UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K


(Mark
One)


x ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the
fiscal year ended December 31,
2009




or




 ̈ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the
transition period from _____________________ to
___________________________




Commission
file number 0-8771




EVANS
& SUTHERLAND COMPUTER CORPORATION


(Exact
name of registrant as specified in its charter)


Utah
              
              87-0278175(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              Identification
      No.)770
      Komas Drive, Salt Lake City, Utah
              
              84108(Address
      of principal executive offices)
              
              (Zip
      Code)




Registrant’s
telephone number, including area code:801-588-1000




Securities
registered pursuant to Section 12(b) of the Act:




NONE




Securities
registered pursuant to Section 12(g) of the Act:





Title
of Each Class


Common
Stock, $0.20 par value





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.  ̈
Yes  x
No





Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act.   ̈
Yes  x
No





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





Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).  ̈
Yes   ̈
No





Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.x





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company.  See definition of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer  ̈
                      Accelerated
      filer  ̈
                      Non-accelerated
      filer  ̈
                      Smaller
      reporting company x(Do
      not check if a smaller reporting
company)





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





The aggregate market value of the
voting and non-voting common stock of the registrant held by non-affiliates of
the registrant as of June 26, 2009, the last business day of the registrant’s
most recently completed second fiscal quarter was approximately $1,597,324
based on theclosing
market price of the common stock on such date as reported by the Nasdaq Stock
Market.





The number of shares of the
registrant’s Common Stock outstanding as of March 31, 2010 was
11,089,199.





EVANS
& SUTHERLAND COMPUTER CORPORATION


FORM
10-K


FOR
THE YEAR ENDED DECEMBER 31, 2009





PART
      IITEM
      1.
                                      BUSINESS
                                      3ITEM
      2.
                                      PROPERTIES
                                      6ITEM
      3.
                                      LEGAL
      PROCEEDINGS
                                      6ITEM
      4.
                                      RESERVED
                                      6PART
      IIITEM
      5.
                                      MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                                      7ITEM
      7.
                                      MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                                      8ITEM
      8.
                                      FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                      17ITEM
      9.
                                      CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                      39ITEM
      9A.
                                      CONTROLS
      AND PROCEDURES
                                      39ITEM
      9B.
                                      OTHER
      INFORMATION
                                      39PART
      IIIITEM
      10.
                                      DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                                      40ITEM
      11.
                                      EXECUTIVE
      COMPENSATION
                                      40ITEM
      12.
                                      SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                      41ITEM
      13.
                                      CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
                                      41ITEM
      14.
                                      PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                      41PART
      IVITEM
      15.
                                      EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                      42SIGNATURES
                                      46




2


PART
I





ITEM
1.          BUSINESS




Throughout
this document Evans & Sutherland Computer Corporation may be referred to as
“Evans & Sutherland,” “E&S,” “we,” “us,” “our” or the “Company.” 
All dollar amounts are in thousands unless otherwise indicated.




Evans
& Sutherland was incorporated in the state of Utah on May 10, 1968. 
Our principal offices are located at 770 Komas Drive, Salt Lake City, Utah
84108, and our telephone number is (801) 588-1000.  Through a link on our
website, www.es.com, we make available, free of charge, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after such material
is electronically filed with or furnished to the Securities and Exchange
Commission (the “SEC”).  We make our website content available for
informational purposes only.  The information provided on our website is
not incorporated by reference into this Form 10-K and our website address is not
intended to be a hyperlink.  The above reports and other information are
also available, free of charge, at www.sec.gov. 
Alternatively, the public may read and copy any materials we file with the SEC
at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549.  Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330.




General




Evans
& Sutherland focuses on the production of high-quality visual systems,
advanced displays including the Evans & Sutherland Laser Projector (“ESLP”),
dome projection screens, dome architectural treatments, and unique content for
planetariums, science centers, other educational institutions, and entertainment
venues.  With a 40-year history in computer graphics, we are widely
regarded as both a pioneer and a leader in providing the world’s most compelling
visual systems.  With our subsidiary, Spitz, Inc., and its over 60-year
history as a leading supplier of planetarium systems and other dome displays,
E&S supplies premier total system solutions for its digital theater markets
as well as customized domes and other curved structures in the architectural
market.





We
continue to maintain a significant share of the overall planetarium and digital
theater market. We estimate that our market share has ranged from 35% to 70%,
depending on the specific market and time period.  We estimate that the
size of the market for digital theater and planetarium systems is approximately
$65 million annually.





Description
of Products




E&S
offers a range of products and services for digital theater, planetarium, and
educational institutions.  These products include state of the art image
generators, domes, and display systems some of which feature our ESLP that
provides a seamless high resolution display from a single projector. 
Additionally, we produce unique content both for our own library which we
license to customers and for specific customer requirements.




Description
of Markets




We are an
industry leader in providing visual systems to an international customer base in
the digital theater, planetarium, and educational markets. We also supply dome
projection screens and dome architectural treatments to major theme parks,
casinos, world expositions, and military defense contractors.  In each of
these markets we face highly competitive conditions.  In all our markets 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.




Digital
Theater




In the
digital theater market our products compete with traditional optical-mechanical
products and digital display systems offered by GOTO Optical Mfg. Co.,
Konica-Minolta Planetarium Co. Ltd., Carl Zeiss Inc., and Sky-Skan, Inc. The
Company’s digital display systems can be configured with the proprietary ESLP or
standard commercial projectors similar to systems sold by our competitors. 
Our proprietary image generator, the Digistar 4 (“D4”), along with other
customized software tools differentiates our digital theater systems and
competes favorably with competitive digital display systems.




3




Advanced
Displays




We began
work in 1997 to build a new generation of projection technology with
specifications beyond any other technology either available or likely in the
foreseeable future.  This goal evolved into the production of a
revolutionary projector using lasers for illumination and
micro-electro-mechanical systems (MEMS) to modulate the laser light and create
an image.  The result is our ESLP Systems, which were first delivered late
in 2005, with additional units delivered in each year since.  The first
units have been supplied to our traditional simulation and digital theater
customers who continue to order systems with the new projection
technology.  We believe that the ESLP also has application to other markets
in the future where ultra-high resolution, high efficiency, excellent image
quality, and low life-cycle cost are important considerations.




Domed
Structures




Our Spitz
subsidiary is the world's leading producer of domed projection screens. Spitz
designs, manufactures, and installs domed projection screens used in planetarium
theaters and a variety of other applications such as ride simulators, special or
large format film theaters, simulation training systems and architectural
treatments. Spitz’s experience enables it to advise on the architectural
integration of domed projection screens and solve complex optical problems
involving reflectivity and image distortion on compound curved surfaces. The
Company believes that these skills are important to buyers of domed projection
screens. The principal customers in 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 will occasionally supply domed projection
screens, particularly in foreign markets.




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 is, as a whole, material
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 in the U.S., Japan and several
European countries, and 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,
documentation and chip masks designed by us and institute copyright registration
when appropriate.  Currently we retain a total of 33 active U.S. patents,
and have licenses to an additional 25 U.S. patents.




Research
& 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.




A
significant focus for our R&D in 2009 was the continued development of our
laser projector, the ESLP.  We first delivered ESLP’s in the fourth quarter
of 2005 to the Air Force and have since delivered the ESLP to
planetariums.  Efforts to improve production process, performance and
reliability of the laser projector continue. In addition we are exploring the
potential application of the ESLP technology in new markets through partnering
and licensing arrangements.




R&D
efforts continue to improve the D4, the current generation of our popular image
generator and a key component to our digital display systems.  We are also
exploring the possibility of other commercial applications for D4
technology.




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. As a result of the challenges in producing a key component of the
ESLP, we have made a considerable effort to develop other components using
alternative techniques and technology.




4




Employees




As of
December 31, 2009, Evans & Sutherland and its subsidiaries employed a total
of 124 persons of which 118 were employed fulltime.  As of March 27, 2010,
Evans & Sutherland and its subsidiaries employed a total of 101 persons of
which 97 were employed fulltime.




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
Exchange Act of 1934, as amended, including, among others, those statements
preceded by, followed by or including the words “estimates,” “believes,”
“expects,” “anticipates,” “plans,” “projects,” “intends,” “predicts,” “may,”
“will,” “could,” “would,” “potential” and similar expressions or the negative of
such terms.  See Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included in Part II of this annual report
on Form 10-K for a list of some of the forward-looking statements included in
this Form 10-K.




EXECUTIVE
OFFICERS OF THE REGISTRANT




The
following sets forth certain information regarding the executive officers of
E&S as of December 31, 2009.




Name
              Age
              PositionDavid
      H. Bateman
              67
              President
      and Chief Executive OfficerPaul
      L. Dailey
              53
              Chief
      Financial Officer and Corporate SecretaryBob
      Morishita
              58
              Vice
      President Human ResourcesKirk
      D. Johnson
              48
              Vice
      President and General Manager of Digital TheaterBret
      Winkler
              48
              General
      Manager of Advanced DisplaysJonathan
      A. Shaw
              53
              President
      and Chief Executive Officer of Spitz,
Inc.





David H.
Bateman was appointed President and Chief Executive Officer of E&S in
February 2007.  Mr. Bateman joined E&S as Director of Business
Operations in May 1998. He was appointed Vice President – Business Operations in
March 2000 and Interim President and Chief Executive Officer and a member of the
Board of Directors in June 2006.




Paul L.
Dailey was appointed Chief Financial Officer and Corporate Secretary of E&S
in February 2007.  He became an executive officer of E&S in August 2006
when he was appointed Acting Chief Financial Officer and Corporate
Secretary.  Prior to his appointments at E&S, Mr. Dailey served as
Executive Vice President, Chief Financial Officer and Corporate Secretary of
E&S’s subsidiary, Spitz, Inc., where he started as Controller in 1983. Mr.
Dailey is a Certified Public Accountant.




Bob
Morishita was appointed Vice President of Human Resources in 2000.  He
joined E&S as Compensation Manager in 1982 and was appointed Human Resources
Director in 1997.


5




Kirk
Johnson was appointed Vice President and General Manager of Digital Theater in
January 2002.  He joined E&S in April 1990 and has held various
engineering and management positions throughout his service at
E&S.





Brett
Winkler was appointed General Manager of Advanced Displays in September 2007.
 He has held various engineering and management positions throughout his
service at E&S since 1996.  On March 26, 2010, Mr. Winkler’s employment
with E&S was terminated as part of a plan to reduce our research and
development activities and the related cost.





Jonathan
A. Shaw was appointed President and Chief Executive Officer of E&S’s
subsidiary, Spitz, Inc. in November 2001 where he held various management
positions since 1985.




ITEM
      2.
            PROPERTIES




Our
principal executive, engineering, manufacturing and operations facilities are
located in the University of Utah Research Park in Salt Lake City, Utah, where
we lease three buildings, which we previously owned, totaling approximately
68,000 square feet.  The buildings are located on land leased from the
University of Utah with an initial term of 40 years or longer. During 2009, we
concluded a sale-leaseback of the buildings whereby the buildings have been sold
and the land lease has been assigned to a third party lender.  We lease the
land and our buildings from that lender on a 5 year lease term with the option
to renew the lease for two additional 5 year lease terms.  Because we also
have the option to buy back the property and interest in the land lease during
the term of the lease, the transaction was recorded as a financing and therefore
the buildings and related improvements are still recorded as assets as of
December 31, 2009.




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.




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 or other contingent matters
outstanding that would have a material adverse effect on our consolidated
financial condition, liquidity or results of operations.




ITEM
      4.
            RESERVED




6


PART
II





ITEM 5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES





Our
common stock trades on the Over-the-Counter Bulletin Board under the symbol
“ESCC.PK.”  On March 31, 2010 there were 607 holders of record of our
common stock.  Because brokers and other institutions hold many of our
shares on behalf of shareholders, we are unable to estimate the total number of
shareholders represented by these record holders.




We have
never paid a cash dividend on our common stock and have used retained earnings
for the operation and expansion of our business.  Currently we have an
accumulated deficit.  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,
2009 in Item 12 “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters” of Part III of this annual report on
Form 10-K.




The table
below presents the high and low sales prices per share as reported on the Nasdaq
Stock Market or the Pink Sheets, as applicable, by quarter for 2009 and 2008.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down,
or commission and may not necessarily represent actual
transactions.




2009
              
              
              2008High
              
              
              Low
              
              
              High
              
              
              LowFirst
      Quarter
              
              $
              0.79
              
              
              $
              0.03
              
              
              $
              1.60
              
              
              $
              0.60Second
      Quarter
              
              
              0.73
              
              
              
              0.20
              
              
              
              1.69
              
              
              
              0.75Third
      Quarter
              
              
              0.60
              
              
              
              0.10
              
              
              
              1.65
              
              
              
              0.77Fourth
      Quarter
              
              
              0.38
              
              
              
              0.05
              
              
              
              1.35
              
              
              
              0.24




ITEM
      6.
            NOT
      APPLICABLE




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.





Executive
Summary




Revenue
and gross profit contributions from our digital theater and dome products
declined in 2009 as compared to 2008.  The decreased revenue and gross
profit contributed to an increased net loss that, along with changes in working
capital, resulted in cash absorbed by operations amounting to approximately
$5,288 in 2009. Also contributing to the increased net loss was a loss on
impairment of inventory related to a change in the design configuration of
upcoming Evans & Sutherland Laser Projector (“ESLP”) deliveries.
Capital expenditures and principal payments on debt absorbed an additional $539
in 2009; however, other financing activities added cash of $2,670 resulting in a
total decrease in cash in 2009 of $3,157 and an unrestricted cash balance of
$2,600 as of December 31, 2009.  Operating expenses in 2009 continued at
levels which provided limited support of our plan to develop and market the
ESLP. Pension expense increased, however, was not as much as anticipated and
required no cash payments in 2009. No cash payments to the pension trust will be
required in 2010. The decrease in the anticipated 2009 pension expense and 2010
pension trust payments is attributable to a number of factors including the
return on pension trust investments late in 2009, changes in the interest rates
used to compute the benefit obligation, and lower than anticipated settlement
payments.





