EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

	Nine Months Ended			Six Months Ended
	September 29,	September 30,		June 29,	June 30,
	2017	2016		2018	2017

Cash flows from operating activities:
Net income (loss)	$ 781	$ (172)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Net income				`$658`	`$14`
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	193	219		`135`	`129`
Provision for excess and obsolete inventory	78	236		`159`	`48`
Other	47	143		`125`	`1`
Changes in assets and liabilities:
Decrease (increase) in restricted cash	291	(1)
Changes in operating assets and liabilities:
Increase in accounts receivable	(1,281)	(1,318)		`(1,758)`	`(664)`
Decrease in lease receivable	193	-		`121`	`134`
Decrease in inventories	164	128
Decrease (increase) in costs and estimated earnings in excess of billings on uncompleted contracts, net	(1,281)	2,368
Decrease (increase) in prepaid expenses and other assets	(774)	269
Decrease (increase) in inventories				`(1,367)`	`323`
Increase in contract revenue in excess of billings				`(1,140)`	`(644)`
Increase in prepaid expenses and other assets				`(60)`	`(775)`
Increase (decrease) in accounts payable	66	(259)		`233`	`(300)`
Increase in accrued liabilities	169	1,169
Decrease in pension and retirement obligations	(172)	(111)
Increase (decrease) in customer deposits	51	(238)
Increase (decrease) in accrued liabilities				`406`	`(46)`
Decrease in accrued pension and retirement liabilities				`(122)`	`(115)`
Increase in billings in excess of contract revenue				`2,964`	`809`
Decrease in deferred rent obligation	(317)	(317)		`(217)`	`(211)`
Net cash provided by (used in) operating activities	(1,792)	2,116		`137`	`(1,297)`

Cash flows from investing activities:
Purchases of property and equipment	(100)	(145)		`(59)`	`(86)`
Proceeds from sale of property and equipment				`3`	`-`
Net cash used in investing activities	(100)	(145)		`(56)`	`(86)`

Cash flows from financing activities:
Principal payments on long-term debt	(157)	(148)		`(110)`	`(105)`
Net cash used in financing activities	(157)	(148)		`(110)`	`(105)`

Net increase (decrease) in cash and cash equivalents	(2,049)	1,823
Cash and cash equivalents as of beginning of the period	6,823	3,734
Cash and cash equivalents as of end of the period	$ 4,774	$ 5,557
Net decrease in cash, cash equivalents, and restricted cash				`(29)`	`(1,488)`
Cash, cash equivalents, and restricted cash as of beginning of the period			Cash, cash equivalents, and restricted cash as of beginning of the period	`5,588`	`7,426`
Cash, cash equivalents, and restricted cash as of end of the period				`$5,559`	`$5,938`

Supplemental disclosures of cash flow information:
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$ 83	$ 93		`$50`	`$56`
Income taxes	251	11		`48`	`120`

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Table of Contents~~

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

All dollar amounts (except share and per share amounts) in thousands.

1.GENERAL

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the “Company” or “E&S”) have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flows, in conformity with U.S. generally accepted accounting principles (“US GAAP”). This report on Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, ~~2016.~~2017.

The accompanying unaudited condensed consolidated balance sheets, statements of operations, and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the ~~nine~~six months ended ~~September~~June 29, ~~2017~~2018 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2017.~~2018. The Company operates on a calendar year with the first three fiscal quarters ending on the last Friday of the thirteenth week in the quarter.

Revenue Recognition

~~Sales include revenues~~As more fully described in Note 2, effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from ~~system hardware and~~Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance. As a result of the ~~related integrated software, database products and service contracts. The following~~adoption of ASU Topic 606, the Company changed its accounting policy for revenue recognition. See Note 2 for the methods ~~are~~ used to determine revenue ~~recognition:~~recognition for the periods presented.

Stock-Based Compensation

Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Company’s current estimates.

Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share. Stock options produced common stock equivalents of 644,374 and 723,283 used to compute diluted net income per share for the six months ended June 29, 2018 and June 30, 2017, respectively.

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Inventories, net

Inventories consisted of the following:

	June 29,	January 1,
	2018	2018

Raw materials	`$6,624`	`$5,458`
Work in process	`114`	`1,011`
Finished goods	`598`	`423`
Reserve for obsolete inventory	`(3,078)`	`(2,919)`
Inventories, net	`$4,258`	`$3,973`

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 changes the accounting for leases. In particular, lessees will recognize lease assets and lease liabilities for operating leases. This update will have a minimal effect on lessor accounting. ASU 2016-02 is not effective until 2019. The Company is currently assessing the impact on its financial reporting of implementing this guidance.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash

(“ASU 2016-18”). ASU 2016-18 changes the cash flow presentation and disclosures of restricted cash. The

Company implemented this update in the presented financial statements.

2. REVENUE

The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of the initial application of January 1, 2018. The Company applied Topic 606 using the cumulative effect method, and accordingly recognized the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. As a result, the Company used different methods for recognizing revenue in each of the periods presented as detailed below.

Products and services

The Company generates its revenue through manufacturing, integrating, distributing, and servicing its various products consisting of: Audio-Visual Systems, Domes, Show Content, and Maintenance and Service contracts. All of the Company’s products are sold worldwide.

Audio-Visual Systems consist of standard and customized hardware components integrated with proprietary software. The Audio-Visual Systems are most often used as the primary equipment for planetarium theaters operated by educational institutions. Occasionally, Audio-Visual Systems are sold for other special purposes at various visitor attractions. Audio-Visual System sales include upgrades of existing systems and sub-systems. Sales of typical Audio-Visual Systems range from $200 to $2,000.

