ITEM 1.BUSINESS
Throughout this document Evans & Sutherland Computer Corporation may be referred to as “Evans & Sutherland,” “E&S,” “we,” “us,” “our” or the “Company.” All dollar amounts are in thousands unless otherwise indicated.
Evans & Sutherland was incorporated in the state of Utah on May 10, 1968. Our principal offices are located at 770 Komas Drive, Salt Lake City, Utah 84108, and our telephone number is (801) 588-1000. Through a link on our website, www.es.com, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). We make our website content available for informational purposes only. The information provided on our website is not incorporated by reference into this Form 10-K and our website address is not intended to be a hyperlink. The above reports and other information are also available, free of charge, at www.sec.gov.
Recent Developments
As more fully described in Note 14 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K, on February 9, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Elevate Entertainment Inc., a Delaware corporation (“Elevate”) and Elevate Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of Elevate (“Purchaser”). Elevate is owned by Mirasol Capital, LLC, a Delaware limited liability company solely managed by Stephen T. Winn. Pursuant to the Merger Agreement, on February 27, 2020, Elevate and Purchaser commenced a cash tender offer to acquire all of the outstanding shares of common stock of the Company through a cash tender offer at a price of $1.19 per share. The tender offer expired at the end of March 25, 2020. As of the expiration of the tender offer period, approximately 10,576,487 shares of the Company’s common stock (excluding approximately 50,741 shares subject to guaranteed delivery procedures) were properly tendered and not withdrawn in the tender offer, representing approximately 92.1% of the aggregate number of then issued and outstanding shares of the Company’s common stock. Pursuant to the terms of the Merger Agreement, on March 26, 2020, Elevate accepted for purchase the tendered shares of common stock and announced that it intends to complete a second-step merger under Utah law in which Purchaser will merge with and into the Company, with the Company surviving as a subsidiary of Elevate. Because the number of shares accepted in the tender offer exceed 90% of the issued and outstanding shares of common stock of the Company, Elevate and Purchaser intend to complete the merger of the Company and Purchaser as promptly as practicable without a meeting and without the vote of the remaining shareholders of the Company, as permitted by Utah law. The Company filed a Current Report on Form 8-K to report expiration of the tender offer and the resulting change of control on March 26, 2020.
General
Evans & Sutherland focuses on the production of high-quality advanced visual display systems used primarily in full-dome video projection applications, dome projection screens, dome architectural treatments, and unique content for planetariums, schools, science centers, other educational institutions, and entertainment venues. With a 50-year history in computer graphics, we are widely regarded as both a pioneer and a leader in providing the world’s most compelling full-dome digital theater and planetarium systems as well as original full-dome shows. With our subsidiary, Spitz, Inc. (“Spitz”), and its over 70-year history as a leading supplier of planetarium systems, dome projection screens and other dome displays, E&S supplies premier total system solutions for its digital theater markets as well as customized domes and other unique geometric structures in the architectural market.
We continue to maintain a significant share of the overall planetarium market. We estimate that the annual market for our planetarium products ranges from $65 million to $100 million and varies each year depending on the timing of customer projects. We estimate our share of the planetarium market has ranged from 30% to 50% each year. Additionally, we sell related products into tangential markets that are less defined which make up the balance of our revenue.
Description of Products
E&S offers a range of products and services primarily for dome and planetarium theaters in educational institutions, training, and entertainment venues. These products include state of the art planetarium and dome theater systems consisting of proprietary hardware and software, and other unique visual display systems primarily used to project digital video on large curved surfaces. We also produce unique show content both for our own library which we license to customers and for specific customer requirements for planetarium and dome theaters. Additionally, we manufacture and install metal domes with customized optical coatings and acoustical properties that are used for planetarium and dome theaters as well as many other unique custom applications. Our dome engineering and manufacturing resources also design and supply geometrically complex structures for customized architectural treatments, often involving curved metal shapes with unique optical and acoustical properties.
Description of Markets
We are an industry leader in providing full-dome hardware and software to an international customer base in the digital theater, planetarium, entertainment, training and educational markets. In each of these markets, we face highly competitive conditions where we compete on features, performance, and responsiveness to customer needs as well as on price. E&S is unique among its competitors by virtue of its capability as a single source that can directly supply and integrate all of the equipment in the planetarium theater, including the projection system, sound, lighting, computer control system and domed projection screen. We believe our range of visual systems and services at various price and performance levels, our research and development investments and capabilities, our responsiveness to customers, and our ability to design and manufacture value-added visual systems enable us to compete effectively. Our competitive strengths with visual systems and services aid the sale of our dome projection screens as customers often require a new dome projection screen with their visual system. We also believe our capabilities to design and manufacture domes and certain other architectural structures are unique and enable us to compete effectively in all of the markets where these products are sold.
Digital Theater
In the digital theater market, our products compete with traditional optical-mechanical products and digital display systems offered by GOTO Optical Mfg. Co., Konica-Minolta Planetarium Co. Ltd., Carl Zeiss Inc., and Sky-Skan, Inc. The Company’s digital display systems are configured with standard commercial projectors similar to systems sold by our competitors. Our proprietary Digistar full-dome digital system, along with other customized software tools differentiate our digital theater systems and compete favorably with competitive digital display systems. Our SciDome planetarium system, which uses a dome theater version of a retail desktop astronomy product with curriculum tools for teachers, creates a unique competitive advantage when targeting smaller classroom planetarium theaters. In 2019, we introduced DomeX™, a revolution in full-dome display technology. DomeX incorporates light-emitting diodes, commonly referred to as LED’s, directly into the dome surface, turning it into an active video display that outperforms projector-based solutions in contrast, brightness, reliability, and lifespan. Driven or powered by Digistar, DomeX has been introduced as a product for planetarium and giant screen dome theaters and may also create opportunities in specialty digital theater applications.
Advanced Displays
Our capabilities and products sometimes are used for special advance display applications primarily for wide audiences in specialty theaters and other visitor attractions. This includes the integration of the most advanced video projectors with customized lenses, software and unique application techniques to serve customers who are in search of extraordinary display of visual content. Our competition in these markets includes various specialty audio visual systems integrators and alternative solutions using other technologies.
Giant Screen Cinema
E&S supplies digital display systems for educational and entertaining giant screen cinema experiences, focused on the market commonly defined by established competitors like IMAX. We bring unique capabilities and strengths to this market, including ultra-high resolution projection systems.
Domed Structures
Our Spitz subsidiary is the world's leading producer of domed projection screens. At Spitz we design, manufacture, and install domed projection screens used in digital theater and planetarium theaters and a variety of other applications such as ride simulators, special or large format film theaters, simulation training systems and
architectural treatments. We have developed proprietary dome products such as our NanoSeam dome which we believe provides the smoothest, most uniform projection surface available. Our dome structures include a newly designed structure which will serve as an integrating component for our new DomeX digital theater product. Our experience with dome projection screens enables us to advise on the architectural integration of domed projection screens and solve complex optical problems involving reflectivity and image distortion on compound curved surfaces. We believe that these skills are important to buyers of domed projection screens. The principal customers of our dome business are entities in the entertainment, educational and commercial and military simulation markets. Customers include major theme parks, casinos, world expositions, museums, schools, and military defense contractors. There is currently one known domestic competitor that manufactures domed projection screens. In addition, construction or metal fabrication contractors occasionally supply domed projection screens, particularly in foreign markets. The structures we design and supply for architectural treatments are sold as complements to our dome screen products or into the architectural market for a wide variety of interesting venues. Competition for our architectural treatment products usually comes from construction or metal fabrication contractors often with an alternative design idea.
Intellectual Property
We own a significant number of patents and trademarks and we are a licensee under several others. Our portfolio of patents and trademarks, as a whole, contributes to our business. However, no one piece of intellectual property is critical to our business, thus no individual piece of our intellectual property is separately discussed. In the U.S. and internationally, we hold active patents that cover many aspects of our visualization technology. Several patent applications are presently pending, and routinely other patent applications are in preparation. We actively pursue patents on our new technology, and we intend to vigorously protect our patent rights. We often trademark key product names and brand names to protect our equity in the marketplace. We routinely copyright software and documentation and institute copyright registration when appropriate. Currently we retain a total of 18 active U.S. patents.
Research and Development
We consider the timely development and improvement of our technology to be essential to maintain our competitive position and to capitalize on market opportunities. We continue to fund essentially all research and development (“R&D”) efforts internally.
R&D efforts continue to improve Digistar, our popular full-dome digital system and a key component to our planetarium and dome theater products. We also explore the possibility of other commercial applications for Digistar technology as opportunities arise. We conduct ongoing R&D to improve the functionality of SciDome to keep pace with updated versions of the desktop software it emulates and to take advantage of the latest digital display and theater technology. Some noteworthy specific R&D activities for our advance display and planetarium products include the development of unique techniques to display three-dimensional digital video and the expansion of educational curriculum tools to cover new subject matter in addition to astronomy such as chemistry and earth sciences. We continue to develop improvements to our dome products including optical coatings and ways to make the projection surface more uniform. There are also R&D efforts ongoing to enhance components of the systems we sell, such as improvements to theater lighting.
We continually work with the new digital projection technologies to develop advanced visual display systems primarily to be used by wide audiences in specialty theaters and other visitor attractions. This includes the integration of the most advanced video projectors with customized lenses, software and unique application techniques to serve customers who are in search of extraordinary display of visual content.
Dependence on Suppliers
Most of our current parts and assemblies are readily available through multiple sources in the open market; however, a limited number are available only from a single source. In these cases, we either stock adequate inventory to cover future product demands, obtain the agreement of the vendor to maintain adequate stock for future demands, or develop alternative components or sources where appropriate.
Employees
As of December 31, 2019, Evans & Sutherland and its subsidiaries employed a total of 96 persons of which 95 were employed full time.
Environmental Standards
We believe our facilities and operations are within standards fully acceptable to the Environmental Protection Agency and that all facilities and procedures are operated in accordance with environmental rules and regulations, and international, federal, state and local laws.
