Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 26, 2014 | Nov. 05, 2014 | |
Document and Entity Information: | ' | ' |
Entity Registrant Name | 'EVANS & SUTHERLAND COMPUTER CORPORATION | ' |
Document Type | '10-Q | ' |
Document Period End Date | 26-Sep-14 | ' |
Amendment Flag | 'false | ' |
Entity Central Index Key | '0000276283 | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Common Stock, Shares Outstanding | ' | 11,089,199 |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Voluntary Filers | 'No | ' |
Entity Well-known Seasoned Issuer | 'No | ' |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q3 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Sep. 26, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
Current assets: | ' | ' |
Cash and cash equivalents | $3,983 | $3,376 |
Restricted cash | 731 | 1,020 |
Marketable securities | ' | 229 |
Accounts receivable, less allowances for doubtful receivables of $246 and $277, respectively | 4,810 | 5,552 |
Costs and estimated earnings in excess of billings on uncompleted contracts | 2,178 | 2,391 |
Inventories, net | 4,063 | 3,025 |
Prepaid expenses and deposits | 506 | 568 |
Total current assets | 16,271 | 16,161 |
Property, plant and equipment, net | 7,339 | 7,405 |
Goodwill | 635 | 635 |
Definite-lived intangible assets, net | 80 | 115 |
Other assets | 1,046 | 1,386 |
Total assets | 25,371 | 25,702 |
Current liabilities: | ' | ' |
Accounts payable | 837 | 1,433 |
Accrued liabilities | 1,150 | 1,183 |
Billings in excess of costs and estimated earnings on uncompleted contracts | 3,661 | 3,358 |
Customer deposits | 2,602 | 2,157 |
Current portion of retirement obligations | 519 | 531 |
Current portion of long-term debt | 2,408 | 2,995 |
Total current liabilities | 11,177 | 11,657 |
Pension and retirement obligations, net of current portion | 23,525 | 23,567 |
Long-term debt, net of current portion | 3,004 | 2,362 |
Deferred rent obligation | 1,526 | 1,514 |
Total liabilities | 39,232 | 39,100 |
Commitments and contingencies (Note 4) | ' | ' |
Stockholders' deficit: | ' | ' |
Preferred stock, no par value: 10,000,000 shares authorized; no shares outstanding | ' | ' |
Common stock, $0.20 par value: 30,000,000 shares authorized; 11,441,666 shares issued | 2,288 | 2,288 |
Additional paid-in capital | 54,496 | 54,484 |
Common stock in treasury, at cost: 352,467 shares | -4,709 | -4,709 |
Accumulated deficit | -48,632 | -47,852 |
Accumulated other comprehensive loss | -17,304 | -17,609 |
Total stockholders' deficit | -13,861 | -13,398 |
Total liabilities and stockholders' deficit | $25,371 | $25,702 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 26, 2014 | Dec. 31, 2013 |
In Thousands, except Share data, unless otherwise specified | ||
Statement of Financial Position | ' | ' |
Preferred Stock, par value | ' | ' |
Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred Stock, shares outstanding | ' | ' |
Common Stock, par value | $0.20 | $0.20 |
Common Stock, shares authorized | 30,000,000 | 30,000,000 |
Common Stock, shares issued | 11,441,666 | 11,441,666 |
Common stock in treasury, shares | 352,467 | 352,467 |
Accounts Receivable, allowances for doubtful receivables | $246 | $277 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, except Per Share data, unless otherwise specified | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 |
Statement of Comprehensive Income | ' | ' | ' | ' |
Sales | $7,656 | $8,509 | $20,040 | $18,428 |
Cost of sales | 4,371 | 4,981 | 12,669 | 11,858 |
Gross profit | 3,285 | 3,528 | 7,371 | 6,570 |
Operating expenses: | ' | ' | ' | ' |
Selling, general and administrative | 1,637 | 1,545 | 5,211 | 4,291 |
Research and development | 537 | 529 | 1,608 | 1,873 |
Pension | 359 | 249 | 777 | 618 |
Total operating expenses | 2,533 | 2,323 | 7,596 | 6,782 |
Operating income (loss) | 752 | 1,205 | -225 | -212 |
Other expense, net | -192 | -185 | -567 | -540 |
Income (loss) before income tax provision | 560 | 1,020 | -792 | -752 |
Income tax (provision) benefit | 79 | -31 | 12 | -41 |
Net income (loss) | 639 | 989 | -780 | -793 |
Net income (loss) per common share - basic and diluted | $0.06 | $0.09 | ($0.07) | ($0.07) |
Weighted average common shares outstanding - basic | 11,089 | 11,089 | 11,089 | 11,089 |
Weighted average common shares outstanding - diluted | 11,435 | 11,155 | 11,089 | 11,089 |
Comprehensive income (loss): | ' | ' | ' | ' |
Net income (loss) | 639 | 989 | -780 | -793 |
Other comprehensive income: | ' | ' | ' | ' |
Reclassification of realized gains from sale of marketable securities to net income (loss) | ' | ' | ' | -26 |
Unrealized gain on marketable securities | ' | 3 | ' | 18 |
Reclassification of pension expense to net income (loss) | 101 | 182 | 305 | 546 |
Other comprehensive income, net of tax | 101 | 185 | 305 | 538 |
Total comprehensive income (loss) | $740 | $1,174 | ($475) | ($255) |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 9 Months Ended | |
In Thousands, unless otherwise specified | Sep. 26, 2014 | Sep. 27, 2013 |
Cash flows from operating activities: | ' | ' |
Net loss | ($780) | ($793) |
Adjustments to reconcile net loss to net cash provided by operating activities: | ' | ' |
Depreciation and amortization | 376 | 452 |
