

 

2,478

 

2,604

 

4,803

 

4,539

 

Operating expenses

 

4,810

 

6,490

 

9,204

 

9,001

 

Operating loss

 

(2,869

)

(6,053

)

(5,905

)

(7,221

)

Other income (expense), net

 

181

 

58

 

270

 

(343

)

Loss from continuing operations before income taxes

 

(2,688

)

(5,995

)

(5,635

)

(7,564

)

Income tax benefit

 

363

 

2,200

 

775

 

2,774

 

Net loss from continuing operations

 

(2,325

)

(3,795

)

(4,860

)

(4,790

)

Income (loss) from discontinued operations, net of tax

 

15

 

(1,795

)

28

 

(4,407

)

Gain on sale of discontinued operations, net of tax

 

1,637

 

40,726

 

1,240

 

38,464

 

Net income from discontinued operations

 

1,652

 

38,931

 

1,268

 

34,057

 

Net income (loss)

 

$

(673

)

$

35,136

 

$

(3,592

)

$

29,267

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share — basic and diluted:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.21

)

$

(0.35

)

$

(0.44

)

$

(0.45

)

Net income from discontinued operations

 

$

0.15

 

$

3.60

 

$

0.11

 

$

3.19

 

Net income (loss)

 

$

(0.06

)

$

3.24

 

$

(0.32

)

$

2.74

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — basic and diluted:

 

11,089

 

10,829

 

11,089

 

10,683

 

 

 

4




 

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Six Months Ended

 

 

 

June 29,

 

June 30,

 

 

 

2007

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

Net loss from continuing operations

 

$

(4,860

)

$

(4,790

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

842

 

621

 

Stock-based compensation

 

186

 

823

 

Gain on sale of investment securities

 

(34

)

 

(Gain) loss on disposal of property, plant and equipment

 

(9

)

394

 

Provision for excess and obsolete inventory

 

78

 

9

 

Provision for warranty expense

 

26

 

43

 

Amortization of capitalized debt costs

 

 

122

 

Change in assets and liabilities, net of acquisition:

 

 

 

 

 

Decrease (increase) in restricted cash

 

(609

)

880

 

Decrease (increase) in accounts receivable

 

(1,053

)

(113

)

Increase in inventories

 

(1,480

)

(2,236

)

Decrease (increase) in costs and estimated earnings in excess of billings on uncompleted contracts, net

 

1,591

 

(1,275

)

Decrease (increase) in prepaid expenses and deposits

 

255

 

(123

)

Increase in prepaid pension and retirement expense

 

104

 

 

Decrease in accounts payable

 

(303

)

(801

)

Increase (decrease) in accrued liabilities

 

(1,966

)

447

 

Increase (decrease) in accrued pension and retirement liabilities

 

(134

)

935

 

Increase in customer deposits

 

615

 

552

 

Net cash used in continuing operations

 

(6,751

)

(4,512

)

Net cash provided by discontinued operations

 

1,268

 

35,594

 

Net cash provided by (used in) operations

 

(5,483

)

31,082

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property, plant and equipment

 

(468

)

(743

)

Proceeds from sale of property, plant and equipment

 

9

 

47

 

Cash acquired in Spitz Acquisition

 

 

149

 

Decrease in other assets

 

 

871

 

Net cash provided by (used in) continuing investing activities

 

(459

)

324

 

Net cash provided by discontinued investing activities

 

 

18,018

 

Net cash provided by (used in) investing activities

 

(459

)

18,342

 

Cash flows from financing activities:

 

 

 

 

 

Net repayments on line of credit agreements

 

(700

)

(625

)

Principal payments on long-term debt

 

(52

)

(24

)

Repayment of debentures

 

 

(18,015

)

Proceeds from issuances of common stock

 

 

192

 

Net cash used in continuing financing activities

 

(752

)

(18,472

)

Net cash provided by (used in) discontinued financing activities

 

 

 

Net cash used in financing activities

 

(752

)

(18,472

)

 

 

 

 

 

 

Net change in cash

 

(6,694

)

30,952

 

Cash at beginning of period

 

15,549

 

14,606

 

Cash at end of period

 

$

8,855

 

$

45,558

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

Cash paid for interest

 

$

138

 

$

676

 

Cash paid for income taxes

 

179

 

25

 

 

 

5




 

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

All currency amounts in thousands unless otherwise indicated.

1.              GENERAL

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Evans & Sutherland Computer Corporation (the “Company”, “E&S”, “we”) have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, and cash flows, in conformity with United States generally accepted accounting principles.  This report on Form 10-Q for the three and six months ended June 29, 2007, should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2006.

The accompanying unaudited condensed consolidated balance sheets, statements of operations, and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows.  The results of operations for the quarterly period ended June 29, 2007, are not necessarily indicative of the results to be expected for the full year ending December 31, 2007.