Strategic Relationships
In the normal course of business, we develop and maintain various types of relationships with key customers and technology partners. The teaming agreements are with industry partners and are intended to improve our overall competitive position. The product development agreements enhance our products by the cooperative development of new features and capabilities necessary to maintain our industry leading position.
Forward-Looking Statements and Associated Risks
This annual report, including all documents incorporated herein by reference, includes certain “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, among others, those statements preceded by, followed by or including the words “estimates,” “believes,” “expects,” “anticipates,” “plans,” “projects,” “intends,” “predicts,” “may,” “will,” “could,” “would,” “potential” and similar expressions or the negative of such terms. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II of this annual report on Form 10-K for a list of some of the forward-looking statements included in this Form 10-K.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following sets forth certain information regarding the executive officers of E&S as of December 31, 2019.
NameAgePosition
Jonathan A. Shaw63Chief Executive Officer and Director
Paul L. Dailey63Chief Financial Officer and Corporate Secretary
Kirk D. Johnson58Chief Operating Officer and President
Jonathan A. Shaw was appointed Chief Executive Officer and Director in September 2016. He previously served as President and Chief Executive Officer of Spitz since November 2001. Prior to his appointment as President and Chief Executive Officer of Spitz, Mr. Shaw held various management positions since 1985.
Paul L. Dailey was appointed Executive Vice President in December 2016. He was appointed Chief Financial Officer and Corporate Secretary in February 2007. He became an executive officer of E&S in August 2006 when he was appointed Acting Chief Financial Officer and Corporate Secretary. Prior to his appointments at E&S, Mr. Dailey served as Executive Vice President, Chief Financial Officer and Corporate Secretary of Spitz, where he started as Controller in 1983. Mr. Dailey is a Certified Public Accountant (inactive).
Kirk D. Johnson was appointed Chief Operating Officer and President in September 2016. He previously served as Vice President and General Manager of Digital Theater since January 2002. He joined E&S in April 1990 and has held various engineering and management positions throughout his service at E&S.
ITEM 2.
ITEM 2. PROPERTIES
Our principal executive, engineering, manufacturing and operations facilities are in the University of Utah Research Park in Salt Lake City, Utah, where we lease space in two buildings totaling approximately 41,000 square feet.
Spitz owns and occupies an approximately 47,000 square-foot building on approximately 15.2 acres in Chadds Ford, Pennsylvania. The property serves as collateral under Spitz’s debt agreements through a mortgage granted to First Keystone Bank which is now The Bryn Mawr Trust Company, a commercial bank.
ITEM 3.
ITEM 3.LEGAL PROCEEDINGS
In the normal course of business, we may have various legal claims and other contingent matters. We know of no legal claims outstanding that would have a material adverse effect on our consolidated financial position, liquidity or results of operations.
ITEM 4.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the Over-the-Counter Markets under the symbol “ESCC.” On March 30, 2020, there were approximately 415 holders of record of our common stock. Because brokers and other institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
We have never paid a cash dividend on our common stock and have used funds generated internally to operate our business. For the foreseeable future, we intend to follow our policy of retaining any future earnings to finance the development and growth of our business.
Additional information required by this item is incorporated by reference to the table captioned Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2019 in Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of Part III of this annual report on Form 10-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with our consolidated financial statements and notes included in Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K. Information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to differ materially from those contained in the forward-looking statements. See “Forward-Looking Statements” below for additional information concerning these items.
(All dollar amounts are in thousands unless otherwise indicated.)
The Impact of COVID-19
As of the time of this filing, certain of the Company’s operating activities have been curtailed by the impact of COVID-19. Government directives have suspended manufacturing and limited workplace activities beginning March 23, 2020. The Company has empowered its employees to work remotely wherever possible to minimize the disruption to Company operations. The Company has received no communications from customers that indicate cancellations. We have received some requests to postpone deliveries and we expect more which will extend the timing of revenue recognition and, in some cases, customer payments. Public health directives from governments around the world are advising or prohibiting large gatherings to inhibit the spread of COVID-19. This has suspended the use of our products for much of our installed customer base. Continued restrictions and the potential behavioral changes resulting from the impact of COVID-19 may continue to influence the demand for our products which typically attract a large audience. Also, the ongoing impact of COVID-19 on the world’s economy could ultimately have material adverse consequences to the Company; however, as of now, the Company is unable to determine the likelihood or degree of such adverse consequences.
Executive Summary
Sales for 2019 were $27,716, or approximately 25% lower than the $37,193 of sales reported in 2018. This produced a net loss of $1,599 in 2019 compared to net income of $3,308 in 2018. The net loss reversed some of our recent gains in stockholders’ equity decreasing total stockholders’ equity to $6,684 as of December 31, 2019 compared to $8,373 as of December 31, 2018. The lower 2019 sales were attributable to a lower volume of new orders from mid-2018 to mid-2019. Also contributing to the lower 2019 sales were the acceleration of customer deliveries in 2018 which accelerated 2018 revenue that would otherwise have been recorded in 2019. The results of 2019 and 2018 demonstrate the degree of variability in sales that can occur from the timing of customer orders and deliveries.
We believe that the period of low volume of new orders was not attributable to work lost to competition, rather we believe that it was the timing of purchase decisions and delayed development of new projects by potential customers. We saw an increase in new orders in the second half of 2019 that improved the sales backlog at the end of 2019, and we are hopeful that this will continue. We believe that some of the 2019 lower sales were attributable to delayed decisions paced by new developing technologies. We were optimistic that the improving backlog as of December 31, 2019 would lead us back to profitable sales levels in 2020 and that we would be able to continue to build on the recovery of the large stockholders’ deficit prior to the 2015 settlement of our pension liabilities; however, as noted above, the effects of the COVID-19 pandemic could materially adversely affect our business in 2020. New orders to replenish the sales backlog will be critical to produce sales at sufficient levels for profitable results in 2020. We remain encouraged that the Company’s sales prospects will produce sufficient orders to sustain sales at profitable levels over the long term.
The Company used 2019 as an opportunity to redirect staff and resources, which would otherwise be working on customer projects, toward new sales and research and development activities to expand our products for future sales growth. As a result, operating expense increased and contributed to the net loss. We believe these efforts will lead to more sales and growth opportunities for the business; however, the Company’s limited resources present a challenge to developing new technologies, such as DomeX, to grow the business.
Beyond 2020, we expect variable but reasonably consistent future sales and gross profit from our current product line at annual levels sufficient to cover or exceed operating expenses and meet our obligations. As our recovery progresses from a large stockholders’ deficit eliminated mainly by the 2015 Pension Settlement, we expect to continue to improve our products and explore new opportunities to increase our sales and profits to grow shareholder value.
We are currently pursuing new opportunities for our business while we continue to develop and improve the products that serve our traditional markets. We consider the advancement of innovative products such as Digistar and DomeX essential to maintaining our leading share of the planetarium market. We will continue to develop and improve our planetarium products more narrowly focused on education markets such as our SciDome product. We intend to also continue development and improvement of our dome products used by planetarium theaters and many other varied applications. We intend to continue the production of quality show content for planetarium theaters. We believe that the ability to include the wide range of complementary products in the systems we sell, along with access to the legacy customer base of E&S and our subsidiary, Spitz, provides a unique competitive advantage.
Results of Operations
Consolidated Sales and Backlog
The following table summarizes our consolidated sales for the years ended December 31:
Sales decreased 25% from 2018 to 2019. The lower sales in 2019 were attributable to the acceleration of customer deliveries in 2018 and a low volume of new customer orders from late 2018 through the first half of 2019.
Revenue backlog increased to $19,708 as of December 31, 2019, compared to $17,366 as of December 31, 2018. The increase in the revenue backlog was mainly due to an improving volume of new orders in the second half
of 2019 and the low 2019 sales which were replenished by an improving volume of new orders in the third quarter of 2019.
Gross Profit
The following table summarizes our gross profit and the percentage to total sales for the years ended December 31:
The mix of products delivered and the types of customer contracts that contributed to the revenue in the periods presented causes variability in the gross profit percentage. The lower 2019 gross profit percentage was mainly attributable to the low 2019 sales causing inefficiencies that increase overhead cost of as a percentage of sales. The negative effect of the lower 2019 sales was partially offset by strong gross margins on several projects which were completed at costs lower than estimated as efforts to meet some customized product features and uncertain site conditions were less than anticipated.
Operating Expenses
The following table summarizes our operating expenses during the years ended December 31:
Selling, general and administrative expenses were higher in 2019 compared to 2018. Most of the increase was attributable to a second quarter bad debt charge of $457 for a customer receivable in China. Also contributing to the increase was a higher use of engineering resources working sales proposals.
Research and development expenses were higher in 2019 due to the deployment of more engineering resources to R&D activities made possible by lower activities for customer deliveries and show content production. Research and development expenses generally vary with use of engineering resources for product improvement projects and customer delivery activities. Research and development activities consisted of exploration of new applications for our products, improvements to the software in our planetarium products, testing hardware to project high definition video on large dome screens, development of various utilities for planetarium theaters, testing of optical coatings for projection surfaces and developing techniques to make dome projection surfaces more uniform.
Pension expense attributable to our Supplemental Executive Retirement Plan (“SERP”) was slightly higher in 2019 compared to 2018 due to changes in the actuarial data and interest rates affecting the measurement of the pension expense.
Other Expense, net
The following table summarizes our other expense during the years ended December 31:
Interest expense in 2019 and 2018 consisted mostly of imputed interest on the Pension Settlement Obligation. Interest expense also included interest paid on real estate debt in both years presented. Interest expense decreased in 2019 compared to 2018 due to the reduction of debt and is expected to continue to decrease at a comparable rate in future years.
Other income, net increased from $106 in 2018 to $134 in 2019 due primarily to rental income from a sublease for a small portion of our facilities.
Income Taxes
The income tax benefit (expense) consisted of federal and state income taxes as follows for the years ended December 31:
The 2019 tax benefit resulted primarily from state film tax credit for the production of a planetarium show which was recorded at the estimated value realizable through assignment. The 2018 income tax expense was for state income taxes resulting from Spitz’ normal business activity in various jurisdictions.