Amortization of deferred pension expense | 305 | 546 |
Other | 294 | 471 |
Change in assets and liabilities: | ' | ' |
Decrease (increase) in restricted cash | 289 | -333 |
Decrease (increase) in accounts receivable, net | 726 | -1,287 |
Increase in inventories | -1,104 | -1,062 |
Decrease in costs and estimated earnings in excess of billings on uncompleted contracts | 516 | 1,813 |
Decrease in prepaid expenses and deposits | 402 | 633 |
Increase (decrease) in accounts payable | -596 | 689 |
Decrease in accrued liabilities | -21 | -102 |
Decrease in pension and retirement obligations | -54 | -549 |
Increase in customer deposits | 445 | 419 |
Net cash provided by operating activities | 798 | 897 |
Cash flows from investing activities: | ' | ' |
Purchases of property, plant and equipment | -289 | -30 |
Proceeds from sale of marketable securities | 229 | 385 |
Net cash (used in) provided by investing activities | -60 | 355 |
Cash flows from financing activities: | ' | ' |
Principal payments on long-term debt | -131 | -123 |
Net cash used in financing activities | -131 | -123 |
Net increase in cash and cash equivalents | 607 | 1,129 |
Cash and cash equivalents as of beginning of the period | 3,376 | 2,111 |
Cash and cash equivalents as of end of the period | 3,983 | 3,240 |
Non-cash investing and financing activities: | ' | ' |
Reclassification of realized gains from sale of marketable securities to net income (loss) | ' | -26 |
Unrealized gain on marketable securities | ' | 18 |
Supplemental disclosures of cash flow information: | ' | ' |
Cash paid for interest | 390 | 397 |
Cash paid for income taxes | $45 | $26 |
1_General
1. General | 9 Months Ended | ||
Sep. 26, 2014 | |||
Notes | ' | ||
1. General | ' | ||
1. GENERAL | |||
Basis of Presentation | |||
The accompanying unaudited condensed consolidated financial statements of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the “Company” and “E&S”) have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flows, in conformity with U.S. generally accepted accounting principles (“US GAAP”). This report on Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2013. | |||
The accompanying unaudited condensed consolidated balance sheets, statements of comprehensive income (loss), and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the periods ended September 26, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014. The Company operates on a calendar year with the first three fiscal quarters ending on the last Friday of the calendar quarter. | |||
Revenue Recognition | |||
Sales include revenues from system hardware and the related integrated software, database products and service contracts. The following methods are used to recognize revenue: | |||
Percentage of Completion. In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized using the percentage-of-completion method. In applying this method, the Company utilizes cost-to-cost methodology whereby it estimates the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) for each contract to its total anticipated costs for that contract. This ratio is then utilized to determine the amount of gross profit earned based on the Company’s estimate of total gross profit at completion for each contract. The Company routinely reviews estimates related to percentage-of-completion contracts and adjusts for changes in the period the revisions are made. Billings on uncompleted percentage-of-completion contracts may be greater than or less than incurred costs and estimated earnings and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets. | |||
In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above. | |||
Completed Contract. Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method. Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured. | |||
Multiple Element Arrangements. Some contracts include multiple elements. Significant deliverables in such arrangements commonly include various hardware components of the Company’s visual display systems, domes, show content and various service and maintenance elements. Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements. Relative fair values of elements are generally determined based on actual and estimated selling price. Delivery times of such contracts typically occur within a three to six-month period. | |||
Other. Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single element. Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized over the period of performance under the contract. | |||
Anticipated Losses. For contracts with anticipated losses at completion, a provision is recorded when the loss is probable. After an anticipated loss is recorded, subsequent revenues and costs of sales are recognized in equal, offsetting amounts as contract costs are incurred. | |||
Stock-Based Compensation | |||
Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Company’s current estimates. | |||
Net Income (Loss) Per Common Share | |||
Basic net income (loss) per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share. | |||
Inventories, net | |||
Inventories consisted of the following: | |||
September 26, | December 31, | ||
2014 | 2013 | ||
Raw materials | $5,871 | $5,587 | |
Work in process | 1,001 | 234 | |