Stock-Based Compensation

We account for stock-based awards under Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment, using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the amount of share-based awards that are expected to be forfeited. Actual results, and future changes in estimates, may differ from our current estimates.

Inventories

Inventories net of reserves consisted of the following:

 

June 29,
2007

 

December 31,
2006

 

 

 

 

 

 

 

Raw materials

 

$

4,173

 

$

3,990

 

Work-in-process

 

3,821

 

2,723

 

Finished goods

 

29

 

 

 

 

$

8,023

 

$

6,713

 

 

6




Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) for the periods presented were as follows:

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 29,

 

June 30,

 

June 29,

 

June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(673

)

$

35,136

 

$

(3,592

)

$

29,267

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Reclassification adjustment for foreign currency translation

 

 

(147

)

 

(147

)

Unrealized gain on marketable securities

 

179

 

 

279

 

 

Comprehensive income (loss)

 

$

(494

)

$

34,989

 

$

(3,313

)

29,120

 

 

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, ‘‘The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115,’’ (‘‘SFAS 159’’). SFAS 159 allows a company to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and will be applied prospectively. The Company does not expect that the adoption of SFAS 159 will have a significant impact on its consolidated financial statements.

2.              DISCONTINUED OPERATIONS

On May 26, 2006, we sold substantially all of the assets and certain liabilities primarily related to our commercial and military simulation businesses and related service operations (the “Simulation Business”) to certain subsidiaries of Rockwell Collins, Inc., a Delaware corporation (“Rockwell Collins”), pursuant to an asset purchase agreement (the “Asset Purchase Agreement”), dated as of February 7, 2006, by and between the Company and Rockwell Collins.  In connection with the completion of the sale of the Simulation Business, on May 26, 2006 the Company entered into a laser projection systems agreement (the “Laser Agreement”) with Rockwell Collins and Rockwell Collins Simulation & Training Solutions LLC, pursuant to which the Company has agreed to provide, and grant exclusive and non-exclusive intellectual property licenses to use and sell, laser projection systems in connection with the Simulation Business and certain related businesses of Rockwell Collins.  The transaction contemplated by the Asset Purchase Agreement and the Laser Agreement (the “Transaction”) was approved by the Company’s shareholders at a combined annual and special meeting of shareholders held on May 25, 2006.

The aggregate consideration contemplated in the Transaction was $71,500 in cash, consisting of the $66,500 purchase price under the Asset Purchase Agreement (the “Asset Purchase Price”) for the assets primarily related to the Simulation Business and $5,000 under the Laser Agreement.  On May 26, 2006, the closing of the sale of the Simulation Business, Rockwell Collins paid the Company $59,500 under the terms of the Asset Purchase Agreement, and deposited $10,000 (consisting of the remaining $7,000 of the Asset Purchase Price and $3,000 under the Laser Agreement) in escrow pursuant to an escrow agreement (the “Escrow Agreement”), dated as of May 26, 2006, by and between the Company, Rockwell Collins and U.S. Bank National Association, as escrow agent.  The Laser Agreement requires Rockwell Collins to pay the remaining $2,000 of consideration in the Transaction directly to the Company upon the completion of certain performance milestones by the Company.  Under the terms of the Escrow Agreement, the deposited amount was placed in escrow to secure (i) any post-closing reduction in the Asset Purchase Price under the Asset Purchase Agreement, (ii) the Company’s indemnification obligations under the Asset Purchase Agreement and (iii) the Company’s obligations (not to exceed $3,000 of the escrowed funds) to meet

7




specified milestones under the Laser Agreement.  The escrowed funds are to be released in installments as set forth in the Escrow Agreement, subject to the passage of time and the Company fulfilling requirements of the Escrow Agreement. In connection with the sale of our Simulation Business, we agreed to indemnify Rockwell Collins for any losses from breaches of the representations, warranties or covenants we made in the Asset Purchase Agreement that occur within certain periods after the closing.

The Asset Purchase Agreement provides for an adjustment to the Asset Purchase Price based on the value, calculated in accordance with the terms of the Asset Purchase Agreement, of the net assets delivered at the closing date (the “Closing Net Assets”).  Based on the value of the Closing Net Assets calculated by the Company and Rockwell Collins under the procedures set forth in the Asset Purchase Agreement, the Asset Purchase Price has been adjusted by $4,800 resulting in an adjusted Asset Purchase Price of $61,700.  In accordance with the terms of the Escrow Agreement, in March 2007, $200 of the $7,000 held for the Asset Purchase Price was released to the Company and $4,800 was released to Rockwell Collins.  The remaining $2,000 held for the Asset Purchase Price was released to E&S under the Escrow Agreement on July 3, 2007.

As of June 29, 2007, the Company has recorded all of the proceeds for the adjusted Asset Purchase Price under the transaction for a total of $61,700.