Other Comprehensive Income
The following table summarizes other comprehensive income for the years ended December 31:
Other comprehensive income consists of accounting for potential changes in the actuarial valuation of the SERP liabilities.
Liquidity and Capital Resources
Outlook
We believe existing liquidity resources and funds generated from forecasted revenue will be sufficient to meet our current and long-term obligations. We continue to operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures.
Public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of restrictions on business activities, travel restrictions, business closures, and the promotion of social distancing, have affected and could continue to affect our customers’ behavior and impact our operations. Additionally, we cannot predict the impact that any widespread infection by COVID-19, including the potential infection of our workforce would have on our ability to perform our services. We continue to take measures to ensure the health and welfare of our employees. COVID-19 may affect the ability of our suppliers and vendors to provide products and services to us that support our activities. These and other factors may restrict our ability to conduct business and unpredictably increase or decrease demand for our products.
Due to the speed with which this situation is developing and the uncertainty regarding its extent or duration, we are not able to estimate the impact of COVID-19 on our revenues, results of operations, and liquidity, or our outlook for the first or second quarters of 2020 or beyond, and this impact could be material.
Cash Flows
The following table summarizes our cash flows for the years ended December 31:
The fluctuation in the annual increase and decrease in cash and cash equivalents is mainly due to cash provided by or used in operating activities.
Operating Activities
The net cash used in operating activities in 2019 was attributable to $567 of cash absorbed by the $1,599 net loss after the effect of $1,032 of non-cash charges which was partially offset by a decrease in working capital of $1,248. The non-cash charges consisted primarily of $266 of depreciation, $457 in the allowance for doubtful accounts receivable and $420 in noncash lease expense. The changes in working capital which used cash were largely attributable to an increase in accounts receivable and unbilled contract revenue. These changes are attributable to the timing of performance on customer projects.
The net cash provided by operating activities in 2018 was attributable to $4,894 of cash provided by the $3,308 net income after the effect of $1,586 of non-cash charges which was partially offset by a decrease in working capital of $1,165. The non-cash charges consisted primarily of $263 of depreciation, $427 in the provision for excess and obsolete inventory and $529 in noncash lease expense. The changes in working capital which used cash were largely attributable to an increase in inventory and the reduction of liabilities. This was partially offset by a decrease in customer accounts receivable. These changes are attributable to the timing of performance on customer projects.
Investing Activities
Investing activities used $124 of cash during 2019 consisting of purchases of property and equipment of $131, less proceeds from the sale of property and equipment of $7.
Investing activities used $101 of cash during 2018 consisting of purchases of property and equipment of $136, less proceeds from the sale of property and equipment of $35.
Financing Activities
Financing activities used $653 of cash during 2019 consisting of $237 for principal payments on debt obligations and $437 for principal payments on the Pension Settlement Obligation offset by $21 from proceeds for shares issued upon the exercise of stock options.
Financing activities used $631 of cash during 2018 consisting of $224 for principal payments on debt obligations and $407 for principal payments on the Pension Settlement Obligation.
Credit Facilities
The Company is a party to a line-of-credit agreement with a commercial bank which permits borrowings of up to $1,100 to fund Spitz working capital requirements. Under the line-of-credit agreement, interest is charged on amounts borrowed at the lender’s prime rate less 0.25%. Any borrowings under the Credit Agreement are secured by Spitz real and personal property and all the outstanding shares of Spitz common stock. The line-of-credit agreement and mortgage notes (with the same commercial bank) contain cross default provisions whereby a default on either agreement will result in a default on both agreements. There were no borrowings outstanding under the line-of-credit agreement as of December 31, 2019.
The ability to issue letters of credit and bank guarantees is an important tool to mitigate credit risk in our business. International sales are increasingly important to our business and, in many countries, letters of credit and bank guarantees serve as performance guarantees for customer contracts. Also, domestic sales sometimes require performance guarantees in the form of surety bonds. We have relationships with licensed surety companies to provide performance bonds subject to certain limitations and collateral which we must provide for security. Letters of credit and bank guarantees are issued to serve as collateral and to ensure our performance for these purposes. Cash deposits or deferral of customer payments for performance guarantees can often be used as an alternative to letters of credit.
Under the terms of financing arrangements for letters of credit, the Company is required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit issued, plus other amounts necessary to adequately secure obligations with the financial institutions who issue the letters of credit. As of December 31, 2019, there was one outstanding letter of credit and bank guarantee of $31, which is scheduled to expire during the year ending December 31, 2020.
Mortgage Notes
Debt obligations include a first mortgage note payable to a commercial bank which represents the balance on a $3,200 note (“First Mortgage Note”) issued on January 14, 2004 by Spitz. The First Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On January 14, 2006 and each third anniversary thereof, the interest rate on the First Mortgage Note is adjusted to the greater of 5.75% or 3% over the Three-Year Constant Maturity Treasury Rate published by the United States Federal Reserve (“3YCMT”). The monthly installment is recalculated in the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. On January 14, 2018, the 3YCMT was 2.09% and the interest rate on the First Mortgage Note remained at 5.75% per annum. As a result, the monthly installment amount remained unchanged at $23.
Debt obligations also include a second mortgage note payable to a commercial bank which represents the balance on a $500 note (“Second Mortgage Note”) issued on September 11, 2008 by Spitz. The Second Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On October 1, 2013 and each fifth anniversary thereof, the interest rate on the Second Mortgage Note is adjusted to the greater of 5.75% or 3% over the Five-Year Constant Maturity Treasury Rate published by the United States Federal Reserve (“5YCMT”). The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. On October 1, 2018, the tenth anniversary of the Second Mortgage Note, the 5YCMT was 2.99%. As a result, interest was adjusted to 5.99%. The monthly installment remains at $4.
The Mortgage Notes are secured by the real property occupied by Spitz pursuant to a Mortgage and Security Agreement. The real property had a carrying value of $3,863 as of December 31, 2019. The Mortgage Notes are guaranteed by E&S.
Land and building lease
On April 15, 2019, the Company signed an amendment to the Previous Facility Lease (the “Lease Amendment”). The Lease Amendment effectively terminated, as of April 30, 2019, the Previous Facility Lease, and revised the terms whereby, effective May 1, 2019, the Company continues to lease 60% of the space, while the other 40% is leased from the Landlord by a third-party tenant (“New Facility Lease”). The Company continues to pay 100% of the maintenance and utility costs for the buildings and grounds, of which approximately 40% is reimbursed by the third-party tenant in accordance with terms set by the New Facility Lease. The New Facility Lease has a seven-year term with two five-year renewal options with monthly base rent of $35 during the first year with a 3% escalation per year.
Other
In 2020, we expect capital expenditures similar to 2019. There were no material capital expenditure commitments as of December 31, 2019, nor do we anticipate any over the next several years.
Our Board of Directors has authorized the repurchase of 1,600,000 shares of our common stock. As of March 30, 2020, 463,500 shares remained available for repurchase under the plans approved by the Board of Directors. No shares were repurchased during 2019 or 2018. Stock may be acquired on the open market or through negotiated transactions depending on market conditions, share price and other factors.
We also maintain trade credit arrangements with certain suppliers. The unavailability of a significant portion of, or the loss of, these trade credit arrangements from suppliers would have a material adverse effect on our financial condition and operations.
As of December 31, 2019, our total indebtedness was $1,303 on the mortgage notes. Our cash and restricted cash, subject to various restrictions set forth in this annual report on Form 10-K, are available for working capital needs, capital expenditures, strategic investments, mergers and acquisitions, stock repurchases and other potential cash needs as they may arise.
Effects of Inflation
The effects of inflation were not considered material for the years 2019 and 2018 and are not expected to be material for the year 2020.
Application of Critical Accounting Estimates
The application of the accounting estimates discussed below is considered by management to be critical to an understanding of our consolidated financial statements. Their application places significant demands on management’s judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain. Specific risks for these critical accounting estimates are described in the following paragraphs. A summary of significant accounting policies can be found in Note 1, “Nature of Operations and Summary of Significant Accounting Policies,” of Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K. For all of these policies, management cautions that future results rarely develop exactly as forecast, and the best estimates routinely require adjustment.
Revenue Recognition
Revenue from contracts is recorded over time using the percentage-of-completion method. This method uses the ratio of costs incurred to management’s estimate of total anticipated costs. Our estimates of total costs include assumptions, such as man-hours to complete, estimated materials cost, and estimates of other direct and indirect costs. Actual results may vary significantly from our estimates. If the actual costs are higher than management’s anticipated total costs, then an adjustment is required to reduce the previously recognized revenue as the ratio of costs incurred to management’s estimate was overstated. If actual costs are lower than management’s anticipated total costs, then an adjustment is required to increase the previously recognized revenue as the ratio of costs incurred
to management’s estimate is understated. Adjustments for revisions of previous estimates are made in the period they become known.
Contract Revenue in Excess of Billings on and Billings in Excess Contract Revenue
Billings on uncompleted long-term contracts may be greater than or less than revenue recognized. As a result, these differences are recorded as an asset or liability on the balance sheet. Since revenue recognized on these long-term contracts includes management’s estimates of total anticipated costs, the amounts in revenue in excess of billings and billings in excess of revenue also include these estimates.
Inventories
Inventories include materials at weighted average actual costs. We periodically review inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and then provide a reserve we consider sufficient to reduce inventories to net realizable values. Reserve adequacy is based on estimates of future sales, product pricing, and requirements to complete projects. Revisions of these estimates would result in adjustments to our operating results.
Allowance for Doubtful Accounts Receivable
We specifically analyze accounts receivable and consider historical experience, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and changes in payment terms when evaluating the adequacy of the allowance for doubtful accounts receivable. Changes in these factors could result in material adjustments to the expense recognized for bad debts.
Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate our actual income taxes in each of the jurisdictions in which we operate. This involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatments of items, such as accrued liabilities, for tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included in our consolidated balance sheets. We must then assess the likelihood that our deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must include a corresponding adjustment within the income tax provision in the statement of comprehensive income. Significant judgment by management is required to determine our provision for income taxes, our deferred income tax assets and liabilities and any valuation allowance recorded against our net deferred income tax assets.
Impairment of Long- Lived Assets
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the carrying values of the assets may not be fully recoverable. When this occurs, we review the value assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate. When the expected future undiscounted cash flows from these assets do not exceed their carrying values, the Company determines the estimated fair value of such assets. Impairment is recognized to the extent the carrying values of the assets exceed their estimated fair values. Assets held for sale are reported at the lower of their carrying values or fair values less costs to sell.
Straight-Line Rent and Contingent Obligation
We recognize scheduled rent increases on a straight-line basis over the lease term, which may include optional lease renewal terms, and deferred rent income and expense is recognized to reflect the difference between the rent paid or received in the current period and the calculated straight-line amount.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) ("Topic 842"). Topic 842 changes the accounting for leases. In particular, lessees will recognize lease assets and lease liabilities for operating leases. Effective January 1, 2019, the Company implemented Topic 842 as described in Note 6.
Forward-Looking Statements
The foregoing contains “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including among others, those statements preceded by, followed by or including the words “estimates,” “believes,” “expects,” “plans,” “projects,” and similar expressions.
These forward-looking statements include, but are not limited to, the following statements:
·Our belief that our range of products and services at various price and performance levels, our research and development investments and capabilities, and our ability to design and manufacture products will enable us to compete effectively.
·Our belief that our facilities and operations are within standards fully acceptable to the Environmental Protection Agency and that all facilities and procedures are operated in accordance with environmental rules and regulations, and international, federal, state and local laws.
·Our belief that our existing sources of liquidity will provide sufficient liquidity to meet our obligations through 2020 and beyond.
·Our belief that our ability to include the wide range of complementary products offered by E&S and Spitz in the systems we sell, along with access to the legacy customer base of E&S and Spitz, provides a unique competitive advantage.
·Our expectations for variable future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses.
·Our belief that an improved financial position may present business growth opportunities.
·Our belief that the business cost structure creates the potential for long-term profitability.
·Our belief that capital expenditures during 2020 will be similar to the capital expenditures incurred during 2019.
·Our belief that the effects of inflation will not be material for 2020.
·Our belief that approximately 90% of our backlog will be converted to sales in 2020.
·Our belief that we will receive sufficient new orders to produce total sales in 2020 at sufficient levels to sustain profitable results.
The uncertainty regarding the impact or duration of the COVID-19 virus pandemic that is rapidly spreading globally and adversely affecting communities and businesses, including ours.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Our actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include risks of product demand, market acceptance, economic conditions, competitive products and pricing, difficulties in product development, and product delays. In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this annual report will, in fact, occur.
ITEM 8.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Evans & Sutherland Computer Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Evans & Sutherland Computer Corporation (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material aspects, the consolidated financial position of Evans & Sutherland Computer Corporation as of December 31, 2019 and 2018, and the results of its consolidated operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since October 9, 2006.
/s/ Tanner LLC
Salt Lake City, Utah
March 30, 2020
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
See notes to consolidated financial statements.
All dollar amounts are in thousands except share and per share information or unless otherwise indicated.
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Evans & Sutherland Computer Corporation, referred to in these notes as “Evans & Sutherland,” “E&S,” or the “Company,” produces high-quality advanced visual display systems used primarily in full-dome video projection applications, dome projection screens and dome architectural treatments. E&S also produces unique content for planetariums, schools, science centers and other educational institutions and entertainment venues. The Company’s products include state of the art planetarium and dome theater systems consisting of proprietary hardware and software, and other unique visual display systems primarily used to project digital video on large curved surfaces. Additionally, E&S manufactures and installs metal domes with customized optical coatings and acoustical properties that are used for planetarium and dome theaters as well as many other unique custom applications. The Company operates in one business segment, which is the visual simulation market.
Basis of Presentation
The consolidated financial statements include the accounts of Evans & Sutherland and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates that require management’s most difficult and subjective judgments include revenue recognition based on the percentage-of-completion method, inventory reserves, allowance for doubtful accounts receivable, allowance for deferred income tax assets, impairment of long-lived assets, pension and retirement obligations and useful lives of depreciable assets. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three or fewer months to be cash equivalents. The Company maintains cash balances in bank accounts that, at times, exceed federally insured limits. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant risk with respect to cash. As of December 31, 2019, cash deposits as reported by the banks, including restricted cash, exceeded the federally insured limits by approximately $5,702.
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.
Amounts included in restricted cash represent those required to be set aside by a contractual agreement. Restricted cash that guarantees letters of credit that mature or expire within one year is reported as a current asset. Restricted cash that guarantees letters of credit that mature or expire after more than one year is reported as a long-term asset.
Trade Accounts Receivable
In the normal course of business, E&S provides unsecured credit terms to its customers. Accordingly, the Company maintains an allowance for doubtful accounts for possible losses on uncollectible accounts receivable. The Company routinely analyzes accounts receivable and costs and estimated earnings in excess of billings, and
considers history, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and changes in payment terms when evaluating the adequacy of the allowance for doubtful accounts receivable. Changes in these factors could result in material differences to bad debt expense. Past due balances are determined based on contractual terms and are reviewed individually for collectability. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when management determines the probability of collection is remote.
The table below represents changes in E&S’s allowance for doubtful accounts receivable for the years ended December 31:
Inventories
Inventories include materials at weighted average actual costs. Inventoried costs include material, direct engineering and production costs, and applicable overhead, not in excess of estimated market value. E&S periodically reviews inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and provides a reserve sufficient to reduce inventories to net realizable values. Revisions of these estimates could impact net loss.
During the years ended December 31, 2019 and 2018, E&S recognized impairment losses on inventory of $0 and $427, respectively.
Inventories as of December 31, were as follows:
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the related assets. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Leasehold improvements are assigned useful lives based on the shorter of their useful lives or the term of the related leases, including renewal options likely to be exercised. Routine maintenance, repairs and renewal costs are expensed as incurred. When property is retired or otherwise disposed of, the carrying values are removed from the property and equipment and related accumulated depreciation and amortization accounts. Depreciation and amortization are included in cost of sales, research and development or selling, general and administrative expenses depending on the nature of the asset.
Depreciation expense was $266 and $263 for the years ended December 31, 2019 and 2018, respectively. The cost and estimated useful lives of property and equipment and the total accumulated depreciation were as follows as of December 31:
Goodwill
The Company tests its recorded goodwill for impairment on an annual basis during the fourth quarter, or more often if indicators of potential impairment exist, by determining if the carrying value of each reporting unit exceeds its estimated fair value. Factors that could trigger impairment include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the Company’s overall business and significant negative industry or economic trends. Future impairment reviews may require write-downs in the Company’s goodwill and could have a material adverse impact on the Company’s operating results for the periods in which such write-downs occur.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the carrying values of the assets may not be fully recoverable. When this occurs, the Company reviews the values assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate. When the expected future undiscounted cash flows from these assets do not exceed their carrying values, the Company estimates the fair values of such assets. Impairment is recognized to the extent the carrying values of the assets exceed their estimated fair values. Assets held for sale are reported at the lower of their carrying values or fair values less costs to sell.
Warranty Reserve
E&S provides a warranty reserve for estimated future costs of servicing products under warranty agreements extending for periods from 90 days to one year. Anticipated costs for product warranties are based upon estimates derived from experience factors and are recorded at the time of sale or over the period revenues are recognized for long-term contracts. Warranty reserves are classified as accrued liabilities in the accompanying consolidated balance sheets.
The table below represents changes in E&S’s warranty reserve for the years ended December 31:
Stock-Based Compensation
The Company records compensation expense in the financial statements for stock-based awards based on the grant date fair value of those awards that are ultimately expected to vest. As such, the value of the award is reduced for the
estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company determines the grant date fair value of the options using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized over the requisite service periods of the awards on a ratable basis, which recognizes expense for each vesting tranche of each grant starting on the grant date and finishing on the vest date for that tranche.
Net Income (Loss) per Common Share
Basic net income (loss) per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares include shares that may be issued by the Company for outstanding stock options determined using the treasury stock method. In periods resulting in a net loss, potential common shares are anti-dilutive and therefore are not included. Net income (loss) per common share has been computed based on the following:
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases and operating loss and income tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in the period that includes the enactment date.
Other Comprehensive Income
On a net basis for 2019 and 2018, there were deferred income tax assets resulting from items reflected in comprehensive income. However, E&S has determined that it is more likely than not that it will not realize such net deferred income tax assets and has therefore established a valuation allowance against the full amount of the net deferred income tax assets. Accordingly, the net income tax effect of the items included in other comprehensive income is zero. Therefore, the Company has included no income tax expense or benefit in relation to items reflected in other comprehensive income. The accumulated other comprehensive loss at the end of 2018 and 2019 consists of minimum pension liability attributable to the Supplemental Executive Retirement Plan (“SERP”) (see Note 7).
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) ("Topic 842"). Topic 842 changes the accounting for leases. In particular, lessees will recognize lease assets and lease liabilities for operating leases. Effective January 1, 2019, the Company implemented Topic 842 as described in Note 6.
Note 2 - Revenue
The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of the initial application of January 1, 2018. The Company applied Topic 606 using the cumulative effect method, and accordingly recognized the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. As a result, the Company used different methods for recognizing revenue in each of the periods presented as detailed below.
Products and services
The Company generates its revenue through manufacturing, integrating, distributing, and servicing its various products consisting of: Audio-Visual Systems, Domes, Show Content, and Maintenance and Service contracts. All of the Company’s products are sold worldwide.
Audio-Visual Systems consist of standard and customized hardware components integrated with proprietary software. The Audio-Visual Systems are most often used as the primary equipment for planetarium theaters operated by educational institutions. Occasionally, Audio-Visual Systems are sold for other special purposes at various visitor attractions. Audio-Visual System sales include upgrades of existing systems and sub-systems. Sales of typical Audio-Visual Systems range from $200 to $2,000.