Finished goods | 276 | 223 | |
Reserve for obsolete inventory | -3,085 | -3,019 | |
Inventories, net | $4,063 | $3,025 | |
Recent Accounting Pronouncements | |||
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 provides for a single, principles-based model for revenue recognition that replaces existing revenue recognition guidance. ASU 2014-09 is effective for annual and interim periods beginning on or after December 15, 2016. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted. The Company has not yet selected a transition method and is in the process of evaluating the effect this standard will have on its consolidated financial statements and related disclosures. | |||
Liquidity | |||
The Company has experienced recurring annual losses since 2007. Furthermore, as of September 26, 2014, the unfunded obligation of the Company’s qualified defined benefit pension plan (“Pension Plan”), as measured for accounting purposes, amounted to $19,001, contributing to a total stockholders’ deficit of $13,861 as of September 26, 2014. Aided by prior cost reduction efforts and improved 2013 sales volume, the Company reported annual net income for 2013 but incurred a net loss of $780 for the first three quarters of 2014. The Company does not believe it can sustain and improve annual profitability at sufficient levels to fund its existing Pension Plan obligation. In order to preserve the liquid resources required to operate the business, the Company stopped making cash payments due to the Pension Plan trust beginning in October 2012. The Company initiated an application process for the distress termination of the Pension Plan in accordance with provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) which it believes will result in a settlement of its Pension Plan liabilities on terms that are feasible for the Company to continue in business as a going concern through 2014 and beyond. Because of the payments due to the Pension Trust, a lien in favor of the Pension Plan has arisen against the assets of the Company. On October 3, 2014, the lender for the Company’s Spitz Inc. (“Spitz”) subsidiary’s mortgage notes, a commercial bank, notified the Company that the liens placed on the Company assets by the Pension Plan constituted an event of default under the mortgage notes’ credit agreements. Citing cross default terms, the bank suspended borrowings on the Spitz $1,100 working capital line of credit. The bank has not elected to accelerate the payment of the loan balance or exercise any other remedies available upon an event of default. The bank expressed interest in a continuing credit relationship upon satisfactory settlement of the pension liabilities and agreed to forbear from exercising any further remedies until January 15, 2015. The mortgage balances totaled $2,408 as of September 26, 2014. The Company has not used the Spitz $1,100 working capital line of credit since 2011 and, if necessary, the Company believes that it will have sufficient funds to satisfy the Spitz mortgage note balances if the bank were to accelerate the maturity under its default remedy. However, the Company further believes that it will conclude a satisfactory settlement with the PBGC by January 15, 2015 or within a time frame acceptable to the bank. The Company continues to progress through the termination process toward a settlement; however, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome and it cannot provide assurance that its expectations set forth above will occur in a timely manner or at all. |
2_Stock_Option_Plan
2. Stock Option Plan | 9 Months Ended | ||
Sep. 26, 2014 | |||
Notes | ' | ||
2. Stock Option Plan | ' | ||
2. STOCK OPTION PLAN | |||
As of September 26, 2014, options to purchase 1,439,913 shares of common stock under the Company’s stock option plan were authorized and reserved for future grant. A summary of activity in the stock option plan for the nine months ended September 26, 2014 follows (shares in thousands): | |||
Weighted- | |||
Average | |||
Number | Exercise | ||
of Shares | Price | ||
Outstanding as of beginning of the period | 1,235 | $2.62 | |
Granted | 200 | 0.13 | |
Exercised | - | - | |
Forfeited or expired | -101 | 4.85 | |
Outstanding as of end of the period | 1,334 | 2.08 | |
Exercisable as of the end of the period | 993 | 2.76 | |
As of September 26, 2014, options exercisable and options outstanding had a weighted average remaining contractual term of 3.7 and 5.0 years, respectively, and aggregate intrinsic value of $26 and $76, respectively. | |||
The Black-Scholes option-pricing model is used to estimate the fair value of options under the Company’s stock option plan. The weighted-average values of employee stock options granted under the stock option plan, as well as the weighted-average assumptions used in calculating these values during the first nine months of 2014, were based on estimates as of the date of grant as follows: | |||
Risk-free interest rate | 0.74% | ||
Dividend yield | 0.00% | ||
Volatility | 340% | ||
Expected life | 3.5 years | ||
Expected option life and volatility are based on historical data of the Company. The risk-free interest rate is calculated based on the average US Treasury bill rate that corresponds with the option life. Historically, the Company has not declared dividends and there are no foreseeable plans to do so. | |||