The sale of assets by the Company pursuant to the Asset Purchase Agreement was a taxable transaction for income tax purposes.  Accordingly, we recognized a gain with respect to the sale of assets pursuant to the Asset Purchase Agreement in an amount equal to the difference between the consideration received for each asset over the adjusted tax basis in the asset sold.  As all tax information is not yet available we have made estimates for certain items in computing the tax gain until final information becomes available.  Although the asset sale resulted in taxable gain to the Company, a substantial portion of the taxable gain was offset by losses from operations, and available net operating loss and tax credit carryforwards.  The gain on the sale of the Simulation Business is recorded as follows:

Cash consideration under Asset Purchase Agreement

 

 

 

$

66,500

 

Adjustment to Asset Purchase Price due to Closing Net Asset computation

 

(4,800

)

 

 

Transaction costs

 

(607

)

 

 

Net proceeds

 

 

 

61,093

 

Book value of assets acquired by Rockwell Collins

 

 

 

(33,115

)

Book value of liabilities assumed by Rockwell Collins

 

 

 

18,722

 

Gain before income taxes

 

 

 

46,700

 

Income taxes

 

 

 

(9,817

)

Total net gain recorded from January 1, 2006 through June 29, 2007

 

 

 

$

36,883

 

 

The net gain on the sale of the Simulation Business was recorded in the following periods:

Net gain on the sale reported in period ended June 30, 2006

 

$

38,464

 

Net loss on the sale reported July 1, 2006 thorough December 31, 2006

 

(2,821

)

Net gain on the sale reported in period ended June 29, 2007

 

1,240

 

Total net gain reported through June 29, 2007

 

$

36,883

 

 

Summarized results of operations for the Simulation Business included as income (loss) from discontinued operations, net of tax, in the accompanying condensed consolidated statements of operations were as follows:

 

Three Months Ended

 

Six Months Ended

 

 

 

June 29,

 

June 30,

 

June 29,

 

June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Sales

 

$

 

$

6,500

 

$

 

$

18,525

 

Cost of sales

 

 

5,166

 

 

13,422

 

Gross profit

 

 

1,334

 

 

5,103

 

Operating expenses

 

(15

)

3,994

 

(28

)

11,866

 

Operating income (loss)

 

15

 

(2,660

)

28

 

(6,763

)

Other expense

 

 

(172

)

 

(481

)

Income (loss) before income taxes

 

15

 

(2,832

)

28

 

(7,244

)

Income tax benefit

 

 

1,037

 

 

2,837

 

Net income (loss) from discontinued operations

 

$

15

 

$

(1,795

)

$

28

 

$

(4,407

)

 

8




3.              NET INCOME (LOSS) PER COMMON SHARE

Net income or 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 period.  Stock options are considered to be common stock equivalents.

Basic income or loss per common share is based upon the weighted average number of shares of common stock outstanding during the period.  There were no dilutive common stock equivalents for the periods presented. Potentially dilutive securities from stock options are discussed in Note 4.

4.              STOCK OPTION PLAN

As of June 29, 2007, options to purchase 525,722 shares of common stock under the Company’s stock option plan were authorized and reserved for future grant.

A summary of activity in the stock option plan for the six months ended June 29, 2007 follows (shares in thousands):

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Number

 

Exercise

 

 

 

of shares

 

Price

 

Outstanding at beginning of period

 

1,917

 

$

9.59

 

Granted

 

162

 

3.60

 

Exercised

 

 

 

Cancelled

 

(432

)

9.51

 

Outstanding at end of period

 

1,647

 

9.03

 

 

 

 

 

 

 

Exercisable at end of period

 

1,343

 

9.94

 

 

As of June 29, 2007, options exercisable and options outstanding had a weighted average remaining contractual term of 3.6 and 4.6 years, respectively, and had no aggregate intrinsic value.

The Black-Scholes option pricing model is used to estimate the fair value of options under the Company’s stock option plan. The weighted average values of employee stock options granted under the stock option plan, as well as the weighted average assumptions used in calculating these values during the second quarter of 2007 and 2006 and the first six months of 2007 and 2006 were based on estimates at the date of grant as follows:

9




 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 29,
2007

 

June 30,
2006

 

June 29,
2007

 

June 30,
2006

 

Risk free interest rate

 

4.8

%

5.1

%

4.3

%

4.9

%

Dividend yield

 

0

%

0

%

0

%

0

%

Volatility

 

62

%

65

%

62

%

65

%

Expected lives range (in years)

 

1.6 to 3.6

 

1.6 to 3.6

 

1.6 to 3.6

 

1.6 to 3.6

 

 

Expected option lives and volatilities are based on historical data of the Company.  Our 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 future plans to do so.

No options were exercised during the six months ended June 29, 2007. As of June 29, 2007, there was approximately $399 of total unrecognized share-based compensation cost related grants under our plans that will be recognized over a weighted-average period of 1.3 years.