Domes are hemispheric or curved metal structures fabricated from mostly aluminum metal tubing and sheets at the Company’s factory. Some Dome components have a special optical coating applied by a partner vendor. The Dome components are shipped to a customer site and are assembled and installed in or on the customer’s building by a crew of Company employees or subcontractors. Domes are often sold with an Audio-Visual System to serve as projection screens but can also be sold separately. Most often a Dome sold separately is used as a projection screen but occasionally they are used as architectural treatments. Dome projection screens sold separately can be used for existing planetarium theaters or other special visitor attractions such as theme park rides. A typical Dome is a hemispheric structure ranging from 40 to 70 feet in diameter but Domes are also produced in various curved shapes and sizes to accommodate a special purpose. Dome sales typically range from $200 to $1,000 but occasionally exceed this range for sales of multiple complex structures priced at several million dollars.

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Show Content is sold under a license agreement. Show Content can also be sold with or without an Audio-Visual System. Most Show Content is sold to planetarium theaters which historically have been used as astronomical simulators; however, digital technologies have expanded capabilities to display a wider variety of content. The Company’s Show Content products include a variety of mostly educational topics including but not limited to astronomy, earth sciences, history, and biology. The Company sells Show Content it produces as well as content produced by other entities under distribution arrangements. Show Content sales typically range from $2 to $80.

Maintenance and Service is sold in the form of spare parts or service agreements that sometimes include an extended warranty feature. Maintenance and Service is sold predominantly for Audio-Visual Systems. Dome products require less maintenance but can benefit from an occasional cleaning. Part sales typically range from $1 to $100. Maintenance and Service contract sales typically range from $3 to $200.

The Company sells and markets its products through its employee sales team. For many foreign sales, the employee team is assisted by commissioned agents based in the locale of the customer. The Company markets its products through a network of industry associations and by messaging to the designers of planetarium theaters and visitor attractions. For Dome sales other than for planetarium projects, the Company relies on relationships developed with many satisfied customers in the architectural, visitor attraction, and theme park community. Customer decisions are based on price, product features and the experience of the supplier.

Most of the Company’s revenue comes from sales of Audio-Visual Systems and Domes for planetarium theaters or other visitor attractions. Sales can be to existing theaters interested in upgrading or to a new theater. Maintenance and Service and Show Content provide a reasonably steady stream of repeat revenue from existing customers but only at levels that can supplement the volume required from Audio-visual Systems and Domes necessary to sustain the business. As such, the Company relies on sales to new projects each year. Customer sales sometimes can take years to consummate from the initial planning stage to the award of the contract. Often there is a competitive bid process with multiple suppliers involved.

Customer contracts generally provide for progress payments which in many cases provides advance funding for the cost of performance. In some cases, customers hold a small portion of the contract payment for performance security through the warranty. The Company may also be required to provide performance security in the form of a surety bond or international standby letter of credit. Most customers are large public institutions, government or quasi-government entities, and large theme park entities, which carry little credit risk.

Multiple Deliverable Arrangements

Some contracts include multiple deliverables. Significant deliverables in such arrangements commonly include Audio-Visual Systems, Domes, Show Content and various Maintenance and Service deliverables. Revenue earned on deliverables such as products, services and maintenance contracts are allocated to each deliverable based on the relative fair values of the deliverables. Relative fair values of deliverables are generally determined based on actual and estimated selling price. Delivery times of such contracts vary but typically occur within a three to twelve-month time period.

Revenue Recognition Methods for 2017

Percentage of Completion. In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized using the percentage-of-completion method. In applying this method, the Company utilizes cost-to-cost methodology whereby it estimates the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) for each contract to its total anticipated costs for that contract. This ratio is then utilized to determine the amount of gross profit earned based on the Company’s estimate of total gross profit at completion for each contract. The Company routinely reviews estimates related to percentage-of-completion contracts and adjusts for changes in the period the revisions are made. Billings on uncompleted percentage-of-completion contracts may be greater than or less than ~~incurred costs and estimated earnings~~revenue recognized and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets.

~~In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above.~~

Completed Contract. Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method. Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an ~~arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured.~~

~~Multiple Element Arrangements~~. Some contracts include multiple elements. Significant deliverables in such arrangements commonly include various hardware components of the Company’s visual display systems, domes, show content and various service and maintenance elements. Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements. Relative fair values of elements are generally determined based on actual and estimated selling price. Delivery times of such contracts typically occur within a three to six-month time period.

~~Table of Contents~~

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

arrangement exists, title and risk of loss have transferred to the customer, the fee is fixed or 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. Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized over the period of performance under the contract.

~~Anticipated Losses~~. For contracts with anticipated losses at completion, a provision is recorded when the loss is probable. After an anticipated loss is recorded, subsequent revenues and cost of sales are recognized in equal and offsetting amounts as contract costs are incurred.

~~Stock-Based Compensation~~

~~Compensation cost~~Revenue Recognition Methods for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Company’s current estimates.

~~Net Income Per Common Share~~

Basic net income per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share. Stock options produced common stock equivalents 682,697 used to compute diluted net income per share for the nine months ended September 29, 2017.

~~Inventories, net~~

~~Inventories consisted of the following:~~

September 29,

December 31,

2017

2016

Raw materials
$5,150

$5,427
Work in process
753

1,120
Finished goods
498

326
Reserve for obsolete inventory
(2,892)

(3,122)
Inventories, net
$3,509

$3,751

~~Recent Accounting Pronouncements~~2018

In ~~May 2014,~~2018, upon adoption of Topic 606, the ~~Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,~~ Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following describes the methods used to recognize revenue under the application of Topic 606.