Development
of our laser projector products continued in 2009 but at decreasing pace toward
the end of the year as a result of limited cash resources. Although development
efforts have improved the performance of the ESLP, further advances are required
in order to keep pace with competing projection products and reach new market
opportunities. We believe there may be potential opportunities for our laser
technology in new markets; however, limited resources will prevent our continued
pursuit of such opportunities in 2010. As a result, our laser product efforts
will be reduced to support the existing ESLP product so that we can fulfill our
current support obligations and sales efforts in the planetarium market. 
By reducing our development efforts and making other significant cost reductions
we believe the business can become profitable by the end of 2010.





Although
bookings and revenue were down in 2009, bidding and selling activities for all
of our products remain reasonably steady to sustain revenue levels in 2010
comparable to 2009.  We continue to monitor our business to determine the
effects of the current global economic turmoil. We see some delays in customer
plans and funding cutbacks; however, we also see signs of government stimulus
spending which aids our sales prospects along with continued strong demand for
our products in developing areas of the world such as China and
India.





Liquidity
and capital resources have been pressured by the results of 2009. We have
considered alternative business strategies and have sought external sources of
liquidity to sustain operations through 2010. These efforts proved difficult in
the current economic climate and, as a result we have changed the course of our
previous plans to expand the business into the wider high-end commercial display
market.  The adequacy of current liquidity sources to fund operations will
depend on a sufficient stream of new orders with adequate customer progress
payments in 2010 and our ability to execute a plan to aggressively cut cost and
restructure the operations. The objective of the plan is to reduce operations to
the minimum level to sustain the current digital theater business and the ESLP.
This will limit our opportunities for growth in the foreseeable future but we
believe will provide an opportunity to meet our obligations through the end of
2010, at which time we will reevaluate our plans.  There can be no
assurance that the Company will be successful in these efforts.  The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.




8





Results
of Operations




Consolidated
Sales and Backlog




The
following table summarizes our consolidated sales for fiscal year:




2009
                    
                    
                    2008Sales
                    
                    $
                    25,068
                    
                    
                    $
                    37,659





Sales
decreased 33% from 2008 to 2009 due to a decrease in the volume of orders and
deliveries.  Higher sales in 2008 were attributable to delivery of premium
systems including domes, sales of Digistar SP2HD and SciDome systems, the
introduction of the Digistar 4 platform and $1,050 related to the settlement of
an agreement for the development and supply of laser based
products.





On
December 31, 2009, our revenue backlog was $13,339 compared with $20,432 at
December 31, 2008.  We anticipate that approximately 83% of the 2009
backlog will be converted to sales in 2010.  The lower backlog as of
December 31, 2009 resulted from a decrease in new orders during 2009. The
revenue backlog began to improve after December 31, 2009 with strong new orders
of approximately $9,200 in the first quarter of 2010.





Gross
Profit





The
following table summarizes our gross profit and the percentage to total sales
during fiscal year:


2009
                    
                    
                    2008Gross
      profit
                    
                    $
                    7,767
                    
                    
                    $
                    15,109Gross
      profit percentage
                    
                    
                    31
                    %
                    
                    
                    40
                    %





The
decrease in gross profit from 2008 to 2009 reflects favorable contract
performance in 2008 including high margin from sales recognized for the $1,050
of sales related to the settlement of an agreement for the development and
supply of laser based products, compared to lower volume of premium system
deliveries in 2009 and a loss on inventory impairment of $1,446 for obsolete and
excess quantities of inventory, primarily related to the ESLP.  The Company
concluded that an alternative design was more favorable than the previously
planned design and as a result we identified inventory materials which are less
likely to be used and created a reserve for those materials during the first
half of the year.




Operating
Expenses


2009
                  
                  
                  2008Selling,
      general and administrative excluding pension expense
                  
                  $
                  7,346
                  
                  
                  $
                  8,105Research
      and development
                  
                  
                  6,193
                  
                  
                  
                  9,301Pension
      expense – general and administrative
                  
                  
                  2,160
                  
                  
                  
                  1,436Total
      operating expenses
                  
                  $
                  15,699
                  
                  
                  $
                  18,842




In 2009,
operating expenses decreased 17% compared to 2008 primarily due to decreases in
legal, consulting and research and development efforts, including the conclusion
of an ongoing research and development agreement with a third party consultant
that resulted in $1,500 decrease in expense over the prior year.  Pension
expense increased in 2009 due to higher amortization of unrecognized actuarial
losses and lower expected return on assets compared to 2008.




Other
Income and Expense




The
following table summarizes our other income and expense during fiscal
year:




9




2009
                    
                    
                    2008Interest
      income
                    
                    $
                    24
                    
                    
                    
                    165Interest
      expense
                    
                    
                    (282
                    )
                    
                    
                    (230
                    )Other
      income (expense)
                    
                    
                    384
                    
                    
                    
                    (165
                    )




Interest
income in 2009 decreased compared to 2008 due to the reduction in our average
cash balances earning interest during 2009.  The increase to interest
expense is due to an increase in debt resulting from the financing transaction
involving the sale-leaseback of our buildings and borrowings on the Spitz line
of credit, both of which occurred in late 2009.  In 2009, we recorded net
other income compared to other expense in 2008 due to  a gain of $432 in
2009 from termination of long-term land lease with escalating rent
payments.




Income
Taxes




Income
tax expense consisted of the following:




2009
                      
                      
                      2008Income
      tax expense
                      
                      $
                      (44
                      )
                      
                      $
                      (22
                      )




Income
tax expense of $44 in 2009 was state income taxes.  Income tax expense of
$22 in 2008 included the release of $97 of accrued tax contingency offset by
state income tax expense of $153.




Liquidity
and Capital Resources




Outlook




As
discussed in the executive summary above, because cash resources have been
depleted to a level insufficient to sustain the operations as currently
structured, we are implementing a plan to aggressively cut cost and restructure
the operations. We had limited success in accessing external sources of cash,
except for the sale leaseback financing transaction described in more detail
below. Our new plan cuts research and development and other operating expenses
to minimum levels and is designed to sustain the existing digital theater
business.  By implementing this plan, along with reduced estimates for 2010
funding requirements of the pension trust, we believe existing cash and funds
generated from forecasted revenue can meet our 2010 obligations.  However,
no assurance can be provided that we will be successful in these efforts. 
The outlook beyond 2010 depends on the continued success of the digital theater
business and its ability to generate sufficient cash to meet our obligations,
most significantly the pension obligation. The timing and amount of cash
required to meet the pension obligation will depend on a number of factors
including the return on pension trust investments and potential legislation that
could defer required pension funding to future years. 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
Flow




Years
      Ended December 31,2009
                              
                              
                              2008Net
      cash provided by (used in):Operating activities
                              
                              $
                              (5,288
                              )
                              
                              $
                              (4,770
                              )Investing activities
                              
                              
                              (396
                              )
                              
                              
                              (1,154
                              )Financing activities
                              
                              
                              2,527
                              
                              
                              
                              405Decrease
      in cash and cash equivalents
                              
                              $
                              (3,157
                              )
                              
                              $
                              (5,519
                              )




10




Cash and
cash equivalents decreased $3,157 to $2,600 during 2009, primarily as a result
of cash used in operating activities.




Operating
Activities




The net
cash used by operating activities in 2009 was attributable to $4,458 absorbed by
the net loss after the effect of $3,392 of non-cash items and cash used from
changes in working capital of $830.  Significant changes in working capital
that used cash included a decrease of customer progress payments and a
decrease in accounts payable and accrued liabilities which was partially offset
by cash provided from an increase in pension and retirement liabilities and a
decrease in accounts receivable and inventory.  The decrease in customer
progress payments during the year corresponded to lower bookings of new customer
orders and related deliveries of product.  The increase in accrued pension
and retirement liabilities reflects accumulating pension expenses while no cash
payments to the pension trust were required due to credits for contributions
made in prior years. Other changes in working capital in 2009 were due to
differences in the timing of routine transactions.




The net
cash used by operating activities in 2008 was attributable to $1,511 absorbed by
the net loss after the effect of $2,474 of non-cash items and cash used from
changes in working capital of $3,259.   Significant changes in working
capital that used cash included an increase in accounts receivable and
inventories. These items reflect the higher volume of sales orders that occurred
in 2008.  Significant changes in working capital that provided cash
included an increase of customer progress payments and an increase in pension
and retirement liabilities.




Investing
Activities




Investing
activities used $396 of cash during 2009 due to purchases of property, plant and
equipment.




Investing
activities used $1,154 of cash during 2008 primarily due to purchases of
property, plant and equipment.




Financing
Activities




Financing
activities provided $2,527 of cash during 2009 which included $310 of proceeds
from a line of credit utilized in late 2009 and $2,360 from the sale-leaseback
of the Company’s main headquarters located in Salt Lake City, Utah which was
accounted for as a financing.




Financing
activities provided $405 of cash during 2008 which reflected $500 of proceeds
from an addition to long-term debt that was used to fund improvements to an
existing building owned by the Company.




Credit
Facilities




The
Company is a party to a Credit Agreement with a commercial bank which permits
borrowings of up to $1,100 to fund Spitz working capital requirements. 
Interest is charged on amounts borrowed at the Wall Street Journal Prime
Rate.   Borrowings under the Credit Agreement are secured by Spitz
real and personal property and all of the outstanding shares of Spitz common
stock. The Credit Agreement and Mortgage Notes contain cross default provisions
whereby the default of either agreement will result in the default of both
agreements. As of December 31, 2009 there was $310 of borrowings outstanding
under the Credit Agreement.




The
ability to issue letters of credit and bank guarantees is important to our
business as sales in countries other than in North America and Western Europe
have increased. In many countries, letters of credit and bank guarantees are
required as part of all sales contracts. Letters of credit and bank guarantees
are issued to ensure our performance to third parties.





The
Company has finance arrangements which facilitate the issuance of letters of
credit and bank guarantees. Under the terms of the arrangements, we are required
to maintain a balance in a specific cash account equal to or greater than the
outstanding value of all letters of credit or bank guarantees issued, plus other
amounts necessary to adequately secure our obligations with the financial
institution. As of December 31, 2009, we had outstanding letters of credit and
bank guarantees of $1,597.  All letters of credit are expected to expire in
2010.


11


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 twenty
years.  On each third anniversary of the First Mortgage Note, the interest
rate is adjusted to the greater of 5.75% or 3% over the Three-Year Constant
Maturity Treasury Rate published by the United States Federal Reserve
(“3YCMT”).  The monthly installment is recalculated on the first month
following a change in the interest rate. The recalculated monthly installment is
equal to the monthly installment sufficient to repay the principal balance, as
of the date of the change in the interest rate, over the remaining portion of
the original twenty-year term.  On January 14, 2010, the 3YCMT was 1.49%
and the interest rate on the First Mortgage Note adjusted to 5.75% per annum. As
a result of the interest rate adjustment, the monthly installment amount was
changed from $26 to $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 twenty
years.  On each fifth anniversary of the Second Mortgage Note, the interest
rate is adjusted to the greater of 5.75% or 3% over 3YCMT.  The monthly
installment is recalculated on the first month following a change in the
interest rate. The recalculated monthly installment is equal to the monthly
installment sufficient to repay the principal balance, as of the date of the
change in the interest rate, over the remaining portion of the original
twenty-year term.  The monthly installment for the first five years is $4
and includes interest at 5.75% per annum.





The
Mortgage Notes are secured by the real property occupied by Spitz pursuant to a
Mortgage and Security Agreements; the real property had a carrying value of
$4,825 as of December 31, 2009. The Mortgage Notes are guaranteed by
E&S.





Sale-Leaseback
Financing





In
November 2009, the Company completed the sale of its corporate office buildings
and its interest in the lease for the land occupied by the buildings for
$2,500.  Under the agreement, we transferred legal title of the buildings
including improvements and assigned the related land lease to the buyer. We also
entered into a sublease agreement to lease back the land and building for rent
of $501 per year, of which $126 represents the land lease and $375 represents
the building lease.  The sublease agreement has a term of 5 years with an
option for two subsequent 5 year renewal periods.  The Company has a 5 year
option to repurchase the buildings and the interest in the land lease according
to the following schedule:




DateTo:
                        
                        From:
                        
                        Repurchase price:November
      1, 2009
                        
                        October
      31, 2010
                        
                        $
                        2,575November
      1, 2010
                        
                        October
      31, 2011
                        
                        $
                        2,625November
      1, 2011
                        
                        October
      31, 2012
                        
                        $
                        2,732November
      1, 2012
                        
                        October
      31, 2013
                        
                        $
                        3,005November
      1, 2013
                        
                        October
      31, 2014
                        
                        $
                        3,305




The
arrangement was accounted for as a financing and no sale was recorded because
the Company has the right to repurchase the property.  Therefore, the
assets representing the building and improvements remain in property, plant and
equipment and the Company recorded the net proceeds of the sale as Long-term
debt. The $126 portion of the sublease payment attributable to the land lease is
equivalent to the payment under the assigned land lease and therefore is subject
to the same rent escalations to which the Company was bound before the
assignment. The land lease portion of the sublease payment is recorded as rent
expense consistent with the treatment of the prior land lease payment before the
assignment of the lease. The $375 portion of the sublease payment attributable
to the building lease is accounted for as debt service under the financing
transaction.  The net proceeds of the financing amounted to $2,329
consisting of the $2,500 sales price less a security deposit of $125, prorated
building rent of $15 and the first monthly payment of $31. We will record
interest expense at a rate of approximately 20% imputed from the estimated cash
flows assuming we exercise the option to repurchase the property at the end of
the five year term. In the event that we exercise the option to repurchase the
property sooner than the end of the five year term, the difference between the
book balance of the debt and the repurchase cost would be recorded as a
prepayment premium or discount on the payoff of the debt balance. The cash
payment required to repurchase the property on December 31, 2009 was $2,450
consisting of the $2,575 repurchase price under the agreement less a credit for
the $125 security deposit. Accordingly, if we had exercised our option to
repurchase the property on December 31, 2009, we would have recorded a
prepayment premium of approximately 5% in the amount of $112 over the $2,338
book balance of the debt.