Share-based compensation expense included in the statement of operations for the three months ended June 29, 2007 and June 30, 2006 was approximately $85 and $314, respectively.  Share-based compensation expense included in the statement of operations for the six months ended June 29, 2007 and June 30, 2006 was approximately $186 and $823, respectively.

5.              GEOGRAPHIC INFORMATION

The following table presents sales by geographic location of our customers.  Sales within areas amounting to greater than 10% of consolidated sales are shown separately:

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 29, 2007

 

June 30, 2006

 

June 29, 2007

 

June 30, 2006

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

3,871

 

$

1,720

 

$

6,146

 

$

2,634

 

Europe

 

424

 

131

 

814

 

2,021

 

Asia

 

2,003

 

232

 

3,291

 

242

 

North America (excluding U.S.)

 

125

 

171

 

429

 

868

 

Other

 

124

 

292

 

224

 

548

 

Total sales

 

$

6,547

 

$

2,546

 

$

10,904

 

$

6,313

 

 

6.              EMPLOYEE RETIREMENT BENEFIT PLANS

Components of Net Periodic Benefit Cost

 

Pension Plan

 

Supplemental Executive 
Retirement Plan

 

For the three months ended:

 

June 29, 2007

 

June 30, 2006

 

June 29, 2007

 

June 30, 2006

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

 

$

 

$

23

 

Interest cost

 

583

 

600

 

87

 

136

 

Expected return on assets

 

(711

)

(587

)

6

 

 

Amortization of actuarial loss

 

59

 

84

 

(12

)

11

 

Amortization of prior year service cost

 

 

 

 

(14

)

Settlement charge

 

 

300

 

 

 

Net periodic benefit (credit) expense

 

$

(69

)

$

397

 

$

81

 

$

156

 

 

10




 

 

 

Pension Plan

 

Supplemental Executive 
Retirement Plan

 

For the six months ended:

 

June 29, 2007

 

June 30, 2006

 

June 29, 2007

 

June 30, 2006

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

 

$

 

$

63

 

Interest cost

 

1,167

 

1,200

 

174

 

261

 

Expected return on assets

 

(1,422

)

(1,175

)

 

 

Amortization of actuarial loss

 

118

 

168

 

12

 

18

 

Amortization of prior year service cost

 

 

 

(24

)

(29

)

Settlement charge

 

 

600

 

 

 

Net periodic benefit (credit) expense

 

$

(137

)

$

793

 

$

162

 

$

313

 

 

Employer Contributions

Using proceeds from the sale of the Simulation Business (see Note 2), the Company contributed $11,348 to pension assets during September 2006 in order to meet a funding obligation for plan years 2005 and 2006.  Also using proceeds from the sale, the Company contributed $5,550 to the SERP to meet its change of control provision. The Company invested these funds in debt and equity securities that have been accounted for as available-for-sale securities.  At June 29, 2007, the investment was reported at its fair market value of $5,904 and was classified as prepaid pension and retirement. There was $551 of unrealized gain recorded in accumulated other comprehensive income as of June 29, 2007.

During the quarter ended June 29, 2007, we made contributions to the SERP of $291.  We plan to contribute $280 to the SERP during the remainder of 2007, which is the amount of expected benefit payments for the year. Future contributions to the SERP are expected to be made by liquidating the prepaid pension and retirement investments.  We made no contributions to the pension plan during the first half of 2007. We do not plan on making any contributions to the pension plan during the remainder of 2007.

7.              CONTINGENCIES

In the normal course of business, we may have various legal claims and other contingent matters.  We know of no legal claims or other contingent matters outstanding that would have a material adverse effect on our consolidated financial condition, liquidity or results of operations except as described below.

In July 2007 we received a letter alleging that we have breached our obligation under a provision of a Development and Cross License Agreement (“the Agreement”).  The letter claims that we were obligated to pay a minimum royalty fee amounting to $400 within 90 days of the end of 2006.  We believe that we have no obligation to pay the minimum royalty fee because of numerous provisions breached by the corresponding party requesting the payment, including the failure to develop any royalty based products that are available for sale.  It is possible that we will not prevail in our interpretation of the Agreement which would result in an additional loss.

 

11




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

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes included in Item 1 of Part I of this Form 10-Q.  All currency amounts are presented in thousands unless otherwise indicated.  Except for the historical information contained herein, this quarterly report on Form 10-Q includes certain “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934, including, among others, those statements preceded by, followed by, or including the words “estimates,” “believes,” “expects,” “anticipates,” “plans,” “projects,” or similar expressions.

These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties.  These forward-looking statements include, but are not limited to:

·                  Our belief that we will continue to make progress in the development for our laser projectors and we will be able to meet customer contract acceptance criteria so that revenue will be recognized later in 2007.