Domes are hemispheric or curved metal structures fabricated from mostly aluminum metal tubing and sheets at the Company’s factory. Some Dome components have a special optical coating applied by a partner vendor. The Dome components are shipped to a customer site and are assembled and installed in or on the customer’s building by Company employees or subcontractors. Domes are often sold with an Audio-Visual System to serve as projection screens but can also be sold separately. Most often a Dome sold separately is used as a projection screen but occasionally they are used as architectural treatments. Dome projection screens sold separately can be used for existing planetarium theaters or other special visitor attractions such as theme park rides. A typical Dome is a hemispheric structure ranging from 40 to 70 feet in diameter, but Domes are also produced in various curved shapes and sizes to accommodate a special purpose. Dome sales typically range from $200 to $1,000 but occasionally exceed this range for sales of multiple complex structures priced at several million dollars.
Show Content is sold under a license agreement. Show Content can also be sold with or without an Audio-Visual System. Most Show Content is sold to planetarium theaters which historically have been used as astronomical simulators; however, digital technologies have expanded capabilities to display a wider variety of content. The Company’s Show Content products include a variety of mostly educational topics including but not limited to astronomy, earth sciences, history, and biology. The Company sells Show Content it produces as well as content produced by other entities under distribution arrangements. Show Content sales typically range from $2 to $80.
Maintenance and Service is sold in the form of spare parts or service agreements that sometimes include an extended warranty feature. Maintenance and Service is sold predominantly for Audio-Visual Systems. Dome products require less maintenance but can benefit from an occasional cleaning. Part sales typically range from $1 to $100. Maintenance and Service contract sales typically range from $3 to $200.
The Company sells and markets its products through its employee sales team. For many foreign sales, the employee team is assisted by commissioned agents based in the locale of the customer. The Company markets its products through a network of industry associations and by messaging to the designers of planetarium theaters and visitor attractions. For Dome sales other than for planetarium projects, the Company relies on relationships developed with many satisfied customers in the architectural, visitor attraction, and theme park community. Customer decisions are based on price, product features and the experience of the supplier.
Most of the Company’s revenue comes from sales of Audio-Visual Systems and Domes for planetarium theaters or other visitor attractions. Sales can be to existing theaters interested in upgrading or to a new theater. Service Support and Show Content provide a reasonably steady stream of repeat revenue from existing customers which supplements the revenue from Audio-Visual Systems and Domes. As such, the Company relies on Audio-Visual Systems and Domes sales to new projects to generate the volume of revenue necessary sustain the business. Customer sales sometimes can take years to consummate from the initial planning stage to the award of the contract. Often there is a competitive bid process with multiple suppliers involved.
Customer contracts generally provide for progress payments which in many cases provides advance funding for the cost of performance. In some cases, customers hold a small portion of the contract payment for performance security
through the warranty. The Company may also be required to provide performance security in the form of a surety bond or international standby letter of credit. Most customers are large public institutions, government or quasi-government entities, and large theme park entities, which carry little credit risk.
Multiple Performance Obligations
Some contracts include multiple performance obligations. Significant performance obligations commonly include the supply of Audio-Visual Systems, Domes, Show Content and various Service deliverables. Revenue earned on performance obligations are allocated to each deliverable based on the relative fair values. Relative fair values of performance obligations are generally determined based on actual and estimated selling price. Completion times of such contract obligations vary but typically occur within a three to twelve-month time period.
Revenue Recognition Methods
Following the adoption of Topic 606, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following describes the methods used to recognize revenue under the application of Topic 606.
Audio-Visual Systems. The Company’s Audio-Visual Systems are sold for a fixed price under non-cancelable contracts. Because systems are often designed with unique features and constantly changing technology components, there is no practical alternative use for a system after it is sold. Under Topic 606, if an entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for the performance completed to date, then its performance obligation is satisfied and control of the product transfers over time. If control transfers over time, an entity selects a method to measure progress that is consistent with the objective of depicting its performance and recognizes revenue accordingly. The Company has determined the percentage-of-completion method utilizing cost-to-cost methodology best depicts the measure of progress because it tracks the utilization of total resources to fulfill the obligation. This same method has been used prior to the adoption of Topic 606 for recognizing revenue on certain Audio-Visual System sales and most Dome sales. With the adoption of Topic 606, essentially all Audio-Visual Systems and subsystem sales will use the percentage-of-completion method for revenue recognition.
Domes. The Company’s Domes are sold for a fixed price under non-cancelable contracts. Because Domes have custom design and interface features, there is no practical alternative use for a Dome after it is sold. As discussed above under Audio-Visual Systems, when there is no alternative use for the product and there is an enforceable right to payment, Topic 606 requires revenue to be recognized over the time of performance. Accordingly, the Company continues to use the percentage-of-completion method utilizing cost-to-cost methodology for the recognition of revenue for the sale of Domes, as it has prior to the adoption of Topic 606.
Show Content. Show Content is sold under various license agreements, most often for a fixed price, but occasionally for a variable share of the customer’s theater revenue. Sales of Show Content require no future obligations by the Company after delivery. The Company recognizes the revenue for fixed price Show Content licenses upon the execution of the license agreement and delivery of media since that is the time control and benefit of the Show Content is transferred. Under Topic 606, an entity does not recognize revenue for the variable amounts related to a royalty until a customer’s subsequent sales or usage occurs. Accordingly, revenue from the variable share of the customer’s theater revenue is recognized when realized. The method used by the Company for recognizing Show Content revenue has not changed with the adoption of Topic 606.
Maintenance and Service. Maintenance and Service revenue consists of parts sales and service contracts. Parts sales are recognized upon shipment which is when the control and benefit transfers to the customer. Service contracts are sold for a fixed price and provide the customer with various levels of preventive service, support and limited warranty protection. Under Topic 606, the revenue for service contracts is recognized ratably over the term of the contract or upon delivery of a service specified in the contract. The method used by the Company for recognizing Maintenance and Service revenue has not changed with the adoption of Topic 606.
Contract Acquisition Costs
Contract acquisition costs consist of expenditures of Company employee and other resources and, in some cases, the payment of sales commissions to non-employee agents. Expenditures of Company employee and other resources are costs that would be incurred regardless of whether the contract is obtained, are not recoverable, and therefore are
expensed as they are incurred under Topic 606. Sales commissions paid to agents are incurred only if the contract is obtained and therefore are incremental costs of acquiring the contract. Rather than capitalize the cost of sales commissions, the Company has elected to expense sales commissions as incurred under the practical expedient permitted by Topic 606, whereby expensing is permitted when the amortization period of the asset that the entity otherwise would have recognized is one year or less.
Disaggregation of Revenue
In the following tables, revenue reported for the years ended December 31, 2019 and 2018 under Topic 606 is disaggregated by primary geographical market, major product line, timing of revenue recognition and product application.
Revenue for the year ended December 31, 2019:
Revenue for the year ended December 31, 2018:
Contract Balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of December 31, 2019 and 2018:
Significant changes in the contract assets and the contract liabilities balances during the year are as follows:
Contract revenue in excess of billings are contract assets that arise when revenue recognized on a contract exceeds the cumulative progress billings. Contracts generally provide for an enforceable right to payment for performance completed to date but do not necessarily have a present right to consideration payment for performance completed until the event that triggers the progress billing. The contract assets are transferred to receivables when the rights to payment occur and amounts are billed. Billings in excess of contract revenue are contract liabilities that arise when progress billings on a contract exceed the revenue recognized. Contract liabilities are relieved as the performance obligation is completed and revenue is recognized. Progress billings vary among contracts and can be triggered by chronological milestones, performance events or other various measurements of performance.
Backlog of Remaining Customer Performance Obligations
The following table includes estimated revenue expected to be recognized and recorded as sales in the future from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.
Note 3 - Changes in Accounting Principal
As described in Note 6, the Company adopted Topic 842 Leases, effective January 1, 2019 resulting in the retrospective adjustment of the comparative 2018 periods presented. Prior to the application of Topic 842, the rent expense was recorded in the amount of the lease payments, adjusted on straight-line basis over the lease term, less the amortization of a deferred gain from a 2014 sale leaseback transaction. Under Topic 842, this gain would be recognized at the time of the transaction and not deferred. As a result, there was an adjustment to eliminate the unamortized balance of the deferred gain for cumulative effect of the initial application which increased the opening balance of stockholders’ equity in the amount of $808 at January 1, 2018. The presented consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2018 is adjusted to reflect an increase in rent expense in the amount of $439. The consolidated balance sheet presented as of December 31, 2018 is adjusted to reflect the right-of-use (“ROU”) asset and operating lease liability described in Note 6 along with an increase in stockholders’ equity of $369.
Note 4 - Goodwill
Goodwill of $635 resulted from the acquisition of the Company’s wholly owned subsidiary, Spitz, and was measured as the excess of the $2,884 purchase consideration paid over the fair value of the net assets acquired. The Company has made its annual assessment of impairment of goodwill and has concluded that goodwill is not impaired as of December 31, 2019.
Note 5 - Lease Receivable
In 2016, the Company entered into a lease agreement with a customer whereby the Company will be the Lessor and the customer will be the lessee of a Planetarium System produced, delivered and installed by the Company. The lease term is 5 years and requires the customer to make rent payments to the Company over the lease term in accordance with the fixed schedule in the agreement. The equipment will be returned to the Company at the end of the lease term at which time the Company estimates that the system will have no residual value. The customer obtained control of the leased assets upon delivery and acceptance of the system on December 7, 2016. The lease is accounted for as a sales-type lease since the lease term is for substantially all of the economic life of the system, the present value of the lease payments amounts to substantially all of the fair value of the underlying assets, and the customer will retain the control with substantially all of the risks and awards of ownership of the system. The discounted present value of the payments to be made under the lease agreement, using an annual rate of 6%, amounts to $1,754. This amount represents the fair value of the equipment of $1,678 and the maintenance services E&S is to provide over the terms of the lease valued at $76. In 2018, the Company collected $307 in lease payments of which $60 was recorded as interest income and $247 as principal reduction of the lease receivable. In 2019, the Company collected $307 in lease payments of which $44 was recorded as interest income and $263 as principal reduction of the lease receivable.