12





Other




In 2010,
we expect capital expenditures similar to 2009.  There were no material
capital expenditure commitments at the end of 2009, 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 31, 2010, 463,500 shares remained available for
repurchase under the plans approved by the Board of Directors.  No shares
were repurchased during 2009 or 2008.  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.




At
December 31, 2009, our total indebtedness was $5,784 due on the mortgage notes,
line of credit and sales-leaseback financing.  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 during fiscal years ended 2009
and 2008, and are not expected to be material for the fiscal year ending
2010.




Application
of Critical Accounting Estimates




The
application of the accounting estimates discussed below is considered by
management to be critical to an understanding of our consolidated financial
statements.  Their application places significant demands on management’s
judgment, with financial reporting results relying on estimates about the effect
of matters that are inherently uncertain.  Specific risks for these
critical accounting estimates are described in the following paragraphs.  A
summary of significant accounting policies can be found in Note 1 “Nature of
Operations and Summary of Significant Accounting Policies” of Item 8 “Financial
Statements and Supplementary Data” in this annual report on Form 10-K.  For
all of these policies, management cautions that future results rarely develop
exactly as forecast, and the best estimates routinely require
adjustment.




Revenue
Recognition




Revenue
from long-term contracts requiring significant production, modification and
customization is recorded using the percentage-of-completion method.  This
method uses the ratio of costs incurred to management’s estimate of total
anticipated costs.  Our estimates of total costs include assumptions, such
as man-hours to complete, estimated materials cost, and estimates of other
direct and indirect costs.  Actual results may vary significantly from our
estimates.  If the actual costs are higher than management’s anticipated
total costs, then an adjustment is required to reduce the previously recognized
revenue as the ratio of costs incurred to management’s estimate was
overstated.  If actual costs are lower than management’s anticipated total
costs, then an adjustment is required to increase the previously recognized
revenue as the ratio of costs incurred to management’s estimate is
understated.  Adjustments for revisions of previous estimates are made in
the period they become known.




Costs
and Estimated Earnings in Excess of Billings on Uncompleted Contracts and
Billings in Excess of Costs and Estimated Earnings on Uncompleted
Contracts




Billings
on uncompleted long-term contracts may be greater than or less than incurred
costs and estimated earnings.  As a result, these differences are recorded
as an asset or liability on the balance sheet.  Since revenue recognized on
these long-term contracts includes management’s estimates of total anticipated
costs, the amounts in costs and estimated earnings in excess of billings on
uncompleted contracts and billings in excess of costs and estimated earnings on
uncompleted contracts also include these estimates.




13


Inventories




Inventory
includes materials at standard costs, which approximates average costs, as well
as inventoried costs on programs (including material, labor, subcontracting
costs, as well as an allocation of indirect costs).  We periodically review
inventories for excess supply, obsolescence, and valuations above estimated
realizable amounts, and then provide a reserve we consider sufficient to cover
these items.  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




We
specifically analyze accounts receivable and consider historical experience,
customer creditworthiness, facts and circumstances specific to outstanding
balances, current economic trends, and payment term changes when evaluating
adequacy of the allowance for doubtful accounts.  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 operations.  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 book value of an asset 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
balances, the Company determines the estimated fair value of such assets. An
impairment is recognized to the extent the carrying amount of the assets exceeds
their estimated fair value.  Assets held for sale are reported at the lower
of their carrying amount or fair value 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.





Accounting
Standards Codification





In June
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2009-01, Generally Accepted Accounting Principles
(“ASC Topic 105”) which establishes the FASB Accounting Standards Codification
(“the Codification” or “ASC”) as the official single source of authoritative
GAAP. All existing accounting standards are superseded. All other accounting
guidance not included in the Codification will be considered non-authoritative.
The Codification also includes all relevant Securities and Exchange Commission
(“SEC”) guidance organized using the same topical structure in separate sections
within the Codification.





Following
the Codification, the FASB will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue ASU’s which will serve to update the Codification,
provide background information about the guidance and provide the basis for
conclusions on the changes to the Codification.





The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification became effective for our third quarter
2009 condensed consolidated financial statements and the principal impact on our
condensed consolidated financial statements is limited to disclosures as all
future references to authoritative accounting literature will be referenced in
accordance with the Codification.


14





Recent
Accounting Pronouncements




In
October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (ASC Topic
605) - Multiple-Deliverable Revenue Arrangements, a consensus of the FASB
Emerging Issues Task Force.  This guidance modifies the fair value
requirements of ASC subtopic 605-25, “Revenue Recognition-Multiple Element
Arrangements” by allowing the use of the “best estimate of selling price” in
addition to vendor-specific objective evidence (“VSOE”) (now referred to as
“TPE” standing for third-party evidence) for determining the selling price of a
deliverable. A vendor is now required to use its best estimate of the selling
price when VSOE or TPE of the selling price cannot be determined. In addition,
the residual method of allocating arrangement consideration is no longer
permitted.




In
October 2009, the FASB issued ASU No. 2009-14, Software (ASC Topic 985) -
Certain Revenue Arrangements That Include Software Elements, a consensus of the
FASB Emerging Issues Task Force. This guidance modifies the scope of ASC
subtopic 965-605, “Software-Revenue Recognition” to exclude from its
requirements (a) non-software components of tangible products and (b) software
components of tangible products that are sold, licensed, or leased with tangible
products when the software components and non-software components of the
tangible product function together to deliver the tangible product’s essential
functionality.




ASC Topic
605 and 985 require expanded qualitative and quantitative disclosures and are
effective for fiscal years beginning on or after June 15, 2010. However,
companies may elect to adopt as early as interim periods ended September 30,
2009. These updates may be applied either prospectively from the beginning of
the fiscal year for new or materially modified arrangements or retrospectively.
We believe that the future impact of adopting these updates on our consolidated
financial statements will not be significant.





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




·
            Our
      belief that our products are performing well, that we will meet all our
      delivery requirements, and as a result we will incur no damages or
      penalties for late deliveries in
2010.




·
            Our
      belief that capital expenditures during 2010 will be similar to the
      capital expenditures incurred during
2009.




·
            Our
      belief that there is no consistent, inherent seasonal pattern to our
      business.




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




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




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




·
            Our
      belief that we will perform under the conditions of our letters of credit
      and therefore incur no losses with respect to these letters of credit in
      2010 or future years.




·
            Our
      belief that the effects of inflation will not be material for fiscal year
      2010.




·
            Our
      belief that most of our backlog will be converted to sales in
      2010.




15




·
            Our
      belief that our 2010 orders will continue at a level sufficient to sustain
      sales in 2010 comparable to 2009




·
            Our
      belief that we can successfully implement a plan to reduce operating
      expenses to level that will improve cash flow sufficiently to meet our
      2010 obligations while sustaining our digital theater business with
      adequate support of the ESLP planetarium
  product.




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.




16


ITEM
8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA




CONSOLIDATED
BALANCE SHEETS




(In
thousands, except share data)




December 31,2009
                            
                            
                            2008ASSETSCurrent
      assets:Cash and cash equivalents
                            
                            $
                            2,600
                            
                            
                            $
                            5,757Restricted cash
                            
                            
                            1,597
                            
                            
                            
                            1,642Accounts receivable, net
                            
                            
                            4,024
                            
                            
                            
                            5,778Costs and estimated earnings in excess of billings on
      uncompleted contracts
                            
                            
                            2,073
                            
                            
                            
                            1,977Inventories, net
                            
                            
                            7,159
                            
                            
                            
                            9,070Prepaid expenses and deposits
                            
                            
                            1,346
                            
                            
                            
                            1,512Total current assets
                            
                            
                            18,799
                            
                            
                            
                            25,736Property,
      plant and equipment, net
                            
                            
                            10,608
                            
                            
                            
                            11,533Prepaid
      retirement expenses
                            
                            
                            3,248
                            
                            
                            
                            3,122Goodwill
                            
                            
                            635
                            
                            
                            
                            635Intangible
      assets, net
                            
                            
                            479
                            
                            
                            
                            621Other
      assets
                            
                            
                            849
                            
                            
                            
                            439Total assets
                            
                            $
                            34,618
                            
                            
                            $
                            42,086LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilities:Accounts payable
                            
                            $
                            1,624
                            
                            
                            $
                            2,236Accrued liabilities
                            
                            
                            3,433
                            
                            
                            
                            4,062Billings in excess of costs and estimated earnings on
      uncompleted contracts
                            
                            
                            3,667
                            
                            
                            
                            6,150Customer deposits
                            
                            
                            3,483
                            
                            
                            
                            4,171Current portion of retirement obligations
                            
                            
                            643
                            
                            
                            
                            655Current portion of long-term debt
                            
                            
                            452
                            
                            
                            
                            113Total current liabilities
                            
                            
                            13,302
                            
                            
                            
                            17,387Deferred
      rent obligation
                            
                            
                            1,432
                            
                            
                            
                            1,829Long-term
      debt
                            
                            
                            5,332
                            
                            
                            
                            3,136Pension
      and retirement obligations
                            
                            
                            20,522
                            
                            
                            
                            22,135Total liabilities
                            
                            
                            40,588
                            
                            
                            
                            44,487Commitments
      and contingenciesStockholders’
      deficit:Preferred stock, no par value: 10,000,000 shares authorized;
      no sharesissued and outstanding
                            
                            
                            -
                            
                            
                            
                            -Common stock, $0.20 par value: 30,000,000 shares authorized;
      11,441,666shares issued
                            
                            
                            2,288
                            
                            
                            
                            2,288Additional paid-in-capital
                            
                            
                            54,355
                            
                            
                            
                            54,260Common stock in treasury, at cost, 352,467
    shares
                            
                            
                            (4,709
                            )
                            
                            
                            (4,709
                            )Accumulated deficit
                            
                            
                            (39,997
                            )
                            
                            
                            (32,147
                            )Accumulated other comprehensive loss
                            
                            
                            (17,907
                            )
                            
                            
                            (22,093
                            )Total stockholders’ deficit
                            
                            
                            (5,970
                            )
                            
                            
                            (2,401
                            )Total liabilities and stockholders’
      deficit
                            
                            $
                            34,618
                            
                            
                            $
                            42,086




See notes
to consolidated financial statements.


17




CONSOLIDATED
STATEMENTS OF OPERATIONS




(In
thousands, except per share data)




Year ended December 312009
                
                
                2008Sales
                
                $
                25,068
                
                
                $
                37,659Cost
      of sales
                
                
                17,301
                
                
                
                22,550Gross profit
                
                
                7,767
                
                
                
                15,109Operating
      expenses:Selling, general and administrative excluding pension
      expense
                
                
                7,346
                
                
                
                8,105Research and development
                
                
                6,193
                
                
                
                9,301Pension expense – general and administrative
                
                
                2,160
                
                
                
                1,436Total operating expenses
                
                
                15,699
                
                
                
                18,842Loss
      from operations
                
                
                (7,932
                )
                
                
                (3,733
                )Interest
      income
                
                
                24
                
                
                
                165Interest
      expense
                
                
                (282
                )
                
                
                (230
                )Other
      income (expense)
                
                
                384
                
                
                
                (165
                )Loss
      before income taxes
                
                
                (7,806
                )
                
                
                (3,963
                )Income
      tax expense
                
                
                (44
                )
                
                
                (22
                )Net
      loss
                
                $
                (7,850
                )
                
                $
                (3,985
                )Net
      loss per common share – basic and diluted:
                
                $
                (0.71
                )
                
                $
                (0.36
                )Basic
      and diluted weighted average common shares outstanding
                
                
                11,089
                
                
                
                11,089




See notes
to consolidated financial statements.