·                  Our belief that our range of visual systems and services at various price and performance levels, our research and development investments and capabilities, and our ability to design and manufacture value-added visual systems will enable us to compete effectively.

·                  Our belief that the Evans & Sutherland Laser Projector (“ESLP”) also has application to other markets in the future where ultra-high resolution, high efficiency, excellent image quality, and low life-cycle cost are important considerations, which will ultimately result in future revenues.

·                  Our belief that our products are performing well, that we will meet all our delivery requirements, and as a result we will incur no damages or penalties for late deliveries in 2007.

·                  Our belief that any inherent risk that may exist in our foreign operations is not material.

·                  Our belief that our properties are suitable for our immediate needs.

·                  Our belief that the ultimate disposition of any legal claims asserted against us or other contingent matters will not have a material adverse effect on our consolidated financial condition, liquidity or results of operations.

·                  Our belief that we will perform under the conditions of our letters of credit and therefore incur no losses with respect to these letters of credit in 2007 or future years.

·                  Our belief that the effects of inflation will not be material for fiscal year 2007.

·                  Our belief that any inherent risk that may exist in our foreign transactions is not material.

·                  Our belief that we will continue to see improvements in our 2007 orders.

·                  Our belief that the sale of the Simulation Business and the Spitz transactions will materially affect our future financial performance and position as we have sold a significant percentage of operational assets related to the Simulation Business and acquired additional operational assets related to the Digital Theater Group.

·                  Our belief that the net cash deposits and credit facilities along with cash from operations will fund our requirements in 2007.

·                  Our belief that cash from operations and cash deposits will fund our planned needs in the short term as we invest in research and development related to our laser projector products, and our belief that for the long term, our cash from operations will fund our planned needs.

·                  Our belief that existing cash, restricted cash, letter of credit availability under our current arrangement, and expected cash from future operations will be sufficient to meet our anticipated working capital needs, routine capital expenditures and current debt service obligations.

 

12




·                  Our belief that the improved sales backlog, a strong outlook for additional customer orders and the achievement of final contract acceptance on existing customer orders will result in higher revenue for the remaining months of 2007.

These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties.  Our actual results could differ materially from these forward-looking statements.  Recent trends are not necessarily reliable indicators of future stock prices or financial performance and there can be no assurance that the events contemplated by the forward-looking statements contained in this quarterly report will, in fact, occur.  For further information, refer to the business description and additional risk factors sections included in our Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission.

All currency amounts are in thousands unless otherwise indicated.

EXECUTIVE SUMMARY

In the second quarter of 2007, we continued to make significant progress on the critical issues facing our business since the sale of the Simulation Business and acquisition of Spitz. We achieved improved results in the development of our laser projector and the delivery of these projectors to our digital theater customers. There are signs that indicate the product is gaining acceptance by existing and future customers.  However, introduction of a final production model is not complete and some final acceptance tests have not been completely satisfied in accordance with certain customer contracts.  As a result, we were unable to recognize revenue on certain laser projectors and related system components in the first half of 2007.  We expect improvements to continue and contract acceptance criteria to be met so that revenue will be recognized later in 2007, although there is no assurance that we will achieve such goals. We also continued to make progress integrating Spitz and harmonizing Spitz products with digital theater products.

The volume of new orders for all of our products was very strong in the first half of 2007, which resulted in a much improved sales backlog as of June 29, 2007. This contributed to higher revenue in the second quarter of 2007 as compared to the first quarter of 2007 and the first half of 2006. The improved sales backlog combined with a strong outlook for additional customer orders are expected to result in higher revenue for the remaining months of 2007, aided by the achievement of final contract acceptance on existing customer orders.

Efforts that began in late 2006 to identify new opportunities for our laser projector technology continue in 2007, including development of prototype products for these opportunities. Successful completion of existing customer contracts and development efforts for new products are key factors in pursuing and capturing these opportunities. We expect improved progress on the realization of new opportunities throughout 2007 and into 2008.

SALE OF SIMULATION BUSINESS

On May 26, 2006, we sold substantially all of the assets and certain liabilities primarily related to our commercial and military simulation businesses and related service operations (the “Simulation Business”) to certain subsidiaries of Rockwell Collins, Inc., a Delaware corporation (“Rockwell Collins”), pursuant to an asset purchase agreement (the “Asset Purchase Agreement”), dated as of February 7, 2006, by and between the Company and Rockwell Collins.  In connection with the completion of the sale of the Simulation Business, on May 26, 2006 the Company entered into a laser projection systems agreement (the “Laser Agreement”) with Rockwell Collins and Rockwell Collins Simulation & Training Solutions LLC, pursuant to which the Company has agreed to provide, and grant exclusive and non-exclusive intellectual property licenses to use and sell, laser projection systems in connection with the Simulation Business and certain related businesses of Rockwell Collins.

