For the three-monthsix-month period ended AprilJuly 3, 2015, the Company reclassified $195 of actuarial loss from accumulated other comprehensive loss related to the Pension Plan whichthat was included in pension expense in the statements of comprehensive income.loss for the same period.

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the "Company,"  "E&S," "we," "us" and "our") included in Item 1 of Part I of this quarterly report on Form 10-Q.  In addition to the historical information contained herein, this quarterly report on Form 10-Q includes certain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as "should," "expect," "anticipate," "estimate," "target," "may," "project," "guidance," "intend," "plan," "believe" and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, the Company's goals, plans and projections regarding its financial position, results of operations, cash flows, market position, product development, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years.

All dollar amounts are in thousands.

The first three monthssecond quarter of 2016 produced slightly loweronly $5,268 of sales. This unusually low sales but improved net income compared to the same period of 2015. Weaker 2016 gross profit margins were more than offset by lower 2016 operating expenses compared to 2015. The 2016 weaker gross profit margins were due to variability in product mix within a normal range. Operating expenses were lower in 2016 due to the cessation of expenses related to the Pension Plan which was terminated in April 2015. The revenue backlog decreased but remained relatively healthy at April 1, 2016. The decrease in the revenue backlogvolume was attributable to the timing of customer deliveries of planetarium systems and a temporary drop in backlog from low sales orders in the first quarter of 2016. The low sales volume resulted in under-absorption of fixed overhead which negatively affected gross profit. Also considerable resources were expended on product demonstrations at a major bi-annual planetarium conference resulting in higher than normal selling expenses. As a result, we reported a net loss of $969 in the second quarter of 2016 which offset first quarter net income to produce a net loss of $733 for the first half of 2016. This variability in the timing of sales orders and customer deliveries are an element of our business that occasionally affect results in this way. While the results of operations are disappointing, a healthy volume of new sales bookings due mostlyorders in the second quarter of 2016 helped the sales backlog rebound almost to the timinglevel at the beginning of prospective customer decisions. The April 1,the year. In addition, significant new orders already booked early in the third quarter of 2016 revenueand several promising prospects attributable to positive reactions to recent product demonstrations are expected to sustain a healthy sales backlog and a strong sales prospect list support an encouraging outlook for the remainder of 2016. The firstsales backlog and customer delivery schedules support our positive outlook for higher sales levels and profitable results for the second half of 2016.

The net loss for the second quarter of 2016 increased our stockholders deficit, but we believe this is a temporary setback and that future results continuewill lead to illustrate the profit potentialelimination of our business withoutstockholders' deficit toward our goal of building shareholder value. For the burden of the Pension Plan.

Certain accounting policies are considered by management to be critical to an understanding of our condensed consolidated financial statements.  Their application requires significant management judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain.  A summary of critical accounting policies can be found in our Form 10-K for the year ended December 31, 2015.  For all of these policies, management cautions that future results rarely develop exactly as forecasted, and the best estimates routinely require modification.

The following table summarizes our sales:

Sales for the second quarter and first quartersix months of 2016 were slightly lower than the same periodperiods in 2015. The lower 2016 sales were attributable to timing of deliveries and work completed on customer contracts.contracts and the low volume of new orders during the first three months of 2016.

Revenue backlog declined to $22,293was $25,498 as of AprilJuly 1, 2016, compared to $26,298 as of December 31, 2015. The slight decline in the revenue backlog is attributed to a low volume of new orders booked in the first three monthsquarter of 2016.2016, mostly offset by a high volume of new orders booked in the second quarter. Sales prospects support the outlook for a higher volume of new orders through the remainder of 2016.

The following table summarizes our gross profit and the gross profit as a percentage of total sales:

  

The variability in the gross profit percentage was due to volume related efficiencies, the mix of products delivered and the types of customer contracts that contributed to the revenue recognized for the periods presented.

The following table summarizes our operating expenses:

Selling, general and administrative expenses were lower inslightly higher for the three months ended July 1, 2016 compared to 2015.the same period in 2015, while for the six month period they were lower. This was primarily due to the reduction of selling related travel expense andin professional fees associated with the pension settlement.settlement which was mostly offset by higher selling expense in the second quarter of 2016 attributable to product demonstrations at a bi-annual planetarium conference.

Research and development expenses for the three and six months ended July 1, 2016 were slightly lower in 2016higher compared to 2015. This wasthe same periods in 2015 due primarily to an increase in the use of engineering resources for customer delivery activities as opposed toincreased labor costs and expenditures on product improvement projects.

Pension expense declined in the six months period of 2016 compared to 2015 due to the 2015 termination of the Pension Plan. The 2016 pension expenses are attributable to the SERP. The pension expense was higher in the second quarter of 2016 compared to 2015 due to changes in actuarial assumptions in measuring the SERP obligation.

The following table summarizes our other expense:

In the first threesix months of 2016, $1,645the $328 of cash provided byused in operating activities was attributable to $415$385 of cash providedabsorbed by the net incomeloss for the period, after the effect of $179$348 of non-cash items plusand a slightly favorable change to working capital of $1,230.$57.  The change tomore significant working capital was driven by the timingchanges contributing to cash consisted of an increase in progress payments from customer contracts, a decrease in inventory attributable to customer deliveries, an increase in accounts payable attributable to the timingamortization of purchases,prepaid expense and an increase in accrued expenses attributable to payroll schedules.schedules, which were mostly offset by an increase in inventory attributable to customer deliveries and the reduction of deferred rent obligation related to a deferred gain from a prior year sale leaseback transaction.

In the first threesix months of 2015, $2,652$4,803 of cash used in operating activities was attributable to $398$1,427 of cash from the net incomeloss for the period, after the effect of $295$4,024 of non-cash items, plusmostly related to the pension settlement, less an unfavorable change to working capital of $3,050.$6,230.  The cash effect of the change to working capital was driven primarily by increases in inventory and receivables, attributable to the timing of billingscustomer progress payments, payment on the pension settlement obligation and, newto a lesser degree, the acquisition of inventory for upcoming customer orders.deliveries.

Cash used in investing activities was $22$49 for the first threesix months ended AprilJuly 1, 2016 compared to $14$27 for the same period of 2015.  Investing activities for both periods presented consisted entirely of property and equipment purchases.

For the first threesix months ended AprilJuly 1, 2016, financing activities used $65$115 of cash compared to $62$109 in 2015 for principal payments on mortgage notes.

The Company is a party to a line-of-credit agreement with a commercial bank which permits borrowings of up to $1,100 to fund the working capital requirements of Spitz.our subsidiary Spitz, Inc. ("Spitz"). Under the line of credit agreement, interest is charged on amounts borrowed at the lender's prime rate less 0.25%.  Any borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The line-of-credit agreement and mortgage notes (with the same commercial bank) contain cross default provisions whereby a default on either agreement will result in a default on both agreements. There were no borrowings outstanding under the line-of-credit agreement as of AprilJuly 1, 2016.

Under the terms of financing arrangements for letters of credit, the Company is required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit issued, plus other amounts necessary to adequately secure obligations with the financial institutions who issue the letters of credit.  As of AprilJuly 1, 2016 there were outstanding letters of credit and bank guarantees of $600, which are scheduled to expire during the year ending December 31, 2016.

As of AprilJuly 1, 2016, Spitz had obligations totaling $2,109$2,059 under its two mortgage notes payable.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at the reasonable assurance level such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company are detected.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed above that occurred during the quarter ended AprilJuly 1, 2016, or subsequent to that date, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.