18


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’




EQUITY
(DEFICIT) AND COMPREHENSIVE LOSS




(In
thousands)




AccumulatedAdditional
                  
                  
                  
                  
                  
                  
                  
                  
                  OtherCommon
      Stock
                  
                  
                  Paid-in
                  
                  
                  Treasury
                  
                  
                  Accumulated
                  
                  
                  ComprehensiveShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Stock
                  
                  
                  Deficit
                  
                  
                  Loss
                  
                  
                  TotalBalance
      at January 1, 2008
                  
                  
                  11,442
                  
                  
                  $
                  2,288
                  
                  
                  $
                  54,109
                  
                  
                  $
                  (4,709
                  )
                  
                  $
                  (28,162
                  )
                  
                  $
                  (8,393
                  )
                  
                  $
                  15,133Components
      of comprehensive loss:Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,985
                  )
                  
                  
                  -
                  
                  
                  
                  (3,985
                  )Unrealized
      losses on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,868
                  )
                  
                  
                  (1,868
                  )Increase
      in minimum pension liability
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  ( 11,832
                  )
                  
                  
                  (11,832
                  )Total
      comprehensive loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (17,685
                  )Stock-based
      compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  151
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  151Balance
      at December 31, 2008
                  
                  
                  11,442
                  
                  
                  
                  2,288
                  
                  
                  
                  54,260
                  
                  
                  
                  (4,709
                  )
                  
                  
                  (32,147
                  )
                  
                  
                  (22,093
                  )
                  
                  
                  (2,401
                  )Components
      of comprehensive loss:Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,850
                  )
                  
                  
                  -
                  
                  
                  
                  (7,850
                  )Unrealized
      gains on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,043
                  
                  
                  
                  1,043Decrease
      in minimum pension liability
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,143
                  
                  
                  
                  3,143Total
      comprehensive loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (3,664
                  )Stock-based
      compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  95
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  95Balance
      at December 31, 2009
                  
                  
                  11,442
                  
                  
                  $
                  2,288
                  
                  
                  $
                  54,355
                  
                  
                  $
                  (4,709
                  )
                  
                  $
                  (39,997
                  )
                  
                  $
                  (17,907
                  )
                  
                  $
                  (5,970
                  )




See notes
to consolidated financial statements.


19


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


Years Ended
      December 31,2009
                        
                        
                        2008Cash
      flows from operating activities:Net
      loss from continuing operations
                        
                        $
                        (7,850
                        )
                        
                        $
                        (3,985
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                        
                        
                        1,462
                        
                        
                        
                        1,723Provision
      for excess and obsolete inventory
                        
                        
                        1,446
                        
                        
                        
                        213Other
                        
                        
                        484
                        
                        
                        
                        538Changes
      in assets and liabilities:Decrease (increase) in restricted cash
                        
                        
                        65
                        
                        
                        
                        (237
                        )Decrease (increase) in accounts receivable
                        
                        
                        1,209
                        
                        
                        
                        (2,381
                        )Decrease (increase) in inventories
                        
                        
                        465
                        
                        
                        
                        (1,923
                        )Decrease (increase) in costs and estimated earnings in excess
      of billingson uncompleted contracts, net
                        
                        
                        (2,579
                        )
                        
                        
                        1,493Increase in prepaid expenses and other assets
                        
                        
                        (264
                        )
                        
                        
                        (262
                        )Decrease in prepaid retirement expenses
                        
                        
                        688
                        
                        
                        
                        546Increase (decrease) in accounts payable
                        
                        
                        (612
                        )
                        
                        
                        110Decrease in accrued liabilities
                        
                        
                        (631
                        )
                        
                        
                        (578
                        )Increase in accrued pension and retirement
      liabilities
                        
                        
                        1,517
                        
                        
                        
                        841Decrease in customer deposits
                        
                        
                        (688
                        )
                        
                        
                        (868
                        )Net cash used in operations
                        
                        
                        (5,288
                        )
                        
                        
                        (4,770
                        )Cash
      flows from investing activities:Purchases of property, plant and equipment
                        
                        
                        (396
                        )
                        
                        
                        (1,241
                        )Proceeds from sale of property, plant and
      equipment
                        
                        
                        -
                        
                        
                        
                        87Net cash used in investing
      activities
                        
                        
                        (396
                        )
                        
                        
                        (1,154
                        )Cash
      flows from financing activities:Net borrowings on line of credit agreement
                        
                        
                        310
                        
                        
                        
                        -Principal payments on long-term debt
                        
                        
                        (143
                        )
                        
                        
                        (95
                        )Proceeds from issuance of long-term debt
                        
                        
                        2,360
                        
                        
                        
                        500Net cash provided by financing
      activities
                        
                        
                        2,527
                        
                        
                        
                        405Net
      change in cash and cash equivalents
                        
                        
                        (3,157
                        )
                        
                        
                        (5,519
                        )Cash
      and cash equivalents at beginning of year
                        
                        
                        5,757
                        
                        
                        
                        11,276Cash
      and cash equivalents at end of year
                        
                        $
                        2,600
                        
                        
                        $
                        5,757Supplemental Disclosure of Cash Flow
      InformationCash
      paid during the year for:Interest
                        
                        $
                        275
                        
                        
                        $
                        263Income taxes
                        
                        
                        101
                        
                        
                        
                        458




See notes
to consolidated financial statements.


20


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




All
dollar amounts are in thousands except 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,” “we,” “us,” “our” or the “Company,” produces
visual systems used to rapidly and accurately display images.  We design,
manufacture, market and support our visual systems for various applications,
including planetariums, science centers and entertainment venues.  Our
products and solutions range from the visual systems generated by a desktop PC
to what we believe are the most advanced visual systems in the world.  The
Company operates as one segment, which is the visual simulation
market.




Accounting
Standards Codification




In June
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2009-01, Generally Accepted Accounting Principles
(“ASC Topic 105”) which establishes the FASB Accounting Standards Codification
(“the Codification” or “ASC”) as the official single source of authoritative
GAAP. All existing accounting standards are superseded. All other accounting
guidance not included in the Codification will be considered non-authoritative.
The Codification also includes all relevant Securities and Exchange Commission
(“SEC”) guidance organized using the same topical structure in separate sections
within the Codification.




Following
the Codification, the FASB will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue ASU’s which will serve to update the Codification,
provide background information about the guidance and provide the basis for
conclusions on the changes to the Codification.




The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification became effective for our third quarter
2009 condensed consolidated financial statements and the principal impact on our
condensed consolidated financial statements is limited to disclosures as all
future references to authoritative accounting literature will be referenced in
accordance with the Codification.




Basis
of Presentation




Evans
& Sutherland’s fiscal year ends on December 31.  The consolidated
financial statements include the accounts of Evans & Sutherland and its
wholly owned subsidiaries.  All inter-company accounts and transactions
have been eliminated in consolidation.




Use
of Estimates




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes.  The accounting estimates that require management’s
most difficult and subjective judgments include revenue recognition based on the
percentage-of-completion method, inventory reserves, allowance for doubtful
accounts, income tax valuation allowance, 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, may 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, 2009, cash deposits, including restricted cash, exceeded the
federally insured limits by approximately $3,433.




Restricted
Cash




Restricted
cash that guarantees issued letters of credit that mature or expire within one
year is reported as a current asset.  Restricted cash that guarantees
issued letters of credit that mature or expire in more than one year are
reported as long-term other assets.




21




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Trade
Accounts Receivable




In the
normal course of business, we provide unsecured credit terms to our
customers.  Accordingly, we maintain an allowance for doubtful accounts for
possible losses on uncollectible accounts receivable.  We routinely analyze
accounts receivable and costs and estimated earnings in excess of billings, and
consider history, customer creditworthiness, facts and circumstances specific to
outstanding balances, current economic trends, and payment term changes when
evaluating adequacy of the allowance for doubtful accounts.  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 only after exhaustive efforts have
been made to collect and with management’s approval.




The table
below represents changes in our allowance for doubtful receivables during fiscal
year:




2009
                  
                  
                  2008Beginning
      balance
                  
                  $
                  420
                  
                  
                  $
                  292Provision
      for losses on accounts receivable
                  
                  
                  545
                  
                  
                  
                  128Ending
      balance
                  
                  $
                  965
                  
                  
                  $
                  420




Inventories




Inventory
includes materials at standard costs, which approximate average costs, as well
as inventoried costs on programs and long-term contracts.  Inventoried
costs include material, direct engineering and production costs, and applicable
overhead, not in excess of estimated realizable value.   Spare parts
and general stock materials are stated at cost not in excess of realizable
value.  We periodically review inventories for excess supply, obsolescence,
and valuations above estimated realizable amounts, and provide a reserve we
consider sufficient to cover these items.  Revisions of these estimates
could result in the need for adjustments.




During
the year ended December 31, 2009, we recognized loss on inventory impairment of
$1,446 for obsolete and excess quantities of inventory, primarily related to the
Evans & Sutherland Laser Projector (“ESLP”).  The Company concluded
that an alternative design was more favorable than the previously planned design
and as a result we identified inventory materials which are less likely to be
used and wrote off those materials during the first half of the
year.




Inventories
net of reserves at fiscal year-end were as follows:




2009
                
                
                2008Raw
      materials
                
                $
                4,886
                
                
                $
                5,934Work-in-process
                
                
                1,653
                
                
                
                1,679Finished
      goods
                
                
                620
                
                
                
                1,457Total
      inventories, net
                
                $
                7,159
                
                
                $
                9,070




Property,
Plant and Equipment




Property,
plant and equipment are stated at cost.  Depreciation is 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 the
shorter of their useful life or the term of the related lease, 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 book value of the property is removed from the fixed
assets and the related accumulated depreciation
accounts.  Depreciation is included in cost of sales, research and
development or selling, general and administrative expenses depending on the
nature of the asset.  The cost and estimated useful lives of property,
plant and equipment and the total accumulated depreciation and amortization were
as follows at December 31:




22


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Estimateduseful
      lives
                          
                          2009
                          
                          
                          2008Land
                          n/a
                          
                          $
                          2,250
                          
                          
                          $
                          2,250Buildings
      and improvements
                          5 -
      40 years
                          
                          
                          11,638
                          
                          
                          
                          11,600Manufacturing
      machinery and equipment
                          3 -
      8 years
                          
                          
                          6,328
                          
                          
                          
                          6,258Office
      furniture and equipment
                          3 -
      8 years
                          
                          
                          789
                          
                          
                          
                          788Total
                          
                          
                          
                          21,005
                          
                          
                          
                          20,896Less
      accumulated depreciation and amortization
                          
                          
                          
                          (10,397
                          )
                          
                          
                          (9,363
                          )Total
      property, plant and equipment, net
                          
                          
                          $
                          10,608
                          
                          
                          $
                          11,533




Software
Development Costs




Software
development costs, if material, are capitalized from the date technological
feasibility is achieved until the product is available for general release to
customers.  Such costs have not been material during the periods
presented.




Investments




We
classify our marketable debt and equity securities as
available-for-sale.  Available-for-sale securities are recorded at
fair value. Unrealized holding gains and losses, net of the related tax effect,
are excluded from earnings and are reported as a component of accumulated other
comprehensive loss until realized.  Dividend and interest income are
recognized when earned.  Realized gains and losses from the sale of
securities are included in results of operations and are determined on the
specific identification basis.  A decline in the market value that is
deemed other-than-temporary results in a charge to other income (expense) and
the establishment of a new cost basis for the investment.




Impairment
of Long- Lived Assets




Long-lived
assets are reviewed for impairment when events or changes in circumstances
indicate the book value of an asset 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
balances, the Company determines the estimated fair value of such assets. An
impairment is recognized to the extent the carrying amount of the assets exceeds
their estimated fair value.  Assets held for sale are reported at the
lower of their carrying amount or fair value less costs to sell.




Warranty
Reserve




We
provide 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.




Revenue
Recognition




Our sales
include revenue from system hardware, software, database products and service
contracts.  The following table provides information on revenue by
recognition method applied during fiscal years:




2009
                  
                  
                  2008Percentage-of-completion
                  
                  $
                  15,949
                  
                  
                  $
                  22,154Completed
      contract
                  
                  
                  7,692
                  
                  
                  
                  13,164Other
                  
                  
                  1,427
                  
                  
                  
                  2,341Total
      sales
                  
                  $
                  25,068
                  
                  
                  $
                  37,659




23


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 The
following methods are used to compute revenue recognition:
  Percentage-of-Completion. In
arrangements that are longer in term and require significant production,
modification or customization, revenue is recognized using the
percentage-of-completion method.  In applying this method, we utilize
cost-to-cost methodology whereby we estimate the percent complete by calculating
the ratio of costs incurred (consisting of material, labor and subcontracting
costs, as well as an allocation of indirect costs) to management’s estimate of
total anticipated costs.   This ratio is then utilized to
determine the amount of gross profit earned based on management’s estimate of
total estimated gross profit at completion.  We routinely review
estimates related to percentage-of-completion contracts and adjust for changes
in the period revisions are made.  Billings on uncompleted
percentage-of-completion contracts may be greater than or less than incurred
costs and estimated earnings and are recorded as an asset or liability in the
accompanying consolidated balance sheets.
  Completed Contract. Contract
arrangements which typically require a relatively short period of time to
complete the production, modification, and customization of our products are
accounted for using the completed contract method.  Accordingly,
revenue is recognized upon delivery of the completed product, provided
persuasive evidence of an arrangement exists, title and risk of loss has
transferred, the fee is fixed and determinable, and collection is reasonably
assured.
  Other.  Other
revenue consists primarily of amounts earned under maintenance contracts that
are generally sold as a single element to our customers.  Revenue from
product maintenance contracts, including separately priced extended warranty
contracts, is deferred and recognized over the period of performance under the
contract.
  Anticipated
Losses.  For contracts with anticipated losses at completion, a
provision is recorded when the loss becomes known.  After an
anticipated loss is recorded, subsequent revenue and cost of sales are
recognized in equal, offsetting amounts as contract costs are incurred and do
not generate further gross profits (losses).
  Multiple Element
Arrangements.  Some of our contracts include multiple
elements.  Revenue earned on elements such as products, services and
maintenance contracts are allocated to each element based on the relative fair
values of the elements.
  Net
Income (Loss) per Common Share
  Net
income (loss) per common share is computed based on the weighted-average number
of common shares and, as appropriate, dilutive common stock equivalents
outstanding during the period.  Stock options are potentially common
stock equivalents.
  Basic
income or loss per common share is based upon the average number of shares of
common stock outstanding during the period. There were no dilutive shares in
2009 or 2008. Potentially dilutive securities from stock options are discussed
in Note 9.
  Income
Taxes
  We use
the asset and liability method of accounting for income taxes.  Under
the asset and liability method, deferred income tax assets and liabilities are
recognized for the future income tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective income tax bases and operating loss and income
tax credit carry-forwards.  Deferred income tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred income tax assets and liabilities of a change in
income tax rates is recognized in the period that includes the enactment
date.
  Other
Comprehensive Loss
  On a net
basis for 2009 and 2008, there was a deferred income tax asset as a result of
the items reflected in comprehensive loss. However, we have determined that it
is more likely than not that we will not realize such net deferred income tax
assets and have therefore established a valuation allowance against the full
amount of the net deferred income tax asset. Accordingly, the net income tax
effect of the items included in other comprehensive loss is zero. Therefore, we
have included no income tax expense or benefit in relation to items reflected in
other comprehensive loss.
  The
components of accumulated other comprehensive loss was as follows as of December
31:
  2009
                  