On July 3, 2007 we received $2,000 released from escrow pursuant to the Asset Purchase Agreement representing the balance of the proceeds for the adjusted purchase price for the Simulation Business. Outstanding items remaining from the sale of the Simulation Business consist of the achievement of certain milestones under the Laser Agreement, which, if met, will release up to an additional $3,000 held in escrow and require an additional payment of $2,000 by Rockwell Collins. We are working on meeting the milestones under the Laser agreement in 2007; however, there is no assurance that we will be successful in completing the milestones and collecting the proceeds in escrow and the additional payment from Rockwell Collins.

 

13




CRITICAL ACCOUNTING POLICIES

Certain accounting policies are considered by management to be critical to an understanding of our 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.  A summary of critical accounting policies can be found in our Form 10-K for the year ended December 31, 2006.  For all of these policies, management cautions that future results rarely develop exactly as forecast, and the best estimates routinely require adjustment.

RESULTS OF OPERATIONS — CONTINUING OPERATIONS

Consolidated Sales

The following table summarizes our consolidated sales:

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 29, 2007

 

June 30, 2006

 

June 29, 2007

 

June 30, 2006

 

Sales

 

$

6,547

 

$

2,546

 

$

10,904

 

$

6,313

 

 

Second Quarter 2007 Compared to Second Quarter 2006

In the second quarter of 2007 our revenue increased 157% compared to the second quarter of 2006 as a result of an increase in the revenue contributed by Spitz amounting to $2,147 and higher revenue from E&S Digital Theater.  This was attributable to significantly improved revenue volume at Spitz as well as the fact that the 2006 quarter included just two months of Spitz operations following the acquisition of Spitz on April 28, 2006. Adding to the increase related to Spitz was higher revenue from E&S Digital Theater due primarily to improved deliveries and progress toward the completion of several customer projects.

First Half of 2007 Compared to First Half of 2006

In the first half of 2007 our revenue increased 73% compared to the first half of 2006 primarily as a result of an increase in the revenue contributed by Spitz amounting to $4,354.  This was attributable to significantly improved revenue volume at Spitz as well as the fact that the first half of 2006 included just two months of Spitz operations following the acquisition of Spitz on April 28, 2006.  Otherwise revenue from E&S digital theater improved moderately due primarily to improved deliveries and progress toward the completion of several customer projects in the second quarter of 2007.  We expect improved revenue volume to continue for the remainder of 2007.

Gross Margin

The following table summarizes our gross margin and the percentage to total sales:

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 29, 2007

 

June 30, 2006

 

June 29, 2007

 

June 30, 2006

 

Gross margin

 

$

1,941

 

$

437

 

$

3,299

 

$

1,780

 

Gross margin percentage

 

29.6

%

17.2

%

30.3

%

28.2

%

 

Second Quarter 2007 Compared to Second Quarter 2006

Our gross margin increased to 29.6% in the second quarter of 2007 from 17.2% in the second quarter of 2006. The increase was attributable to improved performance on E&S Digital Theater projects and better overhead absorption from higher manufacturing volume.

 

14




First Half of  2007 Compared to First Half of 2006

Our gross margin increased to 30.3% in the first half of 2007 from 28.2% in the first half of 2006. The increase was attributable to improved performance on E&S Digital Theater projects and better overhead absorption from higher manufacturing volume in the second quarter of 2007 which offset poorer margin performance in the first quarter of 2007 compared to 2006.

Operating Expenses

The following table summarizes our operating expenses:

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 29, 2007

 

June 30, 2006

 

June 29, 2007

 

June 30, 2006

 

Sales, general and administrative

 

$

2,332

 

$

3,886

 

$

4,401

 

$

4,462

 

Research and development

 

2,478

 

2,604

 

4,803

 

4,539

 

Operating expenses

 

$

4,810

 

$

6,490

 

$

9,204

 

$

9,001

 

 

Second Quarter 2007 Compared to Second Quarter 2006

Sales, general and administrative expenses decreased $1,554 for the second quarter of 2007 compared to the second quarter of 2006, due to reduction of retirement expenses due to funding of the pension and SERP, reduction in stock compensation expense, reduction in Spitz’ operating expenses, and reduction of accounting fees.  Research and development decreased $126 in the second quarter of 2007 compared to the second quarter of 2006 due to a decrease in the consumption of material related to the development efforts of the laser products.

First Half of 2007 Compared to First Half of 2006

For the first half of 2007, sales, general and administrative expenses were comparable to 2006.  Research and development increased $264 in the first half of 2007 compared to the first half of 2006 due to an increase in $368 of costs incurred by Spitz in 2007 compared to 2006, partially offset by other activities related to the development efforts of the laser products.