~~Revenue from Contracts~~Audio-Visual Systems. The Company’s Audio-Visual Systems are sold for a fixed price under non-cancelable contracts. Because systems are often designed with ~~Customers (Topic 606)~~ ~~("ASU 2014-09"), which was further clarified~~unique features and ~~amended in 2015~~constantly changing technology components, there is no practical alternative use for a system after it is sold. Under Topic 606, if an entity’s performance does not create an asset with an alternative use to the entity, and ~~2016,~~the entity has an enforceable right to payment for the performance completed to date, then its performance obligation is satisfied and ~~supersedes most preexisting revenue recognition guidance with a comprehensive new revenue recognition model. The core principle~~control of the ~~guidance is that~~product transfers over time. If control transfers over time, an entity ~~should recognize~~selects a method to measure progress that is consistent with the objective of depicting its performance and recognizes revenue accordingly. The Company has determined the percentage-of-completion method utilizing cost-to-cost methodology best depicts the measure of progress because it tracks the utilization of total resources to ~~depict~~fulfill the ~~transfer~~obligation. This same method has been used prior to the adoption of ~~promised goods or services to customers in~~Topic 606 for recognizing revenue on certain Audio-Visual System sales and most Dome sales. With the adoption of Topic 606, essentially all Audio-Visual Systems and subsystem sales will use the percentage-of-completion method for revenue recognition.

Domes.The Company’s Domesare sold for a fixed price under non-cancelable contracts. Because Domes have custom design and interface features, there is no practical alternative use for a Dome after it is sold. As discussed above under Audio-Visual Systems, when there is no alternative use for the product and there is an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will become effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.

~~The new revenue recognition standard prescribes a five-step model that focuses on transfer of control and entitlement~~enforceable right to payment, ~~when determining the amount of~~Topic 606 requires revenue to recognize. The new model requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time for each of these obligations. The Company expects the revenue currently generated on contracts using the percent-complete method will continue to be recognized over the time ~~utilizing the cost-to-cost measure~~ of ~~progress consistent with its current practice. Therefore,~~performance. Accordingly, the Company continues to use the percentage-of-completion method utilizing cost-to-cost methodology for the recognition of revenue for the sale Domes, as it has prior to the adoption of Topic 606.

Show Content.Show Content is sold under various license agreements, most often for a fixed price, but occasionally for a variable share of the customer’s theater revenue. Sales of Show Content require no future obligations by the Company after delivery. The Company recognizes the revenue for fixed price Show Content licenses upon the execution of the license agreement and delivery of media since that is the time control and benefit of the Show Content is transferred. Under Topic 606, an entity does not ~~expect~~recognize revenue for the variable amounts related to a ~~material impact~~royalty until a customer’s subsequent sales or usage occurs. Accordingly, revenue from the variable share of the customer’s theater revenue is recognized when realized. The method used by the Company for recognizing Show Content revenue has not changed with the adoption of Topic 606.

Maintenance and Service. Maintenance and Service revenue consists of parts sales and service contracts. Parts sales are recognized upon shipment which is when the control and benefit transfers to the customer. Service contracts are sold for a fixed price and provide the customer with various levels of preventive service, support and limited warranty protection. Under Topic 606, the revenue for service contracts is recognized ratably over the term of the contract or upon delivery of a service specified in the contract. The method used by the Company for recognizing Maintenance and Service revenue has not changed with the adoption of Topic 606.

Contract Acquisition Costs

Contract acquisition costs consist of expenditures of Company employee and other resources and, in some cases, the payment of sales commissions to non-employee agents. Expenditures of Company employee and other resources are costs that would be incurred regardless of whether the contract is obtained, are not recoverable, and therefore are expensed as they are incurred under Topic 606. Sales commissions paid to agents are incurred only if the contract is obtained and therefore are incremental costs of acquiring the contract. Rather than capitalize the cost of sales commissions, the Company has elected to expense sales commissions as incurred under the practical expedient permitted by Topic 606, whereby expensing is permitted when the amortization period of the asset that the entity otherwise would have recognized is one year or less.

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

7Disaggregation of Revenue

In the following table, revenue reported for the three and six months ended June 29, 2018 under Topic 606 is disaggregated by primary geographical market, major product line, timing of revenue recognition and product application.

Revenue for the three months ended June 29, 2018
Product Application	Planetarium Theaters	Other Visitor Attractions	Architectural Treatments	Total

Primary geographic area:

North America	`$5,771`	`$353`	`$269`	`$6,393`
Europe	`1,098`	`401`	`-`	`1,499`
Asia	`223`	`746`	`-`	`969`
Other	`11`	`-`	`-`	`11`
	`$7,103`	`$1,500`	`$269`	`$8,872`

Products:

Audio-Visual Systems	`$4,009`	`$401`	`$-`	`$4,410`
Domes	`1,508`	`1,099`	`269`	`2,876`
Show Content	`844`	`-`	`-`	`844`
Maintenance and Service	`742`	`-`	`-`	`742`
	`$7,103`	`$1,500`	`$269`	`$8,872`

Timing of revenue recognition:

Goods transferred at point in time	`$1,078`	`$-`	`$-`	`$1,078`
Goods and services transferred over time	`6,025`	`1,500`	`269`	`7,794`
	`$7,103`	`$1,500`	`$269`	`$8,872`

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Revenue for the six months ended June 29, 2018
Product Application	Planetarium Theaters	Other Visitor Attractions	Architectural Treatments	Total

Primary geographic area:

North America	`$8,904`	`$473`	`$629`	`$10,006`
Europe	`1,431`	`412`	`-`	`1,843`
Asia	`2,679`	`1,593`	`-`	`4,272`
Other	`332`	`-`	`-`	`332`
	`$13,346`	`$2,478`	`$629`	`$16,453`

Products:

Audio-Visual Systems	`$7,995`	`$412`	`$-`	`$8,407`
Domes	`2,883`	`2,066`	`629`	`5,578`
Show Content	`1,170`	`-`	`-`	`1,170`
Maintenance and Service	`1,298`	`-`	`-`	`1,298`
	`$13,346`	`$2,478`	`$629`	`$16,453`

Timing of revenue recognition:

Goods transferred at point in time	`$1,559`	`$-`	`$-`	`$1,559`
Goods and services transferred over time	`11,787`	`2,478`	`629`	`14,894`
	`$13,346`	`$2,478`	`$629`	`$16,453`

~~Table~~EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contract Balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of ~~Contents~~June 29, 2018:

	June 29, 2018	January 1, 2018

Receivables reported as accounts receivable, net	`$5,504`	`$3,794`
Contract revenue in excess of billings	`4,657`	`3,517`
Billings in excess of contract revenue	`9,229`	`6,265`

Significant changes in the contract assets and the contract liabilities balances during the period are as follows:

	Contract Assets	Contract Liabilities

Revenue recognized that was included in the contract liability balance at the beginning of the period		`$3,934`

Increases due to amounts billed to customers, excluding amounts recognized as revenue during the period		`$` `(6,898)`

Transferred to receivables from contract assets recognized at the beginning of the period	`$` `(2,797)`

Increases as a result of revenue recognized, excluding amounts transferred to receivables during the period	`$3,937`

Contract revenue in excess of billings are contract assets that arise when revenue recognized on a contract exceeds the cumulative progress billings. Contracts generally provide for an enforceable right to payment for performance completed to date but do not necessarily have a present right to consideration payment for performance completed until the event that triggers the progress billing. The contract assets are transferred to the receivables when the rights to payment occur and amounts are billed. Billings in excess of contract revenue are contract liabilities that arise when progress billings on a contract exceed the revenue recognized. Contract liabilities are relieved as the performance obligation is completed and revenue is recognized. Progress billings vary among contracts and can be triggered by chronological milestones, performance events or other various measurements of performance.

Backlog of Remaining Customer Performance Obligations

The following table includes estimated revenue expected to be recognized and recorded as sales in the future from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

	Remainder of 2018	2019	2020	2021

Sales	`$17,042`	`$9,251`	`$250`	`$235`

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

3. CHANGES IN ACCOUNTING POLICIES

Except for the changes disclosed in Note 1 under revenue recognition, the Company has consistently applied the accounting policies to both periods presented in these condensed consolidated financial ~~statements related to percent-complete contracts.~~statements. The Company ~~is in~~adopted Topic 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018. As a result, the ~~process of evaluating~~Company has changed its accounting policy for revenue recognition as detailed below. The Company applied Topic 606 using the ~~impact of the new standard on its contracts that are accounted for on the completed-contract~~cumulative effect method and anticipates that the revenue recognition for these contracts will change to an over-time method using the percent-complete method with cost-to-cost measurement of progress consistent with the Company’s current percent-complete contracts. The Company expects that after accounting for the transition, this change will reduce period to period fluctuations in reported sales. The Company also expects its revenue recognition disclosure to significantly expand due to the new qualitative and quantitative requirements under the standard. The Company plans to adopt the new standard effective January 1, 2018 using the modified retrospective approach withaccordingly recognized the cumulative effect of initially applying Topic 606 as an adjustment to the ~~new standard recognized in retained earnings~~opening balance of equity at January 1, 2018. Therefore, the ~~date of adoption. The Company~~comparative information has ~~begun~~not been adjusted and continues to ~~analyze its existing revenue agreements to evaluate the impact of adoption.~~be reported under prior accounting rules.

~~In February 2016,~~The following tables summarize the ~~FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 changes~~impacts of adopting Topic 606 on the ~~accounting~~Company’s condensed consolidated financial statements for ~~leases. In particular, lessees will recognize lease assets~~the three and lease liabilities for operating leases. This update will have a minimal effect on lessor accounting. ASU 2016-02 is not effective until 2019. The Company is currently assessing the impact on its financial reporting of implementing this guidance.six months ended June 29, 2018:

Condensed consolidated balance sheet
Impact of changes in accounting policies
			Balances
			Without
			adoption of
June 29, 2018	As reported	Adjustments	Topic 606
Cash and cash equivalents	$ 5,154	$ -	$ 5,154
Restricted cash	405	-	405
Contract revenue in excess of billings	4,657	(978)	3,679
Inventories, net	4,258	1,754	6,012
Others	14,275	-	14,275
Total assets	28,749	776	29,525
Billings in excess of contract revenue	9,229	1,938	11,167
Others	14,878	-	14,878
Total liabilities	24,107	1,938	26,045
Accumulated deficit	(45,867)	(1,162)	(47,029)
Others	50,509	-	50,509
Total stockholders’ equity	4,642	(1,162)	3,480
Total liabilities and stockholders’ equity	$ 28,749	$ 776	$ 29,525

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed consolidated statement of operations
Impact of changes in accounting policies
			Balances
			Without
			adoption of
For the three months ended June 29, 2018	As reported	Adjustments	Topic 606
Sales	`$8,872`	`$(876)`	`$7,996`
Cost of sales	`(5,654)`	`630`	`(5,024)`
Selling, general and administrative	`(1,685)`	`-`	`(1,685)`
Income tax expense	`(20)`	`-`	`(20)`
Others	`(894)`	`-`	`(894)`
Net income	`$619`	`$(246)`	`$373`

Impact of changes in accounting policies
			Balances
			Without
			adoption of
For the six months ended June 29, 2018	As reported	Adjustments	Topic 606
Sales	`$16,453`	`$(1,310)`	`$15,143`
Cost of sales	`(10,556)`	`831`	`(9,725)`
Selling, general and administrative	`(3,431)`	`-`	`(3,431)`
Income tax expense	`(31)`	`-`	`(31)`
Others	`(1,777)`	`-`	`(1,777)`
Net income	`$658`	`$(479)`	`$179`

Condensed consolidated statement of cash flows
Impact of changes in accounting policies
			Balances
			without
			adoption of
For the six months ended June 29, 2018	As reported	Adjustments	Topic 606
Net income	`$658`	`$(479)`	`$179`
Adjustments to reconcile net income to net cash provided by operating activities:
Other	`125`	`-`	`125`
Changes in:
Inventories	`(1,367)`	`(831)`	`(2,198)`
Contract revenue in excess of billings	`(1,140)`	`978`	`(162)`
Billings in excess of contract revenue	`2,964`	`332`	`3,296`
Other	`(1,103)`	`-`	`(1,103)`
Net cash provided by operating activities	`137`	`-`	`137`
Net cash used in investing activities	`(56)`	`-`	`(56)`
Net cash used in financing activities	`$(110)`	`$-`	`$(110)`

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

2.4.STOCK OPTION PLAN

As of ~~September~~June 29, ~~2017,~~2018, options to purchase ~~988,781~~1,001,781 shares of common stock under the Company’s stock option plan were authorized and reserved for future grant.