                  
                  2008Additional
      minimum pension liability
                  
                  $
                  (17,247
                  )
                  
                  $
                  (20,390
                  )Net
      unrealized holding losses on investments
                  
                  
                  (660
                  )
                  
                  
                  (1,703
                  )Total
      accumulated other comprehensive loss
                  
                  $
                  (17,907
                  )
                  
                  $
                  (22,093
                  )
  24
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Leases
  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 are recognized to reflect the difference between the rent paid or
received in the current period and the calculated straight-line
amount.
  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.
  Recent
Accounting Pronouncements
  In
October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (ASC Topic
605) - Multiple-Deliverable Revenue Arrangements, a consensus of the FASB
Emerging Issues Task Force.  This guidance modifies the fair value
requirements of ASC subtopic 605-25, “Revenue Recognition-Multiple Element
Arrangements” by allowing the use of the “best estimate of selling price” in
addition to vendor-specific objective evidence (“VSOE”) (now referred to as
“TPE” standing for third-party evidence) for determining the selling price of a
deliverable. A vendor is now required to use its best estimate of the selling
price when VSOE or TPE of the selling price cannot be determined. In addition,
the residual method of allocating arrangement consideration is no longer
permitted.
  In
October 2009, the FASB issued ASU No. 2009-14, Software (ASC Topic 985) -
Certain Revenue Arrangements That Include Software Elements, a consensus of the
FASB Emerging Issues Task Force. This guidance modifies the scope of ASC
subtopic 965-605, “Software-Revenue Recognition” to exclude from its
requirements (a) non-software components of tangible products and (b) software
components of tangible products that are sold, licensed, or leased with tangible
products when the software components and non-software components of the
tangible product function together to deliver the tangible product’s essential
functionality.
  ASC Topic
605 and 985 require expanded qualitative and quantitative disclosures and are
effective for fiscal years beginning on or after June 15, 2010. However,
companies may elect to adopt as early as interim periods ended September 30,
2009. These updates may be applied either prospectively from the beginning of
the fiscal year for new or materially modified arrangements or retrospectively.
We believe that the future impact of adopting these updates on our consolidated
financial statements will not be significant.
  Reclassifications
  Certain
amounts in the prior year’s consolidated financial statements have been
reclassified to conform to the current year’s presentation.
  Liquidity
  Liquidity
and capital resources have been pressured by the results of 2009. We have
considered alternative business strategies and have sought external sources of
liquidity to sustain operations through 2010. These efforts proved difficult in
the current economic climate and, as a result we will be forced to change the
course of our previous plans to expand the business.  The adequacy of
current liquidity sources to fund operations will depend on a sufficient stream
of new orders with adequate customer progress payments in 2010 and our ability
to execute a plan to aggressively cut costs and restructure our operations. The
objective of the plan is to reduce operations to the minimum level to sustain
the current digital theater business and the ESLP. This will limit opportunities
for growth in the foreseeable future, but we believe will provide an opportunity
to meet our obligations through the end of 2010, at which time we will
reevaluate our plans.  There can be no assurance that we will be
successful in these efforts.  The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
  Note
2  – Intangible Assets and Goodwill
  Intangible
assets and goodwill consisted of the following as of December 31, 2009 and
2008:
  25
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 December 31,2009
                  
                  
                  2009
                  
                  
                  2008Class
                  
                  Weighted Avg.
                    Amortization
                    Period in Years
                  
                  
                  Gross
                    Carrying
                    Amount
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Gross
                    Carrying
                    Amount
                  
                  
                  Accumulated
                    AmortizationMaintenance
      and legacy customers
                  
                  
                  10
                  
                  
                  $
                  350
                  
                  
                  $
                  (149
                  )
                  
                  $
                  350
                  
                  
                  $
                  (111
                  )Planetarium
      shows
                  
                  
                  10
                  
                  
                  
                  280
                  
                  
                  
                  (131
                  )
                  
                  
                  280
                  
                  
                  
                  (97
                  )Intellectual
      property rights
                  
                  
                  5
                  
                  
                  
                  350
                  
                  
                  
                  (221
                  )
                  
                  
                  350
                  
                  
                  
                  (151
                  )Total
                  
                  
                  8.7
                  
                  
                  $
                  980
                  
                  
                  $
                  (501
                  )
                  
                  $
                  980
                  
                  
                  $
                  (359
                  )
  Amortization
expense for the years ended December 31, 2009 and 2008 was $142 and $144,
respectively.
 
 Maintenance
and legacy customers and planetarium shows represent the value of definite-lived
intangibles that were identified in the acquisition of Spitz, Inc. (“Spitz”) in
2006.  Also in 2006, the Company acquired certain intellectual
property rights to protect the application of certain processes in the use of
its products for cash payments totaling $350.
 
 Estimated
future amortization expense is as follows:
 
 December 31,Class
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2014
                  
                  
                  ThereafterMaintenance
      and legacy customers
                  
                  $
                  35
                  
                  
                  $
                  35
                  
                  
                  $
                  31
                  
                  
                  $
                  30
                  
                  
                  $
                  28
                  
                  
                  $
                  42Planetarium
      shows
                  
                  
                  31
                  
                  
                  
                  25
                  
                  
                  
                  25
                  
                  
                  
                  22
                  
                  
                  
                  20
                  
                  
                  
                  26Intellectual
      property rights
                  
                  
                  70
                  
                  
                  
                  59
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  136
                  
                  
                  $
                  119
                  
                  
                  $
                  56
                  
                  
                  $
                  52
                  
                  
                  $
                  48
                  
                  
                  $
                  68
 
 Goodwill
of $635 resulted from the acquisition of our 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, 2009.
 
 Note
3 - Costs and Estimated Earnings on Uncompleted Contracts
  Comparative
information with respect to uncompleted contracts at fiscal
year-end:
  2009
                          
                          
                          2008Total
      accumulated costs and estimated earnings on uncompleted
      contracts
                          
                          $
                          31,346
                          
                          
                          $
                          32,801Less
      total billings on uncompleted contracts
                          
                          
                          (32,940
                          )
                          
                          
                          (36,974
                          )$
                          (1,594
                          )
                          
                          $
                          (4,173
                          )The
      above amounts are reported in the consolidated balance sheets as
      follows:2009
                          
                          
                          2008Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                          
                          $
                          2,073
                          
                          
                          $
                          1,977Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                          
                          
                          (3,667
                          )
                          
                          
                          (6,150
                          )$
                          (1,594
                          )
                          
                          $
                          (4,173
                          )
  26
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
4 - Leases
  We occupy
real property and use certain equipment under lease arrangements that are
accounted for as operating leases.  Our real property leases contain
escalation clauses.  Rental expense for all operating leases for 2009
and 2008 was $275 and $300, respectively.
  Future
minimum lease payments under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year are as follows:
  Fiscal
      year2010
                  
                  $
                  1262011
                  
                  
                  1262012
                  
                  
                  1262013
                  
                  
                  1262014
                  
                  
                  140Thereafter
                  
                  
                  2,817Total
                  
                  $
                  3,461
  Note
5 - Employee Retirement Benefit Plans
  Pension
Plan
  The
Pension Plan is a qualified defined benefit pension plan funded by Company
contributions.  Our funding policy is to contribute amounts sufficient
to satisfy regulatory funding standards, based upon independent actuarial
valuations. The Pension Plan was frozen in 2002.  Benefits at normal
retirement age (65) are based upon the employee’s years of service as of the
date of the curtailment for employees not yet retired, and the employee’s
compensation prior to the curtailment.
  Supplemental
Executive Retirement Plan
  We
maintain an unfunded Supplemental Executive Retirement Plan
(“SERP”).  The SERP provides eligible executives defined pension
benefits, outside our pension plan, based on average salary, years of service
and age at retirement.  The SERP was amended in 2002 to discontinue
further SERP gains from future salary increases and close the SERP to new
participants.
  401(k)
Deferred Savings Plan
  We have 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.  We
make matching contributions on employee contributions after the employee has
achieved one year of service.  We may also make extra matching
contributions based on our profitability and other financial and operational
considerations.  No extra matching contributions have been made to
date.  Our contributions to the 401(k) plan for 2009 and 2008 were
$201 and $216, respectively.
  Executive
Savings Plan
  The
Executive Savings Plan (“ESP”) is an unfunded deferred compensation plan that
allows tax-deferred retirement savings beyond the amount that can be contributed
to the 401(k) plan.  The ESP, a nonqualified plan that does not have
the same protections as a qualified 401(k) plan, covers a portion of the
management employees.  Participants earn matching amounts on their
contributions with the same percentage limit as the qualified 401(k)
plan.  Consistent with the curtailment of the SERP, the ESP was
amended in 2002 to permit the Board of Directors to grant additional
discretionary contributions.
  We
purchase Company-owned life insurance policies insuring the lives of
participants in the ESP.  The policies accumulate asset values and
exist to cover the cost of employee supplemental retirement benefit
liabilities.  At December 31, 2009 and 2008, prepaid expenses and
deposits included our investments in the policies of $860 and $711,
respectively.
  27
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Obligations
and Funded Status
  E&S
uses a December 31 measurement date for both the Pension Plan and
SERP.
  Information
concerning the obligations, plan assets and funded status of employee retirement
defined benefit plans are provided below:
  Pension Plan
                          
                          
                          SERP2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Changes
      in benefit obligationProjected
      benefit obligation at beginning of year
                          
                          $
                          41,497
                          
                          
                          $
                          39,986
                          
                          
                          $
                          5,743
                          
                          
                          $
                          5,895Service
      cost
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Interest
      cost
                          
                          
                          2,308
                          
                          
                          
                          2,338
                          
                          
                          
                          311
                          
                          
                          
                          336Actuarial
      loss
                          
                          
                          823
                          
                          
                          
                          1,967
                          
                          
                          
                          150
                          
                          
                          
                          107Benefits
      paid
                          
                          
                          (290
                          )
                          
                          
                          (248
                          )
                          
                          
                          (642
                          )
                          
                          
                          (595
                          )Settlement
      payments
                          
                          
                          (2,035
                          )
                          
                          
                          (2,546
                          )
                          
                          
                          -
                          
                          
                          
                          -Projected
      benefit obligation at end of year
                          
                          $
                          42,303
                          
                          
                          $
                          41,497
                          
                          
                          $
                          5,562
                          
                          
                          $
                          5,743Changes
      in plan assetsFair
      value of plan assets at beginning of year
                          
                          $
                          24,450
                          
                          
                          $
                          35,763
                          
                          
                          $
                          -
                          
                          
                          $
                          -Actual
      return on plan assets
                          
                          
                          4,575
                          
                          
                          
                          (8,519
                          )
                          
                          
                          -
                          
                          
                          
                          -Contributions
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          642
                          
                          
                          
                          595Benefits
      paid
                          
                          
                          (290
                          )
                          
                          
                          (248
                          )
                          
                          
                          (642
                          )
                          
                          
                          (595
                          )Settlements
      payments
                          
                          
                          (2,035
                          )
                          
                          
                          (2,546
                          )
                          
                          
                          -
                          
                          
                          
                          -Fair
      value of plan assets at end of year
                          
                          $
                          26,700
                          
                          
                          $
                          24,450
                          
                          
                          $
                          -
                          
                          
                          $
                          -Net
      Amount RecognizedUnfunded
      status
                          
                          $
                          (15,603
                          )
                          
                          $
                          (17,047
                          )
                          
                          $
                          (5,562
                          )
                          
                          $
                          (5,743
                          )Unrecognized
      net actuarial loss
                          
                          
                          16,532
                          
                          
                          
                          19,821
                          
                          
                          
                          1,018
                          
                          
                          
                          921Unrecognized
      prior service cost
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (302
                          )
                          
                          
                          (351
                          )Net
      amount recognized
                          
                          $
                          929
                          
                          
                          $
                          2,774
                          
                          
                          $
                          (4,846
                          )
                          
                          $
                          (5,173
                          )
  Amounts
recognized in the consolidated balance sheets consist of:
  Pension
      Plan
                  
                  
                  SERP2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Accrued
      liability
                  
                  $
                  (15,603
                  )
                  
                  $
                  (17,047
                  )
                  
                  $
                  (5,562
                  )
                  