As of September 26, 2014, there was approximately $14 of share-based compensation cost related to grants under the stock option plan that will be recognized over a weighted-average period of 2.1 years. | |||
Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for the nine-month periods ended September 26, 2014 and September 27, 2013 was $12 and $14, respectively. Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for each of the three-month periods ended September 26, 2014 and September 27, 2013 was $4. |
3_Employee_Retirement_Benefit_
3. Employee Retirement Benefit Plans | 9 Months Ended | ||||
Sep. 26, 2014 | |||||
Notes | ' | ||||
3. Employee Retirement Benefit Plans | ' | ||||
3. EMPLOYEE RETIREMENT BENEFIT PLANS | |||||
Distress Termination Application | |||||
On January 7, 2013, the Company submitted a PBGC Form 600 Distress Termination, Notice of Intent to Terminate, to the PBGC. The notice filing initiated an application process by the Company with the PBGC for the distress termination of the Pension Plan. The Pension Plan benefits are guaranteed by the ERISA Title IV insurance fund, which is administered by the PBGC. The Company proposed a termination date of March 8, 2013. Through the application process, the Company’s intent has been to demonstrate to the PBGC that it qualifies for a distress termination of the Pension Plan under either of two of the criteria of Section 4041(c)(2) of ERISA (inability to continue in business absent termination and unreasonably increased pension costs) and applicable PBGC regulations. To satisfy the criteria, the Company and its wholly owned subsidiary each must demonstrate to the satisfaction of the PBGC that, unless the termination occurs, the Company will be unable to pay its debts when they come due and will be unable to continue in business, or that the costs of the Pension Plan have become unreasonably burdensome solely as a result of a decline in the workforce covered by the Pension Plan. A distress termination under Section 4041(c)(2) of ERISA would transfer the Pension Plan’s benefit obligations to the PBGC, up to ERISA guaranteed limits, without requiring reorganization under bankruptcy law. The Pension Plan’s actuary has informed the Company that following termination of the Pension Plan and subject to the PBGC’s review of participant benefits, all of the benefits earned by participants as of the date of plan termination are expected to fall within ERISA guaranteed limits. | |||||
If the distress termination application is approved, the Company’s unfunded obligation of the Pension Plan would be replaced by a new Pension Plan termination liability to the PBGC, determined by the Pension Plan’s underfunding on a termination basis pursuant to ERISA, PBGC regulations, and other applicable legal authority, along with an ERISA special termination premium. The Company would also be liable for any unpaid contributions to the Pension Plan (which in substance is a subset of plan termination liability) and annual insurance premiums for the Pension Plan, along with any interest and penalties. While the full Pension Plan termination liability and other pension related liabilities due to the PBGC would likely be greater than the unfunded obligation of the Pension Plan as currently reported in the Company’s financial statements, the Company is in discussions with the PBGC to negotiate a settlement of such liabilities on terms that are feasible for the Company to continue in business as a going concern, which is consistent with the purposes of the statute. | |||||
The Company’s goal in seeking a distress termination of the Pension Plan is to ensure that the pension benefits of all Pension Plan participants are paid up to federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from bankruptcy reorganization. The Company has been pursuing a conclusion of the process and a settlement of the resulting liabilities. Based upon ongoing correspondence with the PBGC, the Company believes that the application process will likely result in a settlement of the Pension Plan liabilities on terms that will enable the Company to continue to operate as a going concern. However, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome. | |||||
Employer Contributions | |||||
Through September 15, 2012, the Company’s funding policy was to contribute to the Pension Plan trust amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. Beginning in October 2012, the Company discontinued this policy in order to preserve the necessary liquidity for its operations. As a result, a lien in favor of the PBGC has arisen against the assets of the Company to secure aggregate unpaid contributions which amount to $6,307, including interest, as of October 15, 2014. Independent actuarial valuations have determined that additional contributions of approximately $3,900 will become due through October 15, 2015. The Company’s legal counsel has advised that the PBGC usually does not take enforcement action under its lien rights while it is still considering the application for the distress termination which is consistent with the Company’s dialog with the PBGC through the application process. Based upon ongoing correspondence with the PBGC, the Company believes that the application process will likely result in a settlement of the Pension Plan liabilities on terms that will enable the Company to continue to operate as a going concern, although there can be no assurance as to the timing and ultimate outcome of such settlement discussions. | |||||