The balance of lease receivable as of December 31, 2019 and 2018 is recorded as follows:
Note 6 - Operating Lease
The Company leases its office, shop and warehouse space in Salt Lake City, Utah under a non-cancellable operating lease agreement. The lease agreement had an amended term set to expire October 2019 (the “Previous Facility Lease”). On April 15, 2019, the Company signed an amendment to the Previous Facility Lease (the “Lease Amendment”). The Lease Amendment effectively terminated, as of April 30, 2019, the Previous Facility Lease, and revised the terms whereby, effective May 1, 2019, the Company continues to lease 60% of the space, while the other 40% is leased from the Landlord by a third-party tenant (“New Facility Lease”). The Company continues to pay 100% of the maintenance and utility costs for the buildings and grounds, of which approximately 40% is reimbursed by the third-party tenant in accordance with terms set by the New Facility Lease. The New Facility Lease has a seven-year term with two five-year renewal options with monthly base rent of $35 during the first year with a 3% escalation per year.
As a result of the adoption of ASC 842, the Company recognized an operating lease liability with a corresponding ROU asset of the same amount based on the present value of the minimum rental payments of the Previous Facility Lease as of January 1, 2018. The discount rate used to compute the present value of the minimum rental payments of the Previous Facility Lease is the Company’s estimated borrowing rate of 7.5% as of the inception of the term of the Previous Facility Lease. The operating lease expense was computed on the straight-line basis which amounted to $573 reported as rent expense for the year ended December 31, 2018 and $183 for the first four months of 2019 through the April 30, 2019 termination of the Previous Facility Lease.
For the New Facility Lease, the Company recognized an operating lease liability in the amount of $2,698 and a ROU
asset in the amount of $2,742 as of May 1, 2019. The operating lease liability consists of the present value of the minimum rental payments of the New Facility Lease. The discount rate used to compute the present value of the minimum rental payments of the New Facility Lease is the Company’s estimated borrowing rate of 5.25% as of May 1, 2019. The ROU asset consists of the lease liability plus an indirect cost of $44 attributable to negotiating and arranging the lease. The operating lease expense is computed on the straight-line basis which amounts to $312 reported as rent expense for the eight-month period ended December 31, 2019.
Balance sheet information related to Previous Facility Lease and New Facility Lease are as follows:
The components of lease expense are as follows:
Maturities of the lease liability are as follows:
Other information related to the lease:
For the years ended:
Note 7 - Employee Retirement Benefit Plans
Settlement of Pension Plan Liabilities
On April 21, 2015, the Company, as the administrator of its qualified defined benefit pension plan (“Pension Plan”), and the Pension Benefit Guaranty Corporation (“PBGC”) entered into an Agreement for Appointment of Trustee and Termination of Plan (the “Termination Agreement”) (a) terminating the Pension Plan, (b) establishing March 9, 2013 as the Plan’s termination date and (c) appointing the PBGC as statutory trustee of the Pension Plan.
In connection with the Termination Agreement, on April 21, 2015, the Company entered into the Pension Settlement Agreement with the PBGC to settle all liabilities of the Pension Plan including any termination premium resulting from the Pension Plan termination (the “Settled ERISA Liabilities”). Pursuant to the Pension Settlement Agreement, the Company agreed to (a) pay to the PBGC a total of $10,500, with $1,500 due within ten days following the effective date of the Pension Settlement Agreement and the remainder paid in twelve annual installments of $750 beginning on October 31, 2015 (the “Pension Settlement Obligation”) and (b) issue within ten days following the effective date of the Pension Settlement Agreement 88,117 shares of the Company’s treasury stock in the name of the PBGC. The Pension Settlement Agreement further provides that the PBGC will be deemed to have released the Company from all Settled ERISA Liabilities upon payment of the Pension Settlement Obligation. In the event of a default by the Company of its obligations under the Pension Settlement Agreement or the underlying agreements which secure the Pension Settlement Obligation, the PBGC may enforce payment of the Settled ERISA Liabilities, which would accrue interest at various rates until payment is made and be reduced by any payments made by the Company pursuant to the Pension Settlement Agreement. The estimated total Settled ERISA Liabilities as of the settlement date is $46,000.
To secure the Company’s obligations under the Pension Settlement Agreement, on April 21, 2015, the Company also entered into a Security Agreement with the PBGC (the “Security Agreement”), and executed an Open-End Mortgage in favor of the PBGC (the “Mortgage”) on certain real property owned by the Company’s subsidiary, Spitz, Inc. (“Spitz”). The Security Agreement and Mortgage grant to the PBGC a security interest on all the Company’s presently owned and after-acquired property and proceeds thereof, free and clear of all liens and other encumbrances, except those described therein (the “Senior Liens”). The PBGC’s security interest in the Company’s property is subordinate to the Company’s two senior lenders pursuant to the Security Agreement and agreements between the PBGC and the lenders (the “Intercreditor Agreements”). The Intercreditor Agreements provide for the lenders to extend credit to the Company, secured by the Senior Liens, up to specified limits. The Intercreditor Agreement between the lender of the mortgage notes and line of credit (see Note 8) and the PBGC provides for total aggregate loans of up to $6,500 secured by Senior Liens on Spitz assets. The second Intercreditor Agreement between another lender and the PBGC provides for up to $3,000 of letter of credit indebtedness secured by Senior Liens on cash deposits.
The balance of the Pension Settlement Obligation is recorded on the balance sheet as of December 31, 2019 and 2018 as follows:
Supplemental Executive Retirement Plan (SERP)
The SERP provides eligible former executives, employed by the Company prior to 2002, defined pension benefits based on average salary, years of service and age at retirement. The SERP was amended in 2002 to discontinue further SERP gains from future salary increases and close the SERP to new participants.
Obligations and Funded Status for SERP
E&S uses a December 31 measurement date for the SERP.
Information concerning the obligations, plan assets and funded status of employee retirement defined benefit plans are provided below:
Amounts recognized in the consolidated balance sheets consisted of:
Components of net periodic benefit cost:
Additional information
Pension expense was $226 and $217 for the years ended December 31, 2019 and 2018, respectively, which consisted of net periodic benefit expense for the SERP.
The SERP minimum liability recorded in other comprehensive loss increased $206 in 2019 compared to a decrease of $200 in 2018. The increase in 2019 was primarily due to a decrease in the discount rate. The decrease in 2018 was primarily due to an increase in the discount rate and change to the mortality table offset by an increase due to the change to payout assumption.
Assumptions
The weighted average assumptions used to remeasure benefit obligations as of December 31, 2019 and 2018 included a discount rate of 2.6% and 3.8%, respectively, for the SERP. The weighted average assumptions used to determine net periodic cost for the years ended December 31, 2019 and 2018 included a discount rate of 2.6% and 3.8%, respectively, in each year for the SERP.
In prior years, for persons who have not yet commenced benefits, it was assumed that installment payments would commence on the valuation date and continue for 10 years. That assumption was changed such that if an individual has not yet commenced benefit payments, the first payment would be a one-time lump sum equal to installments in arrears plus future installments commencing on the valuation date and continuing through the original end date assuming payments had commenced on the expected start date.
Cash Flows
Employer contributions
The Company is not currently required to fund the SERP. All benefit payments are made by E&S directly to those who receive benefits from the SERP. As such, these payments are treated as both contributions and benefits paid for reporting purposes.
The Company expects to contribute and pay benefits of approximately $682 related to the SERP in 2020.
Estimated future benefit payments
As of December 31, 2019, the following benefits are expected to be paid based on actuarial estimates and prior experience:
401(k) Deferred Savings Plan
The Company has a deferred savings plan that qualifies under Section 401(k) of the Internal Revenue Code. The 401(k) plan covers all employees of the Company who have at least one year of service and who are age 18 or older. Matching contributions of 50% are made on the first 6% of employee contributions after the employee has achieved one year of service. Extra matching contributions can be made based on profitability and other financial and operational considerations. The Company makes a 3% contribution in addition to the matching contribution. Contributions to the 401(k) plan for 2019 and 2018 were $482 and $444, respectively.
Note 8 -Debt
Long-term debt consisted of the following as of December 31, 2019 and 2018:
Principal maturities on total debt are as follows:
Mortgage Notes
The first mortgage note payable represents the balance on a $3,200 note (“First Mortgage Note”) issued on January 14, 2004 by Spitz. The First Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On January 14, 2006 and each third anniversary thereof, the interest rate on the First Mortgage Note is adjusted to the greater of 5.75% or 3% over the Three-Year Constant Maturity Treasury Rate published by the United States Federal Reserve (“3YCMT”). The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. On January 14, 2018, the 3YCMT was 2.09% and the interest rate on the First Mortgage Note remained at 5.75% per annum. As a result, the monthly installment amount remained at $23.
The second mortgage note payable represents the balance on a $500 note (“Second Mortgage Note”) issued on September 11, 2008 by Spitz. The Second Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On October 1, 2013 and each fifth anniversary thereof, the interest rate on the Second Mortgage Note is adjusted to the greater of 5.75% or 3% over the Five-Year Constant Maturity Treasury Rate published by the United States Federal Reserve (“5YCMT”). The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. On October 1, 2018, the fifth anniversary of the Second Mortgage Note, the 5YCMT was 2.99%. As a result, interest was adjusted to 5.99%. The monthly installment remains at $4.
The Mortgage Notes are secured by the real property occupied by Spitz pursuant to a Mortgage and Security Agreement. The real property had a carrying value of $3,863 as of December 31, 2019. The Mortgage Notes are guaranteed by E&S.
