Operating Expenses
The following table summarizes our operating expenses:
|
|
Three Months Ended
|
|
|
March 31,
2017
|
|
April 1,
2016
|
|
|
|
|
|
|
Selling, general and
|
|
|
|
|
administrative
|
$
1,606
|
|
$
1,671
|
|
Research and development
|
701
|
|
587
|
|
Pension
|
58
|
|
66
|
|
Total operating expenses
|
$
2,365
|
|
$
2,324
|
Selling, general and administrative expenses were lower in 2017 compared to 2016. This was primarily due to reduced trade show activity and agent commissions.
Research and development expenses were higher in 2017 compared to 2016. This was due primarily to an increase in the use of engineering resources for product improvement projects as opposed to customer delivery activities.
Pension expense declined slightly in 2017 compared to 2016 due to a decrease in the interest cost on the SERP.
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Other Expense, net
The following table summarizes our other expense:
|
|
Three Months Ended
|
|
|
March 31,
2017
|
|
April 1,
2016
|
|
|
|
|
|
|
Total other expense, net
|
$
109
|
|
$
128
|
Other expense decreased in 2017 compared to 2016 mainly due to declining interest expense on the Pension Settlement Obligation and mortgage notes.
LIQUIDITY AND CAPITAL RESOURCES
Outlook
As discussed above in the executive summary, we believe existing liquidity resources and funds generated from forecasted revenue will be sufficient to meet our current and long-term obligations. We continue to operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures.
Cash Flows
In the first three months of 2017, $508 of cash used in operating activities was attributable to $382 of cash provided by the net income for the period, after the effect of $197 of non-cash items plus an unfavorable change to working capital of $890. The change to working capital was driven by increases in inventory and receivables attributable to the timing of billings and new customer orders, an increase in prepaid expenses and restricted cash for performance guarantees on several large contracts, and an increase in accrued liabilities attributable to payroll schedules.
In the first three months of 2016, $1,645 of cash provided by operating activities was attributable to $415 of cash provided by the net income for the period, after the effect of $179 of non-cash items plus a favorable change to working capital of $1,230. The change to working capital was driven by the timing of progress payments from customer contracts, a decrease in inventory attributable to customer deliveries, an increase in accounts payable attributable to the timing of purchases, and an increase in accrued expenses attributable to payroll schedules.
Cash used in investing activities was $55 for the three months ended March 31, 2017 compared to $22 for the same period of 2016. Investing activities for both periods presented consisted entirely of property and equipment purchases.
For the three months ended March 31, 2017, financing activities used $52 of cash compared to $65 in 2016 for principal payments on mortgage notes.
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 the working capital requirements of Spitz. 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 March 31, 2017.
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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 March 31, 2017 there were outstanding letters of credit and bank guarantees of $820, which are scheduled to expire during the year ending December 31, 2017.
Mortgage Notes
As of March 31, 2017, Spitz had obligations totaling $1,923 under its two mortgage notes payable.
Item 4.
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 recognizes that any controls system cannot provide absolute assurance that the objectives of the controls 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 are detected.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed above that occurred during the quarter ended March 31, 2017, 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.
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PART II - OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
In the normal course of business, we become involved in various legal proceedings. Although the final outcome of such proceedings cannot be predicted with certainty, we believe the ultimate disposition of any such proceedings will not have a material adverse effect on our consolidated financial position, liquidity, or results of operations.
Item 6.
EXHIBITS
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herewith.
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herewith.
32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
101
The following materials from this Quarterly Report on Form 10-Q for the period ended March 31, 2017, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EVANS & SUTHERLAND COMPUTER CORPORATION
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Date:
|
May 4, 2017
|
By:
/s/ Paul Dailey
|
|
|
|
Paul Dailey, Chief Financial Officer
|
|
|
|
and Corporate Secretary
|
|
|
|
(Authorized Officer)
|
|
|
|
(Principal Financial and Accounting Officer)
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