                  $
                  (5,743
                  )Accumulated
      other comprehensive loss
                  
                  
                  16,532
                  
                  
                  
                  19,821
                  
                  
                  
                  716
                  
                  
                  
                  570Net
      amount recognized
                  
                  $
                  929
                  
                  
                  $
                  2,774
                  
                  
                  $
                  (4,846
                  )
                  
                  $
                  (5,173
                  )
  Components
of net periodic benefit cost
  Pension Plan
                    
                    
                    SERP2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Service
      cost
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Interest
      cost
                    
                    
                    2,308
                    
                    
                    
                    2,338
                    
                    
                    
                    311
                    
                    
                    
                    336Expected
      return on assets
                    
                    
                    (1,848
                    )
                    
                    
                    (2,781
                    )
                    
                    
                    -
                    
                    
                    
                    -Amortization
      of actuarial loss
                    
                    
                    1,384
                    
                    
                    
                    344
                    
                    
                    
                    54
                    
                    
                    
                    30Amortization
      of prior year service cost
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (49
                    )
                    
                    
                    (48
                    )Settlement
      charge
                    
                    
                    -
                    
                    
                    
                    1,217
                    
                    
                    
                    -
                    
                    
                    
                    -Net
      periodic benefit cost
                    
                    $
                    1,844
                    
                    
                    $
                    1,118
                    
                    
                    $
                    316
                    
                    
                    $
                    318
  28
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Additional
information
  The
increase (decrease) to our unrecognized net actuarial loss recorded in other
comprehensive loss for the Pension Plan of $(3,289) and $11,707 during 2009 and
2008, respectively, arose from the difference between the funded status and the
accrued pension expense at the end of each year. During 2010, we will recognize
$397 of accumulated other comprehensive loss as a component of our 2010 net
periodic benefit cost.
  The
increase to our minimum liability recorded in other comprehensive income for the
SERP of $146 and $125 during 2009 and 2008, respectively, arose from the
difference between the funded status and the accrued pension expense at the end
of each year.
  Assumptions
  The
weighted average assumptions used to determine benefit obligations and net
periodic cost at December 31, 2009 and 2008, included a discount rate of 5.6%
and 6.0% in each period for the Pension Plan and SERP.  The weighted
average assumption used to determine an expected long-term rate of return on
Pension Plan assets was 8.0%.
  The
long-term rate of return on plan assets was estimated as the weighted average of
expected return of each of the asset classes in the target allocation of plan
assets.  The expected return of each asset class is based on
historical market returns.
  Pension
Plan Assets
  The
Pension Plan’s weighted-average asset allocations at fiscal year-end and
weighted-average planned targeted asset allocations going forward are as
follows:
  2009
                  
                  
                  2008Asset allocation category of plan assets
                  
                  Target %
                  
                  
                  Actual %
                  
                  
                  Actual %Equity
      securities
                  
                  
                  60
                  
                  
                  
                  60
                  
                  
                  
                  57Debt
      securities
                  
                  
                  30
                  
                  
                  
                  28
                  
                  
                  
                  28Real
      estate
                  
                  
                  5
                  
                  
                  
                  4
                  
                  
                  
                  8Other
                  
                  
                  5
                  
                  
                  
                  8
                  
                  
                  
                  7
  The asset
allocation policy, consistent with the long-term growth objectives of the
Pension Plan, is to invest on a diversified basis among various asset classes as
determined by the Pension Plan Administrative Committee.  Assets will
be invested in a manner that will provide for long-term growth with a goal to
achieve returns equal to or greater than applicable
benchmarks.  Investments will be managed by registered investment
advisors.  When investing Pension Plan assets, the investment managers
of separately managed accounts shall not utilize derivative instruments for
speculative purposes or to create leveraged positions.
  No equity
securities of the Company were part of the Pension Plan assets as of December
31, 2009 or 2008.
  Cash
Flow
  Employer
contributions
  Our
funding policy is to contribute amounts sufficient to satisfy regulatory funding
standards, based upon independent actuarial valuations.  We expect to
make contributions of approximately $300 to the Pension Plan in
2010.
  We are
not currently required to fund the SERP.  All benefit payments are
made by us 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 has debt and equity securities invested in a trust intended to fund the
SERP obligations.  These investments are classified and accounted for
as available-for-sale securities.  At December 31, 2009 and 2008, the
investment was reported at its fair market value of $3,248 and $3,122,
respectively, and was classified as prepaid retirement expenses. There was $660
and $1,703 of unrealized loss relating to this asset recorded in accumulated
other comprehensive income as of December 31, 2009 and 2008, respectively.
Realized gain (loss) was $(229) and $54 for the years ended December 31, 2009
and 2008.  Unrealized gain (loss) were $1,042 and $(1,867) for the
years ended December 31, 2009 and 2008.  The Company expects to
contribute and pay benefits of approximately $643 related to the SERP in
2010.  This contribution is expected to be made by liquidating the
investments invested in the SERP trust.  These investments are
classified as prepaid retirement expenses on the accompanying balance
sheets.
  29
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Fair
Value Measurements
 Fair
value is a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an asset or a
liability. The following is a three-tier fair value hierarchy that prioritizes
the inputs used in the valuation methodologies in measuring fair
value:
 
 Level 1—Observable inputs
that reflect quoted prices (unadjusted) for identical assets or liabilities in
active markets.
 Level 2—Observable inputs
(other than Level 1) that are directly or indirectly observable in the
marketplace.
 Level 3—Unobservable
inputs which are supported by little or no market activity.
 
 We
measured our investments classified as prepaid retirement expenses at fair
value.  Our cash equivalents and marketable securities are classified
within Level 1 because the underlying investments have readily available market
prices available, with the exception of one equity security for which
current market prices are not readily available.
 Assets
and liabilities measured at fair value on a recurring basis are summarized
below:
  Fair value measurement at reporting date usingDescription
                  
                  December 31,
                    2009
                  
                  
                  Quoted Prices
                    in Active
                    Markets for
                    Identical Assets
                    (Level 1)
                  
                  
                  Significant
                    Other
                    Observable
                    Inputs
                    (Level 2)
                  
                  
                  Significant
                    Unobservable
                    Inputs
                    (Level 3)Assets:Prepaid
      retirement expenses:Marketable
      equity securities
                  
                  $
                  3,190
                  
                  
                  $
                  2,891
                  
                  
                  $
                  299
                  
                  
                  $
                  -Money
      market mutual funds
                  
                  
                  58
                  
                  
                  
                  58
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      prepaid retirement expenses
                  
                  $
                  3,248
                  
                  
                  $
                  2,949
                  
                  
                  $
                  299
                  
                  
                  $
                  -
  Estimated
future benefit payments
  The
following benefit payments are expected to be paid based on actuarial estimates
and prior experience:
  PensionFiscal years
                  
                  Plan
                  
                  
                  SERP2010
                  
                  $
                  2,557
                  
                  
                  $
                  6432011
                  
                  
                  2,801
                  
                  
                  
                  6032012
                  
                  
                  2,276
                  
                  
                  
                  4672013
                  
                  
                  2,545
                  
                  
                  
                  4372014
                  
                  
                  3,553
                  
                  
                  
                  4362015-2019
                  
                  
                  17,879
                  
                  
                  
                  2,180
  30
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
6 –Debt
  Long-term
debt consists of the following as of December 31:
  2009
                                                  
                                                  
                                                  2008First
      mortgage note payable due in monthly installments of $26 including
      interest at 7.81% through January 1, 2024; payment and rate subject to
      adjustment every 3 years, next adjustment January 14, 2010
                                                  
                                                  $
                                                  2,652
                                                  
                                                  
                                                  $
                                                  2,752Second
      mortgage note payable due in monthly installments of $4 including interest
      at 5.75% through October 1, 2028; payment and rate subject to adjustment
      every 5 years, next adjustment October 1, 2013
                                                  
                                                  
                                                  484
                                                  
                                                  
                                                  
                                                  497Revolving
      credit note payable
                                                  
                                                  
                                                  310
                                                  
                                                  
                                                  
                                                  -Sale
      leaseback financing
                                                  
                                                  
                                                  2,338
                                                  
                                                  
                                                  
                                                  -Total
      debt
                                                  
                                                  
                                                  5,784
                                                  
                                                  
                                                  
                                                  3,249Less
      current portion of long-term debt
                                                  
                                                  
                                                  (452
                                                  )
                                                  
                                                  
                                                  (113
                                                  )Long-term
      debt, less current portion
                                                  
                                                  $
                                                  5,332
                                                  
                                                  
                                                  $
                                                  3,136
  Principal
maturities on total debt are scheduled to occur in the following
years:
  2010
                                
                                $
                                4512011
                                
                                
                                1482012
                                
                                
                                1562013
                                
                                
                                1662014
                                
                                
                                2,514Thereafter
                                
                                
                                2,349Total
      debt
                                
                                $
                                5,784
  31
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 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 twenty
years.  On each third anniversary of the First Mortgage Note, the
interest rate is adjusted to the greater of 5.75% or 3% over the Three-Year
Constant Maturity Treasury Rate published by the United States Federal Reserve
(“3YCMT”).  The monthly installment is recalculated on the first month
following a change in the interest rate. The recalculated monthly installment is
equal to the monthly installment sufficient to repay the principal balance, as
of the date of the change in the interest rate, over the remaining portion of
the original twenty-year term.  On January 14, 2010, the 3YCMT was
1.49% and the interest rate on the First Mortgage Note adjusted to 5.75% per
annum. As a result of the interest rate adjustment, the monthly installment
amount was changed from $26 to $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 twenty
years.  On each fifth anniversary of the Second Mortgage Note, the
interest rate is adjusted to the greater of 5.75% or 3% over
3YCMT.  The monthly installment is recalculated on the first month
following a change in the interest rate. The recalculated monthly installment is
equal to the monthly installment sufficient to repay the principal balance, as
of the date of the change in the interest rate, over the remaining portion of
the original twenty-year term.  The monthly installment for the first
five years is $4 and includes interest at 5.75% per annum.
 
 The
Mortgage Notes are secured by the real property occupied by Spitz pursuant to a
Mortgage and Security Agreements; the real property had a carrying value of
$4,825 as of December 31, 2009. The Mortgage Notes are guaranteed by
E&S.
 
 Line
of Credit
 
 The
Company is a party to a Credit Agreement with a commercial bank which permits
borrowings of up to $1,100 to fund Spitz working capital
requirements.  Interest is charged on amounts borrowed at the Wall
Street Journal Prime Rate.  Borrowings under the Credit Agreement are
secured by Spitz real and personal property and all of the outstanding shares of
Spitz common stock. The Credit Agreement and Mortgage Notes contain cross
default provisions whereby the default of either agreement will result in the
default of both agreements. As of December 31, 2009 there was $310 of borrowings
outstanding under the Credit Agreement. The Credit Agreement has no fixed term
or maturity date but can be terminated by the bank at any time whereby any
borrowings under the Credit Agreement are payable upon demand by the
bank,
 
 Sale-Leaseback
Financing
 
 In
November 2009, the Company completed a purchase agreement with a buyer to sell
its corporate office buildings and its interest in the lease for the land
occupied by the buildings in Utah for $2,500.  Under the agreement, we
transferred legal title of the buildings including improvements and assigned the
related land lease to the buyer. We also entered into a sublease agreement to
lease back the land and building for rent of $501 per year, of which $126
represents the land lease and $375  represents the building
lease.   The sublease agreement has a term of 5 years with an
option for two subsequent 5 year renewal periods.  The Company has a 5
year option to repurchase the buildings and the interest in the land lease
according to the following schedule:
  DateFrom:
                        
                        To:
                        
                        Repurchaseprice:November
      1, 2009
                        
                        October
      31, 2010
                        
                        $
                        2,575November
      1, 2010
                        
                        October
      31, 2011
                        
                        $
                        2,625November
      1, 2011
                        
                        October
      31, 2012
                        
                        $
                        2,732November
      1, 2012
                        
                        October
      31, 2013
                        
                        $
                        3,005November
      1, 2013
                        
                        October
      31, 2014
                        
                        $
                        3,305
  32
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  The
arrangement was accounted for as a financing and no sale was recorded because
the Company has the right to repurchase the property.  Therefore, the
assets representing the building and improvements remain in Property, plant and
equipment and the Company recorded the net proceeds of the sale as Long-term
debt. The $126 portion of the sublease payment attributable to the land lease is
equivalent to the payment under the assigned land lease and therefore is subject
to the same rent escalations the Company was bound to before the assignment. The
land lease portion of the sublease payment is recorded as rent expense
consistent with the treatment of the prior land lease payment before the
assignment of the lease. The $375 portion of the sublease agreement attributable
to the building lease is accounted for as debt service under the financing
transaction.  The net proceeds of the financing amounted to $2,329
consisting of the $2,500 sales price less a security deposit of $125, prorated
building rent of $15 and the first monthly payment of $31. We will record
interest expense at a rate of approximately 20% imputed from the estimated cash
flows assuming we exercise the option to repurchase the property at the end of
the five year term. In the event that we exercise the option to repurchase the
property sooner than the end of the five year term, the difference between the
book balance of the debt and the repurchase cost would be recorded as a
prepayment premium or discount on the payoff of the debt balance. The cash
payment required to repurchase the property on December 31, 2009 was $2,450
consisting of the $2,575 repurchase price under the agreement less a credit for
the $125 security deposit. Accordingly, if we had exercised our option to
repurchase the property on December 31, 2009, we would have recorded a
prepayment premium of approximately 5% in the amount of $112 over the $2,338
book balance of the debt.
 