Line of Credit
The Company is a party to a line-of-credit agreement with a commercial bank which permits borrowings of up to $1,100 to fund Spitz working capital requirements. Under the line of credit agreement, interest is charged on amounts borrowed at the lender’s prime rate less 0.25%. Any borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The line-of-credit agreement and mortgage notes (with the same commercial bank) contain cross default provisions whereby a default on either agreement will result in a default on both agreements. There were no borrowings outstanding under the line-of-credit agreement as of December 31, 2019.
Note 9 - Income Taxes
Income tax for 2019 and 2018 consisted of a benefit of $(138) and an expense of $21, respectively, of federal and state income taxes. The actual expense (benefit) differs from the expected tax expense (benefit) as computed by applying the U.S. federal statutory income tax rate of 21 percent for 2019 and 2018, respectively, as follows:
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities as of December 31, 2019 and 2018 are as follows:
Worldwide income before income taxes consisted of the following:
Income tax expense (benefit) consisted of the following:
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
E&S has total federal net operating loss carryforwards of approximately $162,300 which begin to expire in 2020. The Company has federal minimum tax credit carryforwards of approximately $0 which do not expire. The Company has $1,600 of federal research credits that begin to expire in 2020 and $800 of state research credits that begin to expire in 2020. The Company has not recorded a benefit for these research credits in the financial statements because it does not meet the more-likely-than-not position recognition threshold. E&S also has state net operating loss carryforwards of approximately $23,900 that expire at various dates depending on the rules of the states to which the loss or credit is allocated.
The Company evaluates its deferred tax assets for realizability based on the available positive and negative evidence. Due to cumulative losses and the significance of the carryforwards, the Company determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, a valuation allowance has been established to offset the net deferred tax assets. During the years ended December 31, 2019 and 2018, the valuation allowance on deferred tax assets decreased by $298 and $3,114, respectively.
The Company is subject to audit by the IRS and various states for tax years dating back to 2016. No federal or state tax returns are currently under audit. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Note 10 - Commitments and Contingencies
Letters of Credit
Under the terms of financing arrangements for letters of credit, E&S is required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit or bank guarantees issued, plus other amounts necessary to adequately secure obligations with the financial institution. As of December 31, 2018, there were outstanding letters of credit and bank guarantees of $220 which are scheduled to expire in 2019. As of December 31, 2019, there was an outstanding letter of credit and bank guarantee of $31 which is scheduled to expire in January 2021.
Note 11 - Stock Option Plan
In 2014, stockholders approved the adoption of the Evans & Sutherland Computer Corporation 2014 Stock Incentive Plan (“2014 Plan”) which replaced the expired 2004 Stock Incentive Plan of Evans & Sutherland Computer
Corporation (“2004 Plan”). The 2014 Plan is a stock incentive plan that provides for the grant of options and restricted stock awards to employees and for the grant of options to non-employee directors essentially the same as the 2004 Plan. Under the 2014 Plan, non-employee directors may continue to receive an annual option grant for no more than 10,000 shares. New non-employee directors may also continue to receive an option grant for no more than 10,000 shares upon their appointment or election. With the adoption of the 2014 Plan, no additional options can be issued under the 2004 Plan. Options granted under the 2004 Plan are still held by recipients and will continue to be subject to the terms and conditions of the 2004 plan which are essentially the same as the 2014 Plan. The 2014 Plan continues a minimum exercise price for options of 110% of fair market value on the date of grant. Restricted stock awards may be qualified as a performance-based award that conditions a participant’s award upon achievement by the Company or its subsidiaries of performance goals established by the Board of Directors’ Compensation Committee.
The number of shares, terms, and exercise periods of option grants are determined by the Board of Directors on an option-by-option basis. Options generally vest ratably over three years and expire ten years from the date of grant. As of December 31, 2019, options to purchase 876,981 shares of common stock were authorized and reserved for future grant.
A summary of activity follows (shares in thousands):
The weighted average fair value of options granted during 2019 and 2018 was $0.40 and $0.77, respectively. As of December 31, 2019, options exercisable and options outstanding had a weighted average remaining contractual term of 4.7 and 5.8 years with aggregate intrinsic value of $276 and $276, respectively. As of December 31, 2018, options exercisable and options outstanding had a weighted average remaining contractual term of 4.7 and 5.7 years with aggregate intrinsic value of $385 and $385, respectively.
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the grants made in 2019 and 2018:
Expected option lives and volatilities are based on historical data of the Company. The risk-free interest rate is calculated as the average US Treasury bill rate that corresponds with the option life. Historically, the Company has not declared dividends and there are no plans to do so.
As of December 31, 2019, there was approximately $76 of total unrecognized share-based compensation cost related to grants collectively under the 2004 Plan and 2014 Plan that will be recognized over a weighted-average period of 1.9 years. As of December 31, 2018, there was approximately $90 of total unrecognized share-based compensation cost related to grants collectively under the 2004 Plan and 2014 Plan that will be recognized over a weighted-average period of 1.9 years.
Share-based compensation expense, from awards collectively under the 2004 Plan and 2014 Plan for the years ended December 31, 2019 and 2018 amounted to $95 and $149, respectively, and was included in general and administrative expense on the statements of comprehensive income.
Note 12 - Preferred Stock
Class A Preferred Stock
The Company has 5,000,000 authorized shares of Class A Preferred stock. As of December 31, 2019 and 2018, there were no Class A Preferred shares outstanding.
Class B Preferred Stock
The Company has 5,000,000 authorized shares of Class B Preferred stock. As of December 31, 2019 and 2018, there were no Class B Preferred shares outstanding.
Note 13 - Significant Customers
As of December 31, 2019, Customer A represented 32% and Customer B represented 10% of accounts receivable, and Customer C represented 16%, Customer D 17%, Customer E 13%, and Customer F 11% of contract revenue in excess of billings.
As of December 31, 2018, Customer G represented 24% of accounts receivable, and Customer H represented 10% of contract revenue in excess of billings.
For the years ended December 31, 2019 and 2018, no customers represented 10% or more of total sales.
Note 14 - Subsequent Events
Merger Agreement and Tender Offer
On February 9, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Elevate Entertainment Inc., a Delaware corporation (“Elevate”), and Elevate Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of Elevate (“Purchaser”). On February 27, 2020, Purchaser commenced a cash tender offer (the “Offer”) to purchase all of the outstanding shares (the “Shares”) of common stock of the Company at a price of $1.19 per Share, net to the seller in cash, without interest, and subject to applicable withholding taxes. The Offer expired at midnight (Eastern Time) at the end of the day March 25, 2020. As of the expiration of the tender offer period, approximately 10,576,487 Shares (excluding approximately 50,741 Shares subject to guaranteed delivery procedures) were properly tendered and not withdrawn in the Offer, representing approximately 92.1% of the aggregate number of the Company’s issued and outstanding Shares. On March 26, 2020, Purchaser announced that it had accepted for purchase the tendered Shares and the termination of the Offer.
Pursuant to the terms of the Merger Agreement and in accordance with applicable Utah law, Elevate will complete a second-step merger that will result in the Company becoming a subsidiary of Elevate. Elevate and its subsidiary intend to complete the merger and acquisition of the Company as promptly as practicable without a meeting of Company shareholders. In the merger, each of the remaining Shares will be converted into the right to receive $1.19 per Share, net to the shareholder in cash, without interest thereon and subject to any applicable tax withholding, which is the same amount per Share that was paid in the Offer.
The Impact of COVID-19
As of the time of this filing the Company’s operating activities have been curtailed by the impact of COVID-19. Government directives have suspended manufacturing and limited workplace activities beginning March 23, 2020. The Company has empowered its employees to work remotely wherever possible to minimize the disruption to Company operations. The Company has received no communications from customers that indicate cancellations. We have received some requests to postpone deliveries and we expect more which will extend the timing of revenue recognition and, in some cases, customer payments. Public health directives from governments around the world are advising or prohibiting large gatherings to inhibit the spread of COVID-19. This has suspended the use of our products for much of our installed customer base. Continued restrictions and the potential behavioral changes resulting from the impact of COVID-19 may continue to influence the demand for our products which typically attract a large audience. Also, the ongoing impact of COVID-19 on the world’s economy could ultimately have material adverse consequences to the Company; however, as of now, the Company is unable to determine the likelihood or degree of such adverse consequences.
ITEM 9.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at the reasonable assurance level such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any control system cannot provide absolute assurance, however, that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes of U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (1992). Based on this evaluation, our management, with the participation of the Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2019, our internal control over financial reporting was effective based on those criteria.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to
attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed above that occurred during the year ended December 31, 2019, or subsequent to that date, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.
ITEM 9B.
ITEM 9B.OTHER INFORMATION
None
PART III
ITEM 10.
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND cORPORATE gOVERNANCE
Certain information required by Item 401 of Regulation S-K will be included under the caption “Election of Directors” in the Proxy Statement for our 2020 Annual Meeting of Stockholders and that information is incorporated herein by reference. Information required by Item 405 of Regulation S-K will be included under the caption “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in the Proxy Statement for our 2020 Annual Meeting of Stockholders and that information is incorporated herein by reference. Certain information required by Item 401 of Regulation S-K is included in Part I of this Form 10-K under the caption “Executive Officers of the Registrant.” The information required by Item 407(c)(3), 407(d)(4) and 407(d)(5) of Regulation S-K will be included under the caption “Election of Directors” in the Proxy Statement for our 2020 Annual Meeting of Stockholders and that information is herein incorporated by reference.
Code of Ethics
Evans & Sutherland maintains a Code of Ethics and Business Conduct which is applicable to all employees, including all officers, and including our independent non-employee directors with regard to Evans & Sutherland related activities. The Code of Ethics and Business Conduct incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. It also incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the Securities and Exchange Commission and other public communications. In addition, they incorporate our expectations of our employees concerning prompt internal reporting of violations of our Code of Ethics and Business Conduct.
The full text of the Evans & Sutherland Code of Ethics and Business Conduct is published on our Investors Relations website at www.es.com. We intend to disclose future amendments to certain provisions of our Code of Ethics and Business Conduct or waivers of such provisions granted to executive officers and directors on this website within four business days following the date of such amendment or waiver.