A summary of activity in the stock option plan for the ~~nine~~six months ended ~~September~~June 29, ~~2017~~2018 follows (shares in thousands):

Weighted-

Average

Number

Exercise

of Shares

Price

Outstanding as of beginning of the period
1,625

$ 0.88
Granted
141

1.39
Exercised
-

Forfeited or expired
(156)

3.62
Outstanding as of end of the period
1,610

0.66

Exercisable as of end of the period
1,086

$ 0.51

		Weighted-
		Average
	Number	Exercise
	of Shares	Price

Outstanding as of beginning of the period	`1,609`	`$0.66`
Granted	`150`	`1.12`
Exercised	`-`	`-`
Forfeited or expired	`(162)`	`1.21`
Outstanding as of end of the period	`1,597`	`0.65`

Exercisable as of end of the period	`1,128`	`$0.48`

As of ~~September~~June 29, ~~2017,~~2018, options exercisable and options outstanding had a weighted average remaining contractual term of ~~4.64~~5.21 and ~~6.00~~6.23 years, respectively, and had an aggregate intrinsic value of ~~$548~~$641 and ~~$613,~~$676, respectively.

The Black-Scholes option-pricing model is used to estimate the fair value of options under the Company’s stock option plan.

The weighted average values of employee stock options granted under the stock option plan, as well as the weighted average assumptions used in calculating these values during the first ~~nine~~six months of ~~2017,~~2018, were based on estimates as of the date of grant as follows:

Risk-free interest rate	~~1.47%~~2.04%
Dividend yield	0.00%
Volatility	~~176%~~125%
Expected life	3.5 years

Expected option life and volatility are based on historical data of the Company. The risk-free interest rate is calculated based on the average US Treasury bill rate that corresponds with the option life. Historically, the Company has not declared dividends and there are no foreseeable plans to do so.

8As of June 29, 2018, there was approximately $162 of total unrecognized share-based compensation cost related to grants under the stock option plan that will be recognized over a weighted-average period of 2.3 years.

Share-based compensation expense included in selling, general and administrative expense in the statements of operations for the six-month periods ended June 29, 2018 and June 30, 2017 was $76 and $86, respectively. Share-based compensation expense included in selling, general and administrative expense in the statements of operations for the three-month periods ended June 29, 2018 and June 30, 2017 was $37 and $46, respectively.

~~Table of Contents~~

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of September 29, 2017, there was approximately $186 of total unrecognized share-based compensation cost related to grants under the stock option plan that will be recognized over a weighted-average period of 2.63 years.

Share-based compensation expense included in selling, general and administrative expense in the statements of operations for each of the nine-month periods ended September 29, 2017 and September 30, 2016 was $132 and $125, respectively. Share-based compensation expense included in selling, general and administrative expense in the statements of operations for each of the three-month periods ended September 29, 2017 and September 30, 2016 was $46 and $52, respectively.

3.5.EMPLOYEE RETIREMENT BENEFIT PLANS

Pension and Retirement Obligations

In 2015, the Company terminated a defined pension plan and settled the resulting liabilities in exchange for a fixed obligation secured by the Company’s assets (the “Pension Settlement Obligation”). The remaining payments due under the Pension Settlement Obligation consist of ten installments of $750 to the Pension Benefit Guaranty Corporation due annually on October 31. The Pension Settlement Obligation is recorded net of imputed interest expense at 7%, as a liability on the balance sheet.

The Company’s only remaining pension obligation is the Supplemental Executive Retirement Plan (“SERP”).

Employer Contributions

The Company is not currently required to fund the SERP. All benefit payments are made by the Company directly to those who receive benefits from the SERP. As such, these payments are treated as both contributions and benefits paid for reporting purposes. The Company expects to contribute and pay SERP benefits of approximately ~~$500~~$469 in the next 12 months.

Components of Net Periodic Benefit Expense

	Supplemental Executive		Supplemental Executive
	Retirement Plan		Retirement Plan
	September 29,	September 30,	June 29,	June 30,
For the three months ended:	2017	2016
For the six months ended:			2018	2017

Interest cost	$ 39	$ 48	`$68`	`$78`
Amortization of actuarial loss	19	21	`40`	`37`
Amortization of prior year service cost	-	(3)
Net periodic benefit expense	$ 58	$ 66	`$108`	`$115`

	Supplemental Executive		Supplemental Executive
	Retirement Plan		Retirement Plan
	September 29,	September 30,	June 29,	June 30,
For the nine months ended:	2017	2016
For the three months ended:			2018	2017

Interest cost	$ 117	$ 143	`$34`	`$39`
Amortization of actuarial loss	56	62	`20`	`18`
Amortization of prior year service cost	-	(8)
Net periodic benefit expense	$ 173	$ 197	`$54`	`$57`

~~Table of Contents~~

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Although the Company believes it has been prudent in its plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. The Company undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.

All dollar amounts are in thousands.

EXECUTIVE SUMMARY

As described in the notes to the condensed consolidated financial statements, the Company adopted Topic 606, Revenue from Contracts with Customers, with a date of the initial application of January 1, 2018. The ~~third quarter~~Company applied Topic 606 using the cumulative effect method and accordingly recognized the cumulative effect of ~~2017 produced $8,049~~initially applying Topic 606 as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. As a result, the Company used different methods for recognizing revenue in each of the years presented as detailed below.