 Note
7 - Income Taxes
  The
Company recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain
the position following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood
of being realized upon ultimate settlement with the relevant tax
authority.  The Company is subject to audit by the IRS and various
states for tax years dating back to 1992.
  Income
tax expense for 2009 consisted of $44 of state income taxes. The income tax
expense of $22 for 2008 included $38 of refunded foreign income tax withholding,
the release of $97 of federal income tax contingency and state income tax
expense of $157. The actual expense differs from the expected tax (expense)
benefit as computed by applying the U.S. federal statutory income tax rate of 34
percent, during fiscal year:
  2009
                        
                        
                        2008Tax
      (expense) benefit at U.S. federal statutory rate
                        
                        $
                        2,656
                        
                        
                        $
                        1,387Adjustment
      for resolution of tax contingency
                        
                        
                        -
                        
                        
                        
                        97State
      taxes (net of federal income tax benefit)
                        
                        
                        347
                        
                        
                        
                        (45
                        )Research
      and development tax credits
                        
                        
                        (38
                        )
                        
                        
                        (323
                        )Change
      in valuation allowance attributable to operations
                        
                        
                        (2,763
                        )
                        
                        
                        (812
                        )Other,
      net
                        
                        
                        (246
                        )
                        
                        
                        (326
                        )Tax
      (expense) benefit
                        
                        $
                        (44
                        )
                        
                        $
                        (22
                        )
  33
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and liabilities as of fiscal year-end:
  2009
                            
                            
                            2008Deferred
      income tax assets:Plant
      and equipment, principally due to differences in
    depreciation
                            
                            $
                            564
                            
                            
                            $
                            475Inventory
      reserves and other inventory related temporary basis
      differences
                            
                            
                            1,285
                            
                            
                            
                            714Warranty,
      vacation, deferred rent and other liabilities
                            
                            
                            1,651
                            
                            
                            
                            1,999Retirement
      liabilities
                            
                            
                            2,170
                            
                            
                            
                            2,213Net
      operating loss carryforwards
                            
                            
                            61,392
                            
                            
                            
                            59,132Credit
      carryforwards
                            
                            
                            1,428
                            
                            
                            
                            1,466Other
                            
                            
                            1,088
                            
                            
                            
                            845Total
      deferred income tax assets
                            
                            
                            69,578
                            
                            
                            
                            66,844Less
      valuation allowance
                            
                            
                            (69,550
                            )
                            
                            
                            (66,787
                            )Net
      deferred income tax assets
                            
                            
                            28
                            
                            
                            
                            57Deferred
      income tax liabilities:Intangible
      assets
                            
                            
                            (28
                            )
                            
                            
                            (57
                            )Total
      deferred income tax liabilities
                            
                            
                            (28
                            )
                            
                            
                            (57
                            )Net
      deferred income tax assets and liabilities
                            
                            $
                            -
                            
                            
                            $
                            -
  Worldwide
income (loss) before income taxes consisted of the following:
  2009
                    
                    
                    2008United
      States
                    
                    $
                    (7,811
                    )
                    
                    $
                    (3,801
                    )Foreign
                    
                    
                    5
                    
                    
                    
                    (162
                    )Total
                    
                    $
                    (7,806
                    )
                    
                    $
                    (3,963
                    )
 
 Income
tax (expense) benefit consisted of the following:
  2009
                    
                    
                    2008CurrentU.S.
      federal
                    
                    $
                    -
                    
                    
                    $
                    97State
                    
                    
                    (44
                    )
                    
                    
                    (157
                    )Foreign
                    
                    
                    -
                    
                    
                    
                    38Total
                    
                    $
                    (44
                    )
                    
                    $
                    (22
                    )DeferredU.S.
      federal
                    
                    $
                    2,409
                    
                    
                    $
                    650State
                    
                    
                    392
                    
                    
                    
                    162Foreign
                    
                    
                    (38
                    )
                    
                    
                    -Total
                    
                    
                    2,763
                    
                    
                    
                    812Valuation
      allowance increase
                    
                    
                    (2,763
                    )
                    
                    
                    (812
                    )Total
                    
                    $
                    -
                    
                    
                    $
                    -
  We have
total federal net operating loss carryforwards of approximately $160,100 which
expire from 2010 through 2029.  Approximately $1,109 of federal net
operating loss carryforwards expired in 2009.  We have various federal
tax credit carryforwards of approximately $1,400, a portion of which expire
between 2011 and 2016.  We also have state net operating loss
carryforwards of approximately $138,800 that expire depending on the rules of
the various states to which the loss or credit is allocated.
  34
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 During
the years ended December 31, 2009 and 2008, the valuation allowance on deferred
income tax assets increased by $2,763 and $812,
respectively.  Valuation allowances were established according to our
belief that it is more likely than not that these net deferred income tax assets
will not be realized.
  Note
8 - Commitments and Contingencies
  Research
and Development Arrangement
  In
December 2005, we entered into a research and development agreement (the “2005
R&D Agreement”) with a third party.   The 2005 R&D
Agreement was terminated in January 2008, when we entered into a new research
and development agreement (the “2008 R&D Agreement”) with the same third
party.  Under the 2008 R&D Agreement, the Company paid $372 and
$1,460 during the years ended December 31, 2009 and 2008.  The Company
was subject to an annual minimum royalty of $400 under the 2008 R&D
agreement which was accrued as research and development expense in 2008. During
2009, the 2008 R&D Agreement and the related licenses associated with the
agreement were terminated by the third party.  Based on the
termination of the licenses, we were no longer liable for the past or current
royalty obligations and, accordingly, reversed the $400 accrued liability during
2009.  Because the agreement related to technology that is still under
development and has not reached technological feasibility, all payments made
under the agreement were expensed as research and development as
incurred.
  Letters
of Credit
  The
Company has finance arrangements which facilitate the issuance of letters of
credit and bank guarantees. Underthe
terms of the arrangements, we are required to maintain a balance in a specific
cash account equal to or greater than the outstanding value of all letters of
credit or bank guarantees issued, plus other amounts necessary to adequately
secure our obligations with the financial institution.  As of December
31, 2009, we had outstanding letters of credit and bank guarantees of $1,597,
all of which is scheduled to expire in 2010.
  Note
9 - Stock Option and Stock Purchase Plan
  Stock
Option Plan
  In 2004,
shareholders approved the adoption of the 2004 Stock Incentive Plan of Evans
& Sutherland Computer Corporation (“2004 Plan”), which expires in
2014.  The 2004 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.  Under the 2004 Plan non-employee
directors receive an annual option grant for no more than 10,000
shares.  New non-employee directors receive an option grant for no
more than 10,000 shares upon their appointment or election.  In
addition, with the adoption of this plan no additional options can be issued
under any of the prior stock-based plans.  The 2004 Plan establishes 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 our Board
of Directors’ Compensation Committee.
  The
number of shares, terms, and exercise period 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, 2009, options to purchase 1,418,494 shares
of common stock were authorized and reserved for future grant.
  35
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 A summary
of activity follows (shares in thousands):
  2009
                    
                    
                    2008Weighted-
                    
                    
                    
                    
                    
                    Weighted-Average
                    
                    
                    
                    
                    
                    AverageNumber
                    
                    
                    Exercise
                    
                    
                    Number
                    
                    
                    Exerciseof shares
                    
                    
                    Price
                    
                    
                    of shares
                    
                    
                    PriceOutstanding
      at beginning of year
                    
                    
                    1,235
                    
                    
                    $
                    6.05
                    
                    
                    
                    1,561
                    
                    
                    $
                    8.97Granted
                    
                    
                    191
                    
                    
                    
                    0.27
                    
                    
                    
                    175
                    
                    
                    
                    1.21Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cancelled
                    
                    
                    (71
                    )
                    
                    
                    14.43
                    
                    
                    
                    (501
                    )
                    
                    
                    13.46Outstanding
      at end of year
                    
                    
                    1,355
                    
                    
                    
                    4.80
                    
                    
                    
                    1,235
                    
                    
                    
                    6.05Exercisable
      at year end
                    
                    
                    994
                    
                    
                    
                    6.16
                    
                    
                    
                    887
                    
                    
                    
                    7.27Weighted
      average fair value of options granted during the year
                    
                    $
                    0.244
                    
                    
                    
                    
                    
                    
                    $
                    0.642
  As of
December 31, 2009, options exercisable and options outstanding had a weighted
average remaining contractual term of 4.2 and 5.3 years, respectively, and no
aggregate intrinsic value.
  The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:
  2009
                    
                    
                    2008Expected
      life (in years)
                    
                    
                    2.6
                    
                    
                    
                    2.6Risk
      free interest rate
                    
                    
                    3.24
                    
                    
                    
                    2.86
                    %Expected
      volatility
                    
                    
                    221
                    %
                    
                    
                    75
                    %Dividend
      yield
                    
                    
                    -
                    
                    
                    
                    -
  Expected
option lives and volatilities are based on historical data of the
Company.  Our risk free interest rate is calculated as the average US
Treasury bill rate that corresponds with the option
life.  Historically, the Company has not declared dividends and there
are no future plans to do so.
  As of
December 31, 2009, there was approximately $45 of total unrecognized share-based
compensation cost related to grants under our plans that will be recognized over
a weighted-average period of one year.
  Share-based
compensation expense from awards under the 2004 Plan for the year ended December
31, 2009 and 2008 was $95 and $151, respectively.
  Note
10 - Preferred Stock
  Class
A Preferred Stock
  We have
5,000,000 authorized shares of Class A Preferred Stock.  As of
December 31, 2009 and 2008, there were no Class A Preferred shares of stock
outstanding.
  Class
B Preferred Stock
  We have
5,000,000 authorized shares of Class B Preferred Stock.  As of
December 31, 2009 and 2008, no shares were outstanding.
  36
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
11 - Geographic Information
  The table
below presents sales by geographic location of sales.  Sales within
any individual foreign country did not exceed  10% of consolidated
sales:
  2009
                        
                        
                        2008United
      States
                        
                        $
                        13,725
                        
                        
                        $
                        19,212International
                        
                        
                        11,343
                        
                        
                        
                        18,447Total
      sales
                        
                        $
                        25,068
                        
                        
                        $
                        37,659
  Note
12 - Significant Customers
  For the
years ended December 31, 2009 and December 31, 2008, no individual customer
represented 10% or more of total revenue.  At December 31, 2009,
accounts receivable from Customers A and B represented 28% and 23% of total
accounts receivable, respectively.  At December 31, 2009, Customer C
represented 29% of total costs and estimated earnings in excess of
billings.  At December 31, 2008, accounts receivable from Customer A
was 27% of total accounts receivable.  At December 31, 2008, Customer
D represented 16% of total costs and estimated earnings in excess of
billings.
  37
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and
 Stockholders
of Evans & Sutherland Computer Corporation
 
 We have
audited the accompanying consolidated balance sheets of Evans & Sutherland
Computer Corporation (the Company) as of December 31, 2009 and 2008, and the
related consolidated statements of operations, stockholders’ deficit and
comprehensive loss, and cash flows for the years then
ended.   These consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Evans &
Sutherland Computer Corporation as of December 31, 2009 and 2008, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with U.S. generally accepted accounting
principles.
 
 Tanner
LC
 
 Salt Lake
City, Utah
 April 2,
2010
  38
  ITEM 9.
                CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  None.
  ITEM
9A.       CONTROLS AND
PROCEDURES
  Evaluation
of Disclosure Controls and Procedures.
  Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) as of the end of the period covered by this
report.  Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures as
of the end of the period covered by this report were effective at the reasonable
assurance level such that the information required to be disclosed by us in
reports filed under the Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and (ii) accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls system cannot provide absolute assurance, however, 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 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 accounting principles generally accepted in the United
States.  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, 2009.  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.  Based on this evaluation, our management, with
the participation of the Chief Executive Officer and Chief Financial Officer,
concluded that, as of December 31, 2009, 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 registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary 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.
  During
the quarter ended December 31, 2009, there has been no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. Our process
for evaluating controls and procedures is continuous and encompasses constant
improvement of the design and effectiveness of established controls and
procedures and the remediation of any deficiencies which may be identified
during this process.
  ITEM
9B.       OTHER INFORMATION
  None
  39
  PART
III
 
 ITEM
10.        DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
  Certain
information required by Item 401 of Regulation S-K will be included under the
caption “Election of Directors” in the Proxy Statement for our 2010 Annual
Meeting of Shareholders 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 2010 Annual Meeting of
Shareholders 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(a) of Regulation S-K will
be included under the caption “Election of Directors” in the Proxy Statement for
our 2010 Annual Meeting of Shareholders and that information is herein
incorporated by reference.
  Code
of Ethics
  Evans
& Sutherland maintains a Code of Ethics and Business Conduct which is
applicable to all employees, including all officers, and including our
independent non-employee directors with regard to Evans & Sutherland related
activities.  The Code of Ethics and Business Conduct incorporates our
guidelines designed to deter wrongdoing and to promote honest and ethical
conduct and compliance with applicable laws and regulations. It also
incorporates our expectations of our employees that enable us to provide
accurate and timely disclosure in our filings with the Securities and Exchange
Commission and other public communications.  In addition, they
incorporate our expectations of our employees concerning prompt internal
reporting of violations of our Code of Ethics and Business Conduct.
  The full
text of the Evans & Sutherland Code of Ethics and Business Conduct is
published on our Investors Relations website at www.es.com.  We intend
to disclose future amendments to certain provisions of our Code of Ethics and
Business Conduct or waivers of such provisions granted to executive officers and
directors, on this website within four business days following the date of such
amendment or waiver.
  ITEM
11.       EXECUTIVE COMPENSATION
  The
information required by this item will be included under the captions “Executive
Compensation” and “Election of Directors” in the Proxy Statement for our 2010
Annual Meeting of Shareholders and that information is herein incorporated by
reference.
  40
  ITEM 12.
                  SECURITYOWNERSHIP
      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 2010 Annual Meeting of Shareholders and that information
is herein incorporated by reference.
  Securities
Authorized for Issuance Under Equity Compensation Plans as of December 31,
2009
  Number of securitiesNumber of securities
                  
                  
                  
                  
                  
                  remaining available forto be issued upon
                  
                  
                  Weighted average
                  
                  
                  future issuanceexercise of
                  
                  
                  exercise price of
                  
                  
                  under equity compensationoutstanding options,
                  
                  
                  outstanding options,
                  
                  
                  plans (excluding securitieswarrants and rights
                  
                  
                  warrants and rights
                  
                  
                  reflected in column (a))(a)
                  
                  
                  (b)
                  
                  
                  (c)Equity
      compensation plans approved by security holders
                  
                  
                  1,355,187
                  
                  
                  $
                  4.80
                  
                  
                  
                  1,418,494Equity
      compensation plans not approved by security holders
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  
                  1,355,187
                  
                  
                  $
                  4.80
                  
                  
                  
                  1,418,494
  ITEM
13.       CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
 
 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 2010 Annual Meeting of Shareholders and that information is
herein incorporated by reference.
 