The Company is not currently required to fund the Supplemental Executive Retirement Plan (SERP). All benefit payments are made by the Company directly to those who receive benefits from the SERP. As such, these payments are treated as both contributions and benefits paid for reporting purposes. The Company expects to contribute and pay SERP benefits of approximately $519 in the next 12 months. | |||||
Components of Net Periodic Benefit Expense | |||||
Pension Plan | Supplemental Executive Retirement Plan | ||||
For the three months ended: | 26-Sep-14 | 27-Sep-13 | 26-Sep-14 | 27-Sep-13 | |
Service cost | - | - | - | - | |
Interest cost | 569 | 398 | 55 | 41 | |
Expected return on assets | -574 | -460 | - | - | |
Amortization of actuarial loss | 101 | 177 | 12 | 17 | |
Amortization of prior year service cost | - | - | -12 | -12 | |
Net periodic benefit expense | 96 | 115 | 55 | 46 | |
Other pension related expense | 208 | 88 | - | - | |
$304 | $203 | $55 | $46 | ||
Pension Plan | Supplemental Executive Retirement Plan | ||||
For the nine months ended: | 26-Sep-14 | 27-Sep-13 | 26-Sep-14 | 27-Sep-13 | |
Service cost | - | - | - | - | |
Interest cost | 1,706 | 1,195 | 164 | 123 | |
Expected return on assets | -1,724 | -1,381 | - | - | |
Amortization of actuarial loss | 304 | 531 | 37 | 51 | |
Amortization of prior year service cost | - | - | -36 | -36 | |
Net periodic benefit expense | 286 | 345 | 165 | 138 | |
Other pension related expense | 326 | 135 | - | - | |
$612 | $480 | $165 | $138 | ||
For the three-month periods ended September 26, 2014 and September 27, 2013, the Company reclassified $101 and $182, respectively, of actuarial loss from accumulated other comprehensive loss that was included in pension expense in the statements of comprehensive loss for the same periods. For the nine-month periods ended September 26, 2014 and September 27, 2013, the Company reclassified $305 and $546, respectively, of actuarial loss from accumulated other comprehensive loss that was included in pension expense in the statements of comprehensive income (loss) for the same periods. |
4_Debt
4. Debt | 9 Months Ended |
Sep. 26, 2014 | |
Notes | ' |
4. Debt | ' |
4. Debt | |
Mortgage Notes | |
On October 3, 2014, the lender for the Spitz mortgage notes, a commercial bank, notified the Company that the liens placed on the Company assets by the Pension Plan were an event of default under the mortgage loan agreements. Pursuant to the notification, the Company and the bank entered into an agreement whereby the bank agreed to forbear from exercising any further remedies other than the suspension of advances under the working capital line of credit, until January 15, 2015 while the Company negotiates the settlement of its pension liabilities, subject to certain conditions agreed to by the Company. The conditions the Company agreed to include continuing to make debt service payments under the mortgage loan agreements, the occurrence of no further adverse events in the condition of the Company, and the incorporation of the financial covenants of the line of credit agreement between the bank and Spitz dated March 15, 2012 as additional covenants in the mortgage loan agreements effective immediately and continuing until the loans are paid in full. The Company believes that it will be able to comply with the additional covenants and, upon settlement of the pension liabilities, the pension plan liens will be replaced by consensual liens in favor of the PBGC which will be subordinate to the commercial bank’s lien under terms agreeable to the commercial bank. However, no assurance can be given that the Company will be able to comply with the additional covenants or that the pension plan liens will be replaced by consensual liens in favor of the PBGC. | |
Line of Credit | |
Because of cross default provisions, the October 3, 2014 notice of default of the mortgage note included notification by the commercial bank that it is no longer obligated to make advances under its line of credit agreement and that it elected to suspend future advances. The Company expects that upon settlement of the pension liabilities, it will be able to reach agreement with the commercial bank to permit new borrowings for future potential working capital requirements. However, no assurance can be given that the Company will be able to reach agreement with the commercial bank to permit new borrowings under the line of credit. As of September 26, 2014, there were no borrowings outstanding under the credit agreement and there have been no borrowings outstanding since February 2011. | |
Sale/Leaseback Financing | |