The adoption of Topic 606 changed the method of recognizing revenue for certain customer contracts. More specifically, for some contracts, revenue previously was not recognized until the product was accepted by the customer. Under Topic 606, revenue for these contracts will be recognized over time using the percentage completion method, which is the method used for most of our customer contracts. The immediate effect of the change was to accelerate earnings on the revenue backlog for the effected contracts. Much of this acceleration was recorded in a cumulative transition adjustment, whereby $682 of gross profit on $1,606 of sales ~~which~~ was ~~less than~~recorded directly to stockholders’ equity. Although the ~~exceptionally strong $10,306~~benefit of ~~sales~~the earnings from the transition adjustment is reflected in the financial position of the Company on the balance sheet, it will not be reported in the ~~third quarter~~statement of ~~2016. In 2017, improved gross profit percentage~~operations. Going forward, we believe Topic 606 will create a smoother revenue stream by spreading more revenue over the period of performance as opposed to previously when some contract revenue was recorded in a lump sum in the period of acceptance by the customer.

The results for the three and ~~reduced operating expenses overshadowed the lower sales, producing~~six months ended June 29, 2018 produced net income of ~~$767~~$619 and $658, respectively. The 2018 results compared favorably to the three and six months ended June 30, 2017 which reported a loss of $171 for the ~~third quarter~~three months ended June 30, 2017 and marginal income of ~~2017 compared to $561~~$14 for the ~~third quarter~~six months ended June 30, 2017. The improved results were attributable to increased sales recorded in 2018. Some of ~~2016. Sales for~~ the ~~first nine~~increase in sales recorded was attributable to the change in the method of recognizing revenue as explained above. As more fully described in the footnotes to the financial statements, under the accounting methods used in 2017, the three months ~~of 2017 were $22,836, which was slightly lower than the $23,474 in 2016; however, the Company experienced improved gross profit~~ and ~~reduced operating expenses, resulting in~~six months ended June 29, 2018 would have produced net income of ~~$781~~$373 and $179 respectively. Sales for 2018 were higher,

due to more work completed on customer projects in the second quarter of 2018. The sales recorded is driven by the expenditure of resources required to meet customer schedules for the projects in the sales backlog. Sales bookings were healthy in the first ~~nine~~six months of ~~2017 compared to a net loss of $172~~2018 and, with the sales prospects, present an opportunity for profitable results for the ~~comparable period~~remainder of 2016. The variability in sales and gross profit are within the range expected for our current business environment. The reduced operating expense for 2017 reflects the implementation of a leaner executive management structure completed in 2016. The current sales backlog and prospects with our current cost structure provide an encouraging outlook for profitable annual results which are slowly improving our financial position. As our recovery progresses from a large stockholders’ deficit eliminated mainly by the 2014 Pension Settlement, we will continue to improve our products and explore new opportunities to increase our sales and profits in an effort to grow shareholder value.2018.

CRITICAL ACCOUNTING POLICIES

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, ~~2016.~~2017. In addition, the Company considers the new revenue standard, adopted January 1, 2018 and described in Note 2, to be a critical accounting policy. For all of these policies, management cautions that future results rarely develop exactly as forecasted, and the best estimates routinely require modification.

~~Table of Contents~~

RESULTS OF OPERATIONS

Sales and Backlog

The following table summarizes our sales:

Three Months Ended

Nine Months Ended

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Sales
$ 8,049

$ 10,306

$ 22,836

$ 23,474

	Three Months Ended		Six Months Ended
	June 29, 2018	June 30, 2017	June 29, 2018	June 30, 2017
Sales	`$8,872`	`$6,744`	`$16,453`	`$14,787`

See Note 2 and Note 3 to the condensed consolidated financial statements for explanations of changes in the accounting method for revenue recognition. Sales for the ~~third quarter~~three and ~~first nine~~six months ~~of 2017 were lower than~~ended June 29, 2018 would have been $7,996 and $15,143 using the same ~~periods~~accounting method used in ~~2016.~~2017. The ~~lower 2017~~higher 2018 sales were attributable to ~~a decrease in the sales of domes which offset~~ an increase in work performed on larger planetarium systems and domes; otherwise the contribution to sales ~~of planetarium systems.~~from other customer projects was comparable in the periods presented.

Revenue backlog ~~increased~~decreased to ~~$26,094~~$26,778 as of ~~September~~June 29, ~~2017,~~2018, compared to ~~$24,444~~$27,360 as of December 31, ~~2016.~~2017. The ~~increase~~decrease in the revenue backlog is mainly attributed to the change in accounting method for revenue recognition. As discussed in Note 2 and Note 3 to the condensed consolidated financial statements, the cumulative effect of the change was recorded as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. This adjustment recorded the gross profit on $1,606 of sales from the revenue backlog. Also, the changes in the accounting method for revenue recognition resulted in $1,310 of additional sales in the six months of 2018. Hence, the change in the accounting method for revenue recognition reduced the backlog by a ~~high volume of new orders booked~~total $2,916. Had it not been for the change, the sales backlog would have increased to $29,694. The revenue backlog benefited by strong sales bookings for planetarium systems in the first ~~half~~six months of ~~2017. The sales backlog and prospects support the outlook to maintain sales at an annual level comparable to 2016.~~2018.

Gross Profit

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

Three Months Ended

Nine Months Ended

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Gross profit
$ 3,113

$ 3,679

$ 8,052

$ 7,951
Gross profit percentage
39 %

36 %

35 %

34 %

Three Months Ended
Six Months Ended
June 29, 2018
June 30, 2017
June 29, 2018
June 30, 2017
Gross profit
$3,218
$2,265
$5,897
$4,939
Gross profit percentage
36%
34%
36%
33%

The ~~variability in the gross profit percentage was due to the~~ mix of products delivered and the types of customer contracts that contributed to the revenue ~~recognized for~~in the periods ~~presented.~~presented causes variability in the gross profit percentage. Also, the higher 2018 sales resulted in efficiencies that lowered overhead cost of as a percentage of sales.