 ITEM
14.       PRINCIPAL ACCOUNTANT FEES AND
SERVICES
  The
information required by Item 14 will be included under the caption “Report of
the Audit Committee of the Board of Directors” in the Proxy Statement for our
2010 Annual Meeting of Shareholders and that information is herein incorporated
by reference.
  41
  PART
IV
 
 ITEM
15.       EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
  (a)
              List
      of documents filed as part of this
report
  1.    Financial
Statements
  The
following consolidated financial statements are included in Part II, Item 8 of
this report on Form 10-K.
  ·
              Consolidated
      Balance Sheets as of December 31, 2009 and
2008
  ·
              Consolidated
      Statement of Operations for each of the years ended December 31, 2009 and
      2008
  ·
              Consolidated
      Statements of Stockholders’ Equity and Comprehensive Loss for the years
      ended December 31, 2009 and 2008
  ·
              Consolidated
      Statement of Cash Flows for each of the years ended December 31, 2009 and
      2008
  ·
              Notes
      to Consolidated Financial
Statements
  2.    Financial
Statement Schedules
  There are
no schedules filed because of the absence of conditions under which they are
required or because the required information is presented in the consolidated
financial statements or the notes thereto.
  3.
              Exhibits
  Articles
of Incorporation and Bylaws
  3.1.1
              Articles
      of Incorporation, as amended, filed as Exhibit 3.1 to Evans &
      Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No.
      000-08771, for the fiscal year ended December 25, 1987, and incorporated
      herein by this reference.
  3.1.2
              Amendments
      to Articles of Incorporation filed as Exhibit 3.1.1 to Evans &
      Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No.
      000-08771, for the fiscal year ended December 30, 1988, and incorporated
      herein by this reference.
  3.1.3
              Certificate
      of Designation, Preferences and Other Rights of the Class B-1 Preferred
      Stock of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1
      to Evans & Sutherland Computer Corporation’s Form 10-Q, SEC File No.
      000-08771, for the quarter ended September 25, 1998, and incorporated
      herein by this reference.
  3.2.1
              Amended
      and Restated Bylaws of Evans & Sutherland Computer Corporation, filed
      as Exhibit 3.2 to Evans & Sutherland Computer Corporation’s Form 10-K
      for the year ended December 31, 2000, and incorporated herein by this
      reference.
  3.2.2
              Amendment
      No. 1 to the Amended and Restated Bylaws of Evans & Sutherland
      Computer Corporation, filed as Exhibit 3.3 to Evans & Sutherland
      Computer Corporation’s Form 10-K for the year ended December 31, 2000, and
      incorporated herein by this
reference.
  Material
contracts
  Management
contracts and compensatory plans
  10.1
              Evans
      & Sutherland Computer Corporation 2004 Stock Incentive Plan, filed as
      Annex A to Evans & Sutherland’s Form 14A, SEC File No. 001-14667,
      filed on April 19, 2004 and incorporated herein by this
      reference.
  10.2
              Amended
      and restated Evans & Sutherland Computer Corporation’s Supplemental
      Executive Retirement Plan (SERP), dated May 16, 2002, filed as Exhibit
      10.38 to Evans & Sutherland Computer Corporation’s Form 10-K for the
      year ended December 31, 2002, and incorporated herein by
      reference.
  42
  10.3
              Amended
      and restated Evans & Sutherland Computer Corporation’s Executive
      Savings Plan, dated May 16, 2002, filed as Exhibit 10.39 to Evans &
      Sutherland Computer Corporation’s Form 10-K for the year ended December
      31, 2002, and incorporated herein by
reference.
  10.4
              Employment
      agreement between Evans & Sutherland Computer Corporation and Kirk
      Johnson, dated August 26, 2002, filed as Exhibit 10.14 to Evans &
      Sutherland Computer Corporation’s Form 10-K for the year ended December
      31, 2004, and incorporated herein by
reference.
  10.5
              Employment
      Agreement, dated February 8, 2006, by and between Evans & Sutherland
      Computer Corporation and Jonathan Shaw, filed as Exhibit 10.1 to Evans
      & Sutherland Computer Corporation’s Form 10-Q for the quarter ended
      June 30, 2006, and incorporated herein by
  reference.
  10.6
              Employment
      Agreement dated February 8, 2006, by and between Evans & Sutherland
      Computer Corporation and Paul Dailey, filed as Exhibit 10.2 to Evans &
      Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30,
      2006, and incorporated herein by
reference.
  10.7
              Employment
      Agreement, dated August 26, 2002, by and between Evans & Sutherland
      Computer Corporation and David H. Bateman, filed as Exhibit 10.13 to Evans
      & Sutherland Computer Corporation’s Form 10-K for the year ended
      December 31, 2006, and incorporated herein by
  reference.
  Other
material contracts
  10.8
              Line
      of Credit Agreement, dated April 28, 2006, between Evans & Sutherland
      Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as
      Exhibit 10.4 to Evans & Sutherland Computer Corporation’s Form 10-Q
      for the quarter ended June 30, 2006, and incorporated herein by
      reference.
  10.9
              Line
      of Credit Note, dated April 28, 2006, by and between Evans &
      Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank,
      filed here with filed as Exhibit 10.6 to Evans & Sutherland Computer
      Corporation’s Form 10-Q for the quarter ended June 30, 2006, and
      incorporated herein by reference.
  10.10
              Guaranty,
      dated April 28, 2006, by Evans and Sutherland Computer Corporation, filed
      as Exhibit 10.7 to Evans & Sutherland Computer Corporation’s Form 10-Q
      for the quarter ended June 30, 2006, and incorporated herein by
      reference.
  10.11
              Pledge
      Agreement, dated April 28, 2006, by and between Evans & Sutherland
      Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as
      Exhibit 10.8 to Evans & Sutherland Computer Corporation’s Form 10-Q
      for the quarter ended June 30, 2006, and incorporated herein by
      reference.
  10.12
              Security
      Agreement, dated April 28, 2006, by and between Spitz, Inc. and First
      Keystone Bank, filed here with filed as Exhibit 10.9 to Evans &
      Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30,
      2006, and incorporated herein by
reference.
  10.13
              Open-end
      Mortgage and Security Agreement, dated April 28, 2006, by and between
      Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.10 to Evans &
      Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30,
      2006, and incorporated herein by
reference.
  10.14
              First
      Modification Agreement to Line of Credit Agreements, dated July 28, 2006,
      by and between Evans & Sutherland Computer Corporation, Spitz, Inc.
      and First Keystone Bank, filed as Exhibit 10.11 to Evans & Sutherland
      Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and
      incorporated herein by reference.
  43
  10.15
              Credit
      Agreement between Evans & Sutherland Computer Corporation and Wells
      Fargo Bank, National Association effective December 1, 2006, filed as
      Exhibit 10.24 to Evans & Sutherland Computer Corporation’s Form 10-K
      for the year ended December 31, 2006, and incorporated herein by
      reference.
  10.16
              Mortgage
      Note dated January 14, 2004, of Transnational Industries, Inc. and Spitz,
      Inc. to First Keystone Bank filed as Exhibit 10.25 to Evans &
      Sutherland Computer Corporation’s Form 10-K for the year ended December
      31, 2006, and incorporated herein by
reference.
  10.17
              Open-End
      Mortgage and Security Agreement dated January 14, 2004, between Spitz,
      Inc. and First Keystone Bank filed as Exhibit 10.26 to Evans &
      Sutherland Computer Corporation’s Form 10-K for the year ended December
      31, 2006, and incorporated herein by
reference.
  10.18
              Loan
      Agreement dated as January 14, 2004, between First Keystone Bank,
      Transnational Industries, Inc. and Spitz, Inc filed as Exhibit 10.27 to
      Evans & Sutherland Computer Corporation’s Form 10-K for the year ended
      December 31, 2006, and incorporated herein by
  reference.
  10.19
              First
      Modification Agreement to Mortgage Loan Agreements, dated March 30 2007,
      by and between Evans & Sutherland Computer Corporation, Spitz, Inc.
      and First Keystone Bank, filed as Exhibit 10.28 to Evans & Sutherland
      Computer Corporation’s Form 10-K for the year ended December 31, 2006, and
      incorporated herein by reference.
  10.20
              Second
      Modification Agreement to Line of Credit Agreements, dated March 30 2007,
      by and between Evans & Sutherland Computer Corporation, Spitz, Inc.
      and First Keystone Bank, filed as Exhibit 10.29 to Evans & Sutherland
      Computer Corporation’s Form 10-K for the year ended December 31, 2006, and
      incorporated herein by reference.
  10.21
              Guaranty,
      dated March 30, 2007 by Evans and Sutherland Computer Corporation, filed
      as Exhibit 10.30 to Evans & Sutherland Computer Corporation’s Form
      10-K for the year ended December 31, 2006, and incorporated herein by
      reference.
  10.22
              Third
      Modification Agreement to Line of Credit Agreements, dated August 24 2007,
      by and between Evans & Sutherland Computer Corporation, Spitz, Inc.
      and First Keystone Bank, filed as Exhibit 10.31 to Evans & Sutherland
      Computer Corporation’s Form 10-K for the year ended December 31, 2007, and
      incorporated herein by reference.
  10.23
              Sublease
      Agreement, filed as Exhibit 10.1 to Evans & Sutherland Computer
      Corporation’s Form 8-K dated November 17, 2009, by and between Evans &
      Sutherland Computer Corporation and Wasatch Research Park I, LLC, and
      incorporated herein by reference.
  10.24
              Purchase
      Option Agreement, filed as Exhibit 10.2 to Evans & Sutherland Computer
      Corporation’s Form 8-K dated November 17, 2009, by and between Evans &
      Sutherland Computer Corporation and Wasatch Research Park I, LLC, and
      incorporated herein by reference.
  10.25
              Marketing
      Agreement, filed as Exhibit 10.3 to Evans & Sutherland Computer
      Corporation’s Form 8-K dated November 17, 2009, by and between Evans &
      Sutherland Computer Corporation and Wasatch Research Park I, LLC, and
      incorporated herein by reference.
  Subsidiaries
of the registrant
  21.1
              Subsidiaries
      of Registrant, filed as Exhibit 21.1 to Evans & Sutherland Computer
      Corporation’s Form 10-K for the year ended December 31, 2007, and
      incorporated herein by reference.
  Consent
of experts and counsel
  23.1
              Consent
      of Current Independent Registered Public Accounting Firm, filed
      herein.
  Rule
13a-14(a)/15d-14(a) Certifications
  31.1
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a) of the Securities Exchange Act, as amended, filed
      herein.
  44
  31.2
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a) of the Securities Exchange Act, as amended, filed
      herein.
  Section
1350 Certifications
  32.1
              Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to
      18 U.S.C. 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, filed
herein.
  TRADEMARKS
USED IN THIS FORM 10-K
  E&S,
ESLP, and Digistar are trademarks or registered trademarks of Evans &
Sutherland Computer Corporation.  All other product, service, or trade
names or marks are the properties of their respective owners.
  45
  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 CORPORATIONBy
                /s/DAVID H.
      BATEMANDavid
      H. BatemanChief
      Executive Officer and
Director
 
 April 2,
2010
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
  Signature
              
              Title
              
              Date/s/           DAVID H.
      BATEMAN
              
              Chief
      Executive Officer and DirectorDavid
      H. Bateman
              
              (Principal
      Executive Officer)
              
              April
      2, 2010Chief
      Financial Officer/s/           Paul L.
      Dailey
              
              (Principal
      Financial Officer andPaul
      L. Dailey
              
              Principal
      Accounting Officer)
              
              April
      2, 2010/s/           David J.
      Coghlan
              
              Chairman
      of the Board
              
              April
      2, 2010David
      J. Coghlan/s/           William Schneider,
      Jr.
              
              Director
              
              April
      2, 2010William
      Schneider, Jr./s/           James P.
      McCarthy
              
              Director
              
              April
      2, 2010James
      P. McCarthy/s/           E. Michael
      Campbell
              
              Director
              
              April
      2, 2010E.
      Michael Campbell
  46