Other Income and Expense

The following table summarizes our other income and expense:

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 29, 2007

 

June 30, 2006

 

June 29, 2007

 

June 30, 2006

 

Other income (expense), net

 

$

181

 

$

58

 

$

270

 

$

(343

)

 

Second Quarter 2007 Compared to Second Quarter 2006

Other income increased $123 for the second quarter of 2007 compared to the second quarter of 2006, primarily due to increased interest income of $49, a $32 decrease in interest expense and $29 of loss on disposal of fixed assets in 2006.  The increase in interest income was due to investment of cash proceeds from the sale of the Simulation Business.

First Half of 2007 Compared to First Half of 2006

Other income increased $613 for the first half of 2007 compared to the first half of 2006, primarily due to increased interest income of $218 due to proceeds from the investment of cash proceeds from the sale of the Simulation Business and due to $380 of loss on disposal of fixed assets in 2006.

 

15




Income Taxes

The following table summarizes the classification of income tax benefit (expense):

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 29, 2007

 

June 30, 2006

 

June 29, 2007

 

June 30, 2006

 

Income tax benefit from continuing operations

 

$

363

 

$

2,200

 

$

775

 

$

2,774

 

Income tax benefit included with net income (loss) from discontinued operations

 

 

1,037

 

 

2,837

 

Income tax expense included with gain on sale of discontinued operations

 

(363

)

(4,076

)

(760

)

(6,338

)

Net income tax benefit (expense)

 

$

 

$

(839

)

$

15

 

$

(727

)

 

Second Quarter 2007 Compared to Second Quarter 2006

For the three months ended June 29, 2007, the income tax benefit from continuing operations of $363 represented intraperiod allocation of income tax benefit related to gain on sale of the Simulation Business.  For the three months ended June 29, 2007, gain on sale of discontinued operations of $1,637 was presented net of tax of $363.

For the three months ended June 30, 2006, the income tax benefit from continuing operations of $2,200 represented intraperiod allocation of income tax benefit related to gain on sale of the Simulation Business.  For the three months ended June 30, 2006, gain on sale of discontinued operations of $40,726 was presented net of tax of $4,076.

First Half of 2007 Compared to First Half of 2006

For the six months ended June 29, 2007, the income tax benefit from continuing operations of $775 was primarily attributable to income tax benefit related to gain on sale of the Simulation Business.  For the six months ended June 29, 2007, gain on sale of discontinued operations of $1,240 was presented net of tax of $760.

For the six months ended June 30, 2006, the income tax benefit from continuing operations of $2,774 was primarily attributable to income tax benefit related to gain on sale of the Simulation Business.  For the six months ended June 30, 2006, gain on sale of discontinued operations of $38,464 was presented net of tax of $6,338.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

In the first six months of 2007, cash used in our continuing operating activities was $6,751, primarily attributable to our net loss and the payment of severance obligations to our prior chief executive officer. Other significant fluctuations in working capital included increases in accounts receivable and inventories, and a decrease to accrued liabilities, the effect of which was offset in part by increases in progress payments and deposits on customer contracts. The fluctuations in accounts receivable, inventories, accrued liabilities and customer contract payments were within the normal range expected from business activities.

In the first six months of 2007, cash used in our investing activities of $459 was primarily due to purchases of property, plant, and equipment.

In the first six months of 2007, cash used in our financing activities of $752 was due to net repayment of $700 on the Spitz revolving credit note and principal payments of $52 against Spitz mortgage note payable and capital lease obligations.

 

16




 

Credit Facilities

On June 30, 2007 the Company’s Line of Credit Agreement (the “Credit Agreement”) and a Line of Credit Note (the “Note”) with a commercial bank matured. The Credit Agreement permitted borrowings up to $1,100, which were used to fund Spitz’ working capital requirements. Prior to the maturity, the Company paid off the outstanding balance on the Note using cash generated from the improved operations of Spitz.  The Company is in discussions with the commercial bank and expects to enter into a new line of credit agreement for Spitz with terms comparable to the previous Credit Agreement that matured on June 30, 2007.

The Company has a finance arrangement which facilitates the issuance of letters of credit and bank guarantees. Under the terms of the arrangement, we are required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit issued, plus other amounts necessary to adequately secure our obligations with the financial institution.  As of June 29, 2007, we had outstanding letters of credit and bank guarantees of $1,222.

Mortgage Note

As of June 29, 2007 there was a $2,886 obligation under a mortgage note (the “Mortgage Note”) payable by Spitz and guaranteed by E&S. The Mortgage Note requires repayment in monthly installments of principal and interest over twenty years. The monthly installment at June 29, 2007 is $26 and includes interest at 7.81% per annum. On January 14, 2010 and each third year thereafter, the interest rate will be 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 3YCMT as of June 29, 2007 was 4.89%. The monthly installment will be recalculated on the first month following a change in the interest rate. The recalculated monthly installment will be 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 twenty-year term. The Mortgage Note is secured by real property acquired with the proceeds of the note pursuant to a mortgage and security agreement.