On July 31, 2014, the Company provided notice to Wasatch Research Park I, LLC (“Wasatch”) to exercise its option to repurchase the buildings it occupies under agreements with Wasatch. The repurchase price, net of a credit due for a lease deposit, would have been $3,027. The repurchase transaction required completion by October 31, 2014. On November 4, 2014 the Company agreed to an extension of its current lease for a term of 5 years. As a condition of the extension the Company will no longer have a right to repurchase the buildings. Base annual rent for the extended 5-year term will be $549. Base annual rent prior to the lease extension was $509. | |
The extension of the lease for 5 years without a repurchase option is expected to result in recording the disposition of building assets and the extinguishment of both the sale-leaseback debt and the deferred rent obligation in the fourth quarter of 2014. The new lease obligation is expected to be accounted for as an operating lease commencing November 1, 2014. |
1_General_Policies
1. General (Policies) | 9 Months Ended | ||
Sep. 26, 2014 | |||
Policies | ' | ||
Revenue Recognition | ' | ||
Revenue Recognition | |||
Sales include revenues from system hardware and the related integrated software, database products and service contracts. The following methods are used to recognize revenue: | |||
Percentage of Completion. In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized using the percentage-of-completion method. In applying this method, the Company utilizes cost-to-cost methodology whereby it estimates the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) for each contract to its total anticipated costs for that contract. This ratio is then utilized to determine the amount of gross profit earned based on the Company’s estimate of total gross profit at completion for each contract. The Company routinely reviews estimates related to percentage-of-completion contracts and adjusts for changes in the period the revisions are made. Billings on uncompleted percentage-of-completion contracts may be greater than or less than incurred costs and estimated earnings and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets. | |||
In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above. | |||
Completed Contract. Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method. Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured. | |||
Multiple Element Arrangements. Some contracts include multiple elements. Significant deliverables in such arrangements commonly include various hardware components of the Company’s visual display systems, domes, show content and various service and maintenance elements. Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements. Relative fair values of elements are generally determined based on actual and estimated selling price. Delivery times of such contracts typically occur within a three to six-month period. | |||
Other. Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single element. Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized over the period of performance under the contract. | |||
Anticipated Losses. For contracts with anticipated losses at completion, a provision is recorded when the loss is probable. After an anticipated loss is recorded, subsequent revenues and costs of sales are recognized in equal, offsetting amounts as contract costs are incurred. | |||
Stock-based Compensation | ' | ||
Stock-Based Compensation | |||
Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Company’s current estimates. | |||
Net Income (Loss) Per Common Share | ' | ||
Net Income (Loss) Per Common Share | |||
Basic net income (loss) per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share. | |||
Inventories, Net | ' | ||
Inventories, net | |||
Inventories consisted of the following: | |||
September 26, | December 31, | ||
2014 | 2013 | ||
Raw materials | $5,871 | $5,587 | |
Work in process | 1,001 | 234 | |
Finished goods | 276 | 223 | |
Reserve for obsolete inventory | -3,085 | -3,019 | |
Inventories, net | $4,063 | $3,025 | |
Recent Accounting Pronouncements | ' | ||
Recent Accounting Pronouncements | |||
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 provides for a single, principles-based model for revenue recognition that replaces existing revenue recognition guidance. ASU 2014-09 is effective for annual and interim periods beginning on or after December 15, 2016. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted. The Company has not yet selected a transition method and is in the process of evaluating the effect this standard will have on its consolidated financial statements and related disclosures. | |||
Liquidity | ' | ||
Liquidity | |||