Operating Expenses

The following table summarizes our operating expenses:

Three Months Ended

Nine Months Ended

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Selling, general and

administrative
$ 1,419

$ 2,273

$ 4,542

$ 5,710
Research and development
769

606

2,236

1,762
Pension
58

66

173

197
Total operating expenses
$ 2,246

$ 2,945

$ 6,951

$ 7,669

	Three Months Ended		Six Months Ended
	June 29, 2018	June 30, 2017	June 29, 2018	June 30, 2017
Selling, general and administrative	`$1,685`	`$1,517`	`$3,431`	`$3,123`
Research and development	`740`	`766`	`1,494`	`1,467`
Pension	`54`	`57`	`108`	`115`
Total operating expenses	`$2,479`	`$2,340`	`$5,033`	`$4,705`

Selling, general and administrative expenses were ~~lower~~higher in 2018 compared to 2017. This was due to the timing of expenditures and costs related to a bi-annual industry conference in 2018. Also, in 2017, ~~compared to 2016. This~~there was ~~primarily due to~~a reduction in the allowance for doubtful accounts receivable resulting in a credit which reduced ~~trade show activity, agent commissions and the 2016 expense of the former CEO’s severance compensation.~~2017 expenses.

Research and development expenses were ~~higher~~comparable in ~~2017 compared to 2016. This was due primarily to an increase in~~ the periods presented. Research and development expenses generally vary with use of engineering resources for product improvement projects as opposed to customer delivery activities.

Pension expense declined slightly in ~~2017~~2018 compared to ~~2016~~2017 due to a decrease in the interest cost on the SERP.

~~Table of Contents~~

Other Expense, net

The following table summarizes our other expense:

Three Months Ended

Nine Months Ended

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Total other expense, net
$ 100

$ 157

$ 302

$ 417

	Three Months Ended		Six Months Ended
	June 29, 2018	June 30, 2017	June 29, 2018	June 30, 2017
Total other expense, net	`$100`	`$93`	`$175`	`$202`

Other expense decreased in ~~2017~~2018 compared to ~~2016~~2017 mainly due to declining interest expense on the Pension Settlement Obligation and mortgage notes along with offsetting increase of interest income from a capital lease receivable.

LIQUIDITY AND CAPITAL RESOURCES

Outlook

As discussed above in the executive summary, we believe existing liquidity resources and funds generated from forecasted revenue will be sufficient to meet our current and long-term obligations. We continue to operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures.

Cash Flows

In the first ~~nine~~six months of ~~2017, $1,792~~2018, $137 of cash ~~used in~~provided by operating activities was attributable to ~~$1,099~~$1,077 of cash provided by the net income for the period, after the effect of ~~$318~~non-cash items of $419 which was offset by cash used by changes to working capital of $940. The significant uses of cash from changes to working capital were increases in accounts receivable, inventory, and contract revenue in excess of billings. This was partially offset by an increase in billings in excess of contract revenue resulting from advance billings to customers. These changes are attributable to the timing of billings, customer payments and new customer orders.

In the first six months of 2017, $1,297 of cash used in operating activities was attributable to $192 of cash provided by the net income for the period, after the effect of $178 of non-cash items and an unfavorable change to working capital of ~~$2,891.~~$1,489. The change to working capital was driven by increases in receivables, prepaid expenses and ~~costs~~other assets, and ~~estimated earnings~~contract revenue in excess of billings, ~~on uncompleted contracts.~~which was offset by an increase in billings in excess of contract

revenue. These increases are attributable to the timing of billings ~~customer payments~~ and new customer orders. The change in working capital was also affected by an increase in prepaid expenses and other ~~assets and a decrease in restricted cash for a performance guarantee that was released upon completion of the project.~~

In the first nine months of 2016, the $2,116 of cash provided by operating activities was attributable to $426 of cash absorbed by the net loss for the period, after the effect of $598 of non-cash items and an increase in cash from changes to working capital of $1,690. The working capital changes contributing to the increase in cash consisted primarily of an increase in accrued expenses attributable to severance compensation and payroll schedules plus increased progress payments from customer contracts.assets.

Cash used in investing activities was ~~$100~~$56 for the ~~nine~~six months ended ~~September~~June 29, ~~2017~~2018 compared to ~~$145~~$86 for the same period of ~~2016.~~2017. Investing activities for both periods presented consisted almost entirely of property and equipment purchases.

For the ~~nine~~six months ended ~~September~~June 29, ~~2017,~~2018, financing activities used ~~$157~~$110 of cash compared to ~~$148~~$105 in ~~2016~~2017 for principal payments on mortgage notes.

Line of Credit

The Company is a party to a line-of-credit agreement with a commercial bank which permits borrowings of up to $1,100 to fund the working capital requirements of Spitz. Under the line of credit agreement, interest is charged on amounts borrowed at the lender’s prime rate less 0.25%. Any borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The line-of-credit agreement and mortgage notes (with the same commercial bank) contain cross default provisions whereby a default on either agreement will result in a default on both agreements. There were no borrowings outstanding under the line-of-credit agreement as of ~~September~~June 29, ~~2017.~~2018.

~~Table of Contents~~

Letters of Credit

Under the terms of financing arrangements for letters of credit, the Company is required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit issued, plus other amounts necessary to adequately secure obligations with the financial institutions who issue the letters of credit. As of ~~September~~June 29, ~~2017~~2018 there were outstanding letters of credit and bank guarantees of ~~$312,~~$405, which are scheduled to expire during the year ending December 31, 2018.

Mortgage Notes

As of ~~September~~June 29, ~~2017,~~2018, Spitz had obligations totaling ~~$1,818~~$1,654 under its two mortgage notes payable.

Item 4. CONTROLS AND PROCEDURES

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

~~Due~~On January 1, 2018 the Company’s subsidiary began processing inventory transactions on the integrated accounting software system it uses for all other transactions. Prior to 2018 the subsidiary’s inventory and product bills of material ~~weakness disclosed~~were accounted for using a legacy system. This change was made to improve the efficiency of the accounting function through improved integration of all transactions. Also, transitioning off the legacy system

provides better security and assurance of system support. The Company has made changes to its internal control over financial reporting in ~~the prior quarter and to enhance our overall financial control environment, management implemented the following changes in our internal control:~~

·~~Reassigned primary responsibility for preparation of initial customer contract cost estimates~~connection with this transition from the ~~accounting staff to the project manager who is more familiar with the scope of work and related costs under the contract.~~legacy system.