Rental Guarantees

In December 2005, we sold a building and entered into a 21-month lease agreement with the buyer obligating us to make certain monthly payments through September 2007 based on space available for lease in the building sold. As of June 29, 2007, we had a maximum remaining liability of $70 recorded as an accrued liability. The maximum liability may decrease as available space is leased, based on terms of the rental guarantee.

Other

Our Board of Directors has authorized the repurchase of 1,600,000 shares of our common stock.  As of June 29, 2007, 463,500 shares remained available for repurchase under the plans approved by the Board of Directors.  No shares were repurchased during 2007 or 2006.  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 of our 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.

If we were unable to make timely deliveries of products pursuant to the terms of various agreements with third parties or certain of our contracts were adversely impacted for failure to meet delivery requirements, we may be unable to meet our anticipated working capital needs, routine capital expenditures, and current debt service obligations on a short-term and long-term basis.

We believe our existing cash, restricted cash, letter of credit availability under our current arrangement, and expected cash from future operations will be sufficient to meet our anticipated working capital needs, routine capital expenditures and current debt service obligations through December 31, 2007.  At June 29, 2007, our total indebtedness was $2,886, consisting of the balance due on the Mortgage Note.  Our cash and restricted cash, subject to various restrictions, are available for working capital needs, capital expenditures, strategic investments, mergers and acquisitions, stock repurchases and other potential cash needs as they may arise.  However, we operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected

 

17




future cash receipts and expenditures.  Accordingly, there can be no assurance that our sources of funds will be sufficient to meet our liquidity needs or that we will not be required to raise additional funds to meet those needs, including future business expansion, through the sale of equity or debt securities or from credit facilities with lending institutions.

Backlog

On June 29, 2007, our backlog was $30,366 compared with $20,408 at December 31, 2006.

TRADEMARKS USED IN THIS FORM 10-Q

ESLP is a registered trademark of Evans & Sutherland Computer Corporation.  All other products, services, or trade names or marks are the properties of their respective owners.

 

18




Item 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risks to which we are exposed are changes in foreign currency exchange rates and changes in interest rates.  Foreign sales accounted for approximately 41% of our total sales in the six months ended June 29, 2007. Our foreign sales are concentrated in the United Kingdom, Europe, Asia and North America (excluding the United States).  In general, we enter into sales agreements with our international customers denominated in U.S. dollars.  Foreign currency purchase and sale contracts may be entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures.  We do not enter into foreign currency contracts for trading purposes and we do not use leveraged contracts.  As of June 29, 2007, we had sales contracts in Euros with approximately €60,000 remaining to collect and a sales contract in U.A.E Dirhams with approximately AED 9,911,460 to collect. The U.S. Dollar value of the €60,000 is approximately $83,000, based on the rate of exchange as of July 24, 2007.  The U.S. Dollar value of the AED 9,911,460 is approximately $2,700,000 based on the rate of exchange as of July 24, 2007.  Based on the range of the rates of exchange over the past year, the aggregate potential loss from foreign exchange exposure is not material.

 

19




Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting that may have materially affected, or are 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.

 

20




 

PART II - OTHER INFORMATION

Item 1.                          LEGAL PROCEEDINGS

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

Item 1A.                 RISK FACTORS

As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Item 4.                          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

We held our Annual Meeting of Shareholders on May 17, 2007. The matters voted upon at the meeting included the election of two directors to our Board of Directors and ratification of the selection of Tanner, LC as our independent registered public accounting firm for the fiscal year ending December 31, 2007. The votes cast with respect to these matters were as follows:

1.     Election of Directors

Nominee

 

Number of shares
Voted For

 

Number of shares
Withheld

 

David J. Coghlan

 

9,122,861

 

524,978

 

 

 

 

 

 

 

David H. Bateman

 

9,136,628

 

511,211

 

 

The other directors whose terms of office continued after the Annual Meeting were General James P. McCarthy, USAF (ret.) and Dr. William Schneider.

2.               Proposal to ratify the selection of Tanner, LC as the Company’s independent registered public accounting firm for our fiscal year ending December 31, 2007.

For

 

Against

 

Abstain

9,151,286

 

493,343

 

3,209

 

Item 6.                          EXHIBITS

31.1               Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed here with.

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 here with.

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 here with.

 

21




 

SIGNATURE

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

 

EVANS & SUTHERLAND COMPUTER CORPORATION

 

 

 

 

 

 

 

Date  August 2, 2007

 

By:

 

/s/ Paul Dailey

 

 

 

 

 

 

Paul Dailey, Chief Financial Officer

 

 

 

 

 

 

and Corporate Secretary

 

 

 

 

 

 

(Authorized Officer)

 

 

 

 

 

 

(Principal Financial Officer)

 

 

 

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