The Company has experienced recurring annual losses since 2007. Furthermore, as of September 26, 2014, the unfunded obligation of the Company’s qualified defined benefit pension plan (“Pension Plan”), as measured for accounting purposes, amounted to $19,001, contributing to a total stockholders’ deficit of $13,861 as of September 26, 2014. Aided by prior cost reduction efforts and improved 2013 sales volume, the Company reported annual net income for 2013 but incurred a net loss of $780 for the first three quarters of 2014. The Company does not believe it can sustain and improve annual profitability at sufficient levels to fund its existing Pension Plan obligation. In order to preserve the liquid resources required to operate the business, the Company stopped making cash payments due to the Pension Plan trust beginning in October 2012. The Company initiated an application process for the distress termination of the Pension Plan in accordance with provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) which it believes will result in a settlement of its Pension Plan liabilities on terms that are feasible for the Company to continue in business as a going concern through 2014 and beyond. Because of the payments due to the Pension Trust, a lien in favor of the Pension Plan has arisen against the assets of the Company. On October 3, 2014, the lender for the Company’s Spitz Inc. (“Spitz”) subsidiary’s mortgage notes, a commercial bank, notified the Company that the liens placed on the Company assets by the Pension Plan constituted an event of default under the mortgage notes’ credit agreements. Citing cross default terms, the bank suspended borrowings on the Spitz $1,100 working capital line of credit. The bank has not elected to accelerate the payment of the loan balance or exercise any other remedies available upon an event of default. The bank expressed interest in a continuing credit relationship upon satisfactory settlement of the pension liabilities and agreed to forbear from exercising any further remedies until January 15, 2015. The mortgage balances totaled $2,408 as of September 26, 2014. The Company has not used the Spitz $1,100 working capital line of credit since 2011 and, if necessary, the Company believes that it will have sufficient funds to satisfy the Spitz mortgage note balances if the bank were to accelerate the maturity under its default remedy. However, the Company further believes that it will conclude a satisfactory settlement with the PBGC by January 15, 2015 or within a time frame acceptable to the bank. The Company continues to progress through the termination process toward a settlement; however, as of the date of this filing, the Company is uncertain of the timing or the ultimate outcome and it cannot provide assurance that its expectations set forth above will occur in a timely manner or at all. |
1_General_Inventories_Net_Sche
1. General: Inventories, Net: Schedule of Inventory (Tables) | 9 Months Ended | ||
Sep. 26, 2014 | |||
Tables/Schedules | ' | ||
Schedule of Inventory | ' | ||
Inventories consisted of the following: | |||
September 26, | December 31, | ||
2014 | 2013 | ||
Raw materials | $5,871 | $5,587 | |
Work in process | 1,001 | 234 | |
Finished goods | 276 | 223 | |
Reserve for obsolete inventory | -3,085 | -3,019 | |
Inventories, net | $4,063 | $3,025 |
2_Stock_Option_Plan_Schedule_o
2. Stock Option Plan: Schedule of Share-based Compensation, Stock Options, Activity (Tables) | 9 Months Ended | ||
Sep. 26, 2014 | |||
Tables/Schedules | ' | ||
Schedule of Share-based Compensation, Stock Options, Activity | ' | ||
Weighted- | |||
Average | |||
Number | Exercise | ||
of Shares | Price | ||
Outstanding as of beginning of the period | 1,235 | $2.62 | |
Granted | 200 | 0.13 | |
Exercised | - | - | |
Forfeited or expired | -101 | 4.85 | |
Outstanding as of end of the period | 1,334 | 2.08 | |
Exercisable as of the end of the period | 993 | 2.76 |
2_Stock_Option_Plan_Schedule_o1
2. Stock Option Plan: Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (Tables) | 9 Months Ended | |
Sep. 26, 2014 | ||
Tables/Schedules | ' | |
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | ' | |
Risk-free interest rate | 0.74% | |
Dividend yield | 0.00% | |
Volatility | 340% | |
Expected life | 3.5 years |
3_Employee_Retirement_Benefit_1
3. Employee Retirement Benefit Plans: Components of Net Periodic Benefit Expense (Tables) | 9 Months Ended | ||||
Sep. 26, 2014 | |||||
Tables/Schedules | ' | ||||
Components of Net Periodic Benefit Expense | ' | ||||
Pension Plan | Supplemental Executive Retirement Plan | ||||
For the three months ended: | 26-Sep-14 | 27-Sep-13 | 26-Sep-14 | 27-Sep-13 | |
Service cost | - | - | - | - | |
Interest cost | 569 | 398 | 55 | 41 | |
Expected return on assets | -574 | -460 | - | - | |
Amortization of actuarial loss | 101 | 177 | 12 | 17 | |
Amortization of prior year service cost | - | - | -12 | -12 | |
Net periodic benefit expense | 96 | 115 | 55 | 46 | |
Other pension related expense | 208 | 88 | - | - | |
$304 | $203 | $55 | $46 | ||
Pension Plan | Supplemental Executive Retirement Plan | ||||
For the nine months ended: | 26-Sep-14 | 27-Sep-13 | 26-Sep-14 | 27-Sep-13 | |
Service cost | - | - | - | - | |
Interest cost | 1,706 | 1,195 | 164 | 123 | |
Expected return on assets | -1,724 | -1,381 | - | - | |
Amortization of actuarial loss | 304 | 531 | 37 | 51 | |
Amortization of prior year service cost | - | - | -36 | -36 | |
Net periodic benefit expense | 286 | 345 | 165 | 138 | |
Other pension related expense | 326 | 135 | - | - | |
$612 | $480 | $165 | $138 |
1_General_Inventories_Net_Sche1
1. General: Inventories, Net: Schedule of Inventory (Details) (USD $) | Sep. 26, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
Details | ' | ' |
Raw Materials | $5,871 | $5,587 |
Work-in-process | 1,001 | 234 |
Finished goods | 276 | 223 |
Reserve for obsolete inventory | -3,085 | -3,019 |
Inventories, net | $4,063 | $3,025 |