ITEM 11.
ITEM 11.EXECUTIVE COMPENSATION
The information required by this item will be included under the captions, “Executive Compensation,” and, “Election of Directors,” in the Proxy Statement for our 2020 Annual Meeting of Stockholders and that information is herein incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 403 of Regulation S-K will be included under the caption, “Security Ownership of Certain Beneficial Owners and Management,” in the Proxy Statement for our 2020 Annual Meeting of Stockholders and that information is herein incorporated by reference.
Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2019:
ITEM 13.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 404 of Regulation S-K will be included under the caption, “Certain Relationships and Related Party Transactions,” in the Proxy Statement for our 2020 Annual Meeting of Stockholders and that information is herein incorporated by reference. The information required by Item 407(a) of Regulation S-K will be included under the caption, “Election of Directors,” in the Proxy Statement for our 2020 Annual Meeting of Stockholders and that information is herein incorporated by reference.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included under the caption, “Report of the Audit Committee of the Board of Directors,” in the Proxy Statement for our 2020 Annual Meeting of Stockholders and that information is herein incorporated by reference.
PART IV
ITEM 15.
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)List of documents filed as part of this report
1.Financial Statements
The following consolidated financial statements are included in Part II, Item 8 of this report on Form 10-K.
·Consolidated Balance Sheets as of December 31, 2019 and 2018
·Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019 and 2018
·Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2019 and 2018
·Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018
·Notes to Consolidated Financial Statements
2.Financial Statement Schedules
There are no schedules filed because of the absence of conditions under which they are required or because the required information is presented in the consolidated financial statements or the notes thereto.
3.Exhibits
Articles of Incorporation and Bylaws
3.1.1Articles of Incorporation, as amended, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 25, 1987, and incorporated herein by reference.
3.1.2Amendments to Articles of Incorporation filed as Exhibit 3.1.1 to Evans & Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 30, 1988, and incorporated herein by reference.
3.1.3Certificate of Designation, Preferences and Other Rights of the Class B-1 Preferred Stock of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation’s Form 10-Q, SEC File No. 000-08771, for the quarter ended September 25, 1998, and incorporated herein by reference.
3.2.1Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.2 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.
3.2.2Amendment No. 1 to the Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.3 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.
3.2.3Amendment No. 2 to the Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on November 31, 2015, and incorporated herein by reference.
3.2.4Amendment No. 3 to Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on February 13, 2020 and incorporated herein by reference.
Instruments defining the rights of security holders
4.1Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities and Exchange Act of 1934.
Material contracts
Management contracts and compensatory plans
10.1Amended and Restated Evans & Sutherland Computer Corporation’s Supplemental Executive Retirement Plan (SERP), dated May 16, 2002, filed as Exhibit 10.38 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
10.2Evans & Sutherland Computer Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on May 16, 2014, and incorporated herein by reference.
10.3Form of Incentive Stock Option Award Agreement under the Evans & Sutherland Computer Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on May 16, 2014, and incorporated herein by reference.
10.4Form of Non-Qualified Stock Option Award Agreement under the Evans & Sutherland Computer Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.3 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on May 16, 2014, and incorporated herein by reference.
10.5Form of Indemnification Agreement, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on September 2, 2016, and incorporated herein by reference.
10.6Employment Agreement by and between Evans & Sutherland Computer Corporation and Jonathan Shaw, dated September 2, 2016, filed as Exhibit 10.3 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on September 2, 2016, and incorporated herein by reference.
10.7Employment Agreement by and between Evans & Sutherland Computer Corporation and Kirk Johnson, dated September 2, 2016, filed as Exhibit 10.4 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on September 2, 2016, and incorporated herein by reference.
10.8Employment Agreement, by and between Evans & Sutherland Computer Corporation and Paul Dailey, dated December 15, 2016, filed as Exhibit 10.9 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
10.9First Amendment to Employment Agreement, by and between Evans & Sutherland Computer Corporation and Jonathan Shaw, dated January 9, 2017 filed as Exhibit 10.10 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
10.10First Amendment to Employment Agreement, by and between Evans & Sutherland Computer Corporation and Kirk Johnson, dated January 9, 2017, filed as Exhibit 10.11 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
10.11Second Amendment to Employment Agreement, by and between Evans & Sutherland Computer Corporation and Jonathan Shaw, dated February 9, 2020, filed as Exhibit (e)(6) to Evans & Sutherland Computer Corporation’s Schedule 14D-9 filed with the Commission on February 27, 2020, and incorporated herein by reference.
10.12First Amendment to Employment Agreement, by and between Evans & Sutherland Computer Corporation and Paul Dailey, dated February 9, 2020, filed as Exhibit (e)(7) to Evans & Sutherland Computer Corporation’s Schedule 14D-9 filed with the Commission on February 27, 2020, and incorporated herein by reference.
10.13Second Amendment to Employment Agreement, by and between Evans & Sutherland Computer Corporation and Kirk Johnson, dated February 9, 2020, filed as Exhibit (e)(8) to Evans & Sutherland Computer Corporation’s Schedule 14D-9 filed with the Commission on February 27, 2020, and incorporated herein by reference.
10.14Transaction Bonus Agreement, by and between Evans & Sutherland Computer Corporation and Jonathan Shaw, dated February 9, 2020, filed as Exhibit (e)(9) to Evans & Sutherland Computer Corporation’s Schedule 14D-9 filed with the Commission on February 27, 2020, and incorporated herein by reference.
10.15Transaction Bonus Agreement, by and between Evans & Sutherland Computer Corporation and Paul Dailey, dated February 9, 2020, filed as Exhibit (e)(10) to Evans & Sutherland Computer Corporation’s Schedule 14D-9 filed with the Commission on February 27, 2020, and incorporated herein by reference.
10.16Transaction Bonus Agreement, by and between Evans & Sutherland Computer Corporation and Kirk Johnson, dated February 9, 2020, filed as Exhibit (e)(11) to Evans & Sutherland Computer Corporation’s Schedule 14D-9 filed with the Commission on February 27, 2020, and incorporated herein by reference.
Other material contracts
10.17Guaranty, dated April 28, 2006, by Evans and Sutherland Computer Corporation, filed as Exhibit 10.7 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.18Pledge Agreement, dated April 28, 2006, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.8 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.19Security Agreement, dated April 28, 2006, by and between Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.9 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.20Open-end Mortgage and Security Agreement, dated April 28, 2006, by and between Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.10 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
10.21Mortgage Note dated January 14, 2004, of Transnational Industries, Inc. and Spitz, Inc. to First Keystone Bank filed as Exhibit 10.25 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.22Open-End Mortgage and Security Agreement dated January 14, 2004, between Spitz, Inc. and First Keystone Bank filed as Exhibit 10.26 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.23Loan Agreement dated as January 14, 2004, between First Keystone Bank, Transnational Industries, Inc. and Spitz, Inc filed as Exhibit 10.27 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.24First Modification Agreement to Mortgage Loan Agreements, dated March 30 2007, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.28 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.25Guaranty, dated March 30, 2007 by Evans and Sutherland Computer Corporation, filed as Exhibit 10.30 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.
10.26First Amendment to Sublease Agreement dated November 4, 2014, by and between Evans & Sutherland Computer Corporation and Wasatch Research Park I, LLC, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended September 26, 2014 and incorporated herein by reference.
10.27Line of Credit Agreement between Spitz, Inc. and Bryn Mawr Trust Company dated March 15, 2012 filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended September 26, 2014 and incorporated herein by reference.
10.28Settlement Agreement, dated April 21, 2015, between Pension Benefit Guaranty Corporation, Evans & Sutherland Computer Corporation and Spitz, Inc., filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on April 24, 2015, and incorporated herein by reference.
10.29Agreement for Appointment of Trustee and Termination of Plan, dated April 21, 2015, between Pension Benefit Guaranty Corporation and Evans & Sutherland Computer Corporation, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on April 24, 2015, and incorporated herein by reference.
10.30Security Agreement, dated April 21, 2015, between Pension Benefit Guaranty Corporation, Evans & Sutherland Computer Corporation and Spitz, Inc., filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on April 24, 2015, and incorporated herein by reference
10.31Open-End Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated April 21, 2015, executed by Spitz, Inc. in favor of Pension Benefit Guaranty Corporation, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on April 24, 2015, and incorporated herein by reference.
10.32Agreement and Plan of Merger, dated February 9, 2020, between Elevate Entertainment Inc., Elevate Acquisition Corporation, and Evans & Sutherland Computer Corporation, filed as Exhibit 2.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed with the Commission on February 13, 2020, and incorporated herein by reference.
Subsidiaries of the registrant
21.1Subsidiaries of Registrant, filed as Exhibit 21.1 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
Consent of experts and counsel
23.1Consent of Independent Registered Public Accounting Firm, filed herein.
Rule 13a-14(a)/15d-14(a) Certifications
31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein.
31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein.
Section 1350 Certifications
32.1Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herein.
TRADEMARKS USED IN THIS FORM 10-K
E&S, Digistar, SciDome and NanoSeam are trademarks or registered trademarks of Evans & Sutherland Computer Corporation or Spitz. All other product, service, or trade names or marks are the properties of their respective owners.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EVANS & SUTHERLAND COMPUTER CORPORATION
By /s/ JONATHAN SHAW
Jonathan Shaw
Chief Executive Officer and Director
March 30, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ JONATHAN SHAW
Jonathan Shaw
Chief Executive Officer
and Director
(Principal Executive Officer)
March 30, 2020
/s/ PAUL L. DAILEY
Paul L. Dailey
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
March 30, 2020
/s/ L TIM PIERCE
L Tim Pierce
Director
March 30, 2020
/s/ WILLIAM SCHNEIDER, JR
William Schneider, Jr.
Director
March 30, 2020
/s/ E. MICHAEL CAMPBELL
E. Michael Campbell
Director
March 30, 2020
/s/ WILLIAM E. STRINGHAM
William E. Stringham
Director
March 30, 2020