·~~Educated employees on the importance of including estimates for costs of contract deliverables when vendor quotes are not readily available.~~

·Reviewed project accounting transactions from the end of the reporting period until the published date of the financial statements to identify any material transactions that could affect contract accounting.

·Conducted additional reviews of all customer contracts with the Chief Financial Officer, Chief Operating Officer, project manager and the controller in attendance, including review of actual cost incurred, estimated cost to complete and status of contract obligations to enable accurate and timely update of accounting records.

Other than the improvements noted above, 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~~three months ended ~~September~~June 29, ~~2017,~~2018, 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.

~~Table of Contents~~

PART II - OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

In the normal course of business, we become involved in various legal proceedings. Although the final outcome of such proceedings cannot be predicted with certainty, we believe the ultimate disposition of any such proceedings will not have a material adverse effect on our consolidated financial position, liquidity, or results of operations.

Item 6.EXHIBITS

31.1	`31.1`Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herewith. `31.2`~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herewith.~~ `32.1`~~Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.~~ `101`The following materials from this Quarterly Report on Form 10-Q for the period ended September 29, 2017, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements. 14 ~~Table of Contents~~
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herewith.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
101	The following materials from this Quarterly Report on Form 10-Q for the period ended June 29, 2018, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~EVANS & SUTHERLAND COMPUTER CORPORATION~~ `Date:` `November 2, 2017`~~By:~~ ~~/s/ Paul Dailey~~ ~~Paul Dailey, Chief Financial Officer~~ ~~and Corporate Secretary~~ ~~(Authorized Officer)~~ ~~(Principal Financial and Accounting Officer)~~		EVANS & SUTHERLAND COMPUTER CORPORATION

Date:	August 6, 2018	By: /s/ Paul Dailey
		Paul Dailey, Chief Financial Officer
		and Corporate Secretary
		(Authorized Officer)
		(Principal Financial and Accounting Officer)

1522

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ] ~~(Do not check if a smaller reporting company)~~	Smaller reporting company [X]
Emerging growth company [ ]

		~~Page No.~~

	PART I – FINANCIAL INFORMATION
		Page No.
Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of ~~September~~June 29, ~~2017~~2018 and December 31, ~~2016~~2017 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 29, ~~2017~~2018 and ~~September~~June 30, ~~2016~~2017 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 29, ~~2017~~2018 and ~~September~~June 30, ~~2016~~2017 (Unaudited)	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1017

Item 4.	Controls and Procedures	1320

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	1421

Item 6.	Exhibits	1421

SIGNATURE		1522

		September 29,	December 31,		June 29,	December 31,
		2017	2016		2018	2017
ASSETS	ASSETS			ASSETS
Current assets:
Cash and cash equivalents		$ 4,774	$ 6,823		`$5,154`	`$5,276`
Restricted cash		312	603		`405`	`312`
Accounts receivable, net		4,636	3,271		`5,504`	`3,794`
Current portion of lease receivable		243	252		`255`	`247`
Costs and estimated earnings in excess of billings on uncompleted contracts		4,105	3,038
Contract revenue in excess of billings					`4,657`	`2,763`
Inventories, net		3,509	3,751		`4,258`	`3,973`
Prepaid expenses and deposits		1,441	902		`688`	`712`
Total current assets		19,020	18,640		`20,921`	`17,077`
Long-term lease receivable, net of current portion		899	1,083		`707`	`836`
Property and equipment, net		4,545	4,638		`4,447`	`4,527`
Goodwill		635	635		`635`	`635`
Other assets		1,457	1,222		`2,039`	`1,955`
Total assets		$ 26,556	$ 26,218		`$28,749`	`$25,030`

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$ 1,224	$ 1,158		`$1,900`	`$1,667`
Accrued liabilities		1,569	1,400		`1,318`	`912`
Billings in excess of costs and estimated earnings on uncompleted contracts		6,286	6,500
Customer deposits		2,289	2,238
Billings in excess of contract revenue					`9,229`	`7,117`
Current portion of retirement obligations		507	507		`469`	`500`
Current portion of pension settlement obligation		382	382		`409`	`409`
Current portion of long-term debt		221	211		`231`	`224`
Total current liabilities		12,478	12,396		`13,556`	`10,829`
Pension and retirement obligations, net of current portion		4,172	4,344
Retirement obligations, net of current portion					`4,059`	`4,150`
Pension settlement obligation, net of current portion		4,886	4,886		`4,478`	`4,478`
Long-term debt, net of current portion		1,597	1,764		`1,423`	`1,540`
Deferred rent obligation		914	1,231		`591`	`808`
Total liabilities		24,047	24,621		`24,107`	`21,805`
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value: 10,000,000 shares authorized; no shares outstanding		-	-		`-`	`-`
Common stock, $0.20 par value: 30,000,000 shares authorized; 11,616,866 shares issued		2,323	2,323		`2,323`	`2,323`
Additional paid-in-capital		53,772	53,641		`53,894`	`53,818`
Common stock in treasury, at cost, 264,350 shares		(3,532)	(3,532)		`(3,532)`	`(3,532)`
Accumulated deficit		(47,908)	(48,689)		`(45,867)`	`(47,208)`
Accumulated other comprehensive loss		(2,146)	(2,146)		`(2,176)`	`(2,176)`
Total stockholders’ equity		2,509	1,597		`4,642`	`3,225`
Total liabilities and stockholders’ equity		$ 26,556	$ 26,218		`$28,749`	`$25,030`

	Three Months Ended		Nine Months Ended
	September 29, 2017	September 30, 2016	September 29, 2017	September 30, 2016

Sales	$ 8,049	$ 10,306	$ 22,836	$ 23,474