1_General_Liquidity_Details
1. General: Liquidity (Details) (USD $) | 3 Months Ended | 9 Months Ended | |||
In Thousands, unless otherwise specified | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 | Dec. 31, 2013 |
Pension and retirement obligations, net of current portion | $23,525 | ' | $23,525 | ' | $23,567 |
Total Stockholders' Deficit | -13,861 | ' | -13,861 | ' | -13,398 |
Net loss | 639 | 989 | -780 | -793 | ' |
Spitz working capital line of credit, maximum borrowing capacity | 1,100 | ' | 1,100 | ' | ' |
Mortgage balances | 2,408 | ' | 2,408 | ' | 2,995 |
Pension Plans, Defined Benefit | ' | ' | ' | ' | ' |
Pension and retirement obligations, net of current portion | $19,001 | ' | $19,001 | ' | ' |
2_Stock_Option_Plan_Details
2. Stock Option Plan (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, except Share data, unless otherwise specified | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 |
Details | ' | ' | ' | ' |
Authorized number of options to purchase Common Stock | 1,439,913 | ' | 1,439,913 | ' |
Options exercisable, weighted average remaining contractual term | ' | ' | '3 years 8 months 12 days | ' |
Options outstanding, weighted average remaining contractual term | ' | ' | '5 years | ' |
Options, exercisable, aggregate intrinsic value | $26 | ' | $26 | ' |
Options, outstanding, aggregate intrinsic value | 76 | ' | 76 | ' |
Share-based compensation cost related to grants under the stock option plan, not yet recognized | 14 | ' | 14 | ' |
Share-based compensation cost related to grants under the stock option plan, not yet recognized, period for recognition | ' | ' | '2 years 1 month 6 days | ' |
Share-based compensation expense | $4 | $4 | $12 | $14 |
2_Stock_Option_Plan_Schedule_o2
2. Stock Option Plan: Schedule of Share-based Compensation, Stock Options, Activity (Details) (USD $) | 9 Months Ended |
In Thousands, except Per Share data, unless otherwise specified | Sep. 26, 2014 |
Details | ' |
Outstanding as of beginning of the period | 1,235 |
Outstanding as of beginning of the period, weighted average exercise price | $2.62 |
Granted | 200 |
Granted, weighted average exercise price | $0.13 |
Exercised | ' |
Exercised, weighted average exercise price | ' |
Forfeited or expired | -101 |
Forfeited or expired, weighted average exercise price | $4.85 |
Outstanding at end of the period | 1,334 |
Outstanding at end of the period, weighted average exercise price | $2.08 |
Exercisable as of the end of the period | 993 |
Exercisable as of the end of the period, weighted average exercise price | $2.76 |
2_Stock_Option_Plan_Schedule_o3
2. Stock Option Plan: Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (Details) | 9 Months Ended |
Sep. 26, 2014 | |
Details | ' |
Risk-free interest rate | 0.74% |
Dividend yield | 0.00% |
Volatility | 340.00% |
Expected life | '3 years 6 months |
3_Employee_Retirement_Benefit_2
3. Employee Retirement Benefit Plans (Details) (USD $) | 3 Months Ended | 9 Months Ended | |||
In Thousands, unless otherwise specified | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 | Oct. 15, 2014 |
Lien against assets of the company for unpaid pension contributions | ' | ' | ' | ' | $6,307 |
Estimated Future Employer Contributions in Next Fiscal Year | ' | ' | 3,900 | ' | ' |
Reclassification of pension expense to net income (loss) | 101 | 182 | 305 | 546 | ' |
Supplemental Executive Retirement Plan | ' | ' | ' | ' | ' |
Estimated Future Employer Contributions in Next Fiscal Year | ' | ' | $519 | ' | ' |
3_Employee_Retirement_Benefit_3
3. Employee Retirement Benefit Plans: Components of Net Periodic Benefit Expense (Details) (USD $) | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | ||||||
In Thousands, unless otherwise specified | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 | Sep. 26, 2014 | Sep. 27, 2013 |
Pension Plans, Defined Benefit | Pension Plans, Defined Benefit | Pension Plans, Defined Benefit | Pension Plans, Defined Benefit | Supplemental Executive Retirement Plan | Supplemental Executive Retirement Plan | Supplemental Executive Retirement Plan | Supplemental Executive Retirement Plan | |||||
Service cost | ' | ' | ' | ' | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
Interest cost | ' | ' | ' | ' | 569 | 398 | 1,706 | 1,195 | 55 | 41 | 164 | 123 |
Expected return on assets | ' | ' | ' | ' | -574 | -460 | -1,724 | -1,381 | 0 | 0 | 0 | 0 |
Amortization of actuarial loss | ' | ' | ' | ' | 101 | 177 | 304 | 531 | 12 | 17 | 37 | 51 |
Amortization of prior year service cost | ' | ' | ' | ' | 0 | 0 | 0 | 0 | -12 | -12 | -36 | -36 |
Net periodic benefit expense | ' | ' | ' | ' | 96 | 115 | 286 | 345 | 55 | 46 | 165 | 138 |
Other pension related expense | ' | ' | ' | ' | 208 | 88 | 326 | 135 | 0 | 0 | 0 | 0 |
Pension Expenses for the period | $359 | $249 | $777 | $618 | $304 | $203 | $612 | $480 | $55 | $46 | $165 | $138 |
4_Debt_Details
4. Debt (Details) (USD $) | Sep. 26, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
Details | ' | ' |
Long-term Line of Credit | $0 | ' |
Amount of option to repurchase the buildings under agreements with Wasatch | 3,027 | ' |
Base annual rent for the extended 5 year term | 549 | ' |
Base annual rent prior to lease extension | ' | $509 |