UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------------

FORM 10-Q

(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended September 28, 2001
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. Employer
Incorporation or Organization) Identification No.)

600 Komas Drive, Salt Lake City, Utah 84108
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (801) 588-1000

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. Yes X No ____

The number of shares of Evans & Sutherland Computer Corporation's Common Stock
(par value $0.20 per share) outstanding on November 2, 2001 was 10,381,572.

FORM 10-Q

Evans & Sutherland Computer Corporation

Quarter Ended September 28, 2001

Page No.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of September 28, 2001 and
December 31, 2000 3

Consolidated Statements of Operations for the three
months ended September 28, 2001 and September 29,
2000 4

Consolidated Statements of Operations for the nine
months ended September 28, 2001 and September 29,
2000 5

Consolidated Statements of Comprehensive Income (Loss)
for the three and nine months ended September 28, 2001
and September 29, 2000 6

Consolidated Statements of Cash Flows for the nine
months ended September 28, 2001 and September 29,
2000 7

Notes to Consolidated Financial Statements 8

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14

Item 3. Quantitative and Qualitative Disclosures About
Market Risk 25

PART II - OTHER INFORMATION

Item 1. Legal Proceedings 26

Item 6. Exhibits and Reports on Form 8-K 26

SIGNATURES 27

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

September 28, December 31,
2001 2000
------------ ------------
(Unaudited)

Assets:
Cash and cash equivalents ................................................. $ 5,456 $ 11,8986
Restricted cash ........................................................... 1,032 2,024
Accounts receivable, less allowance for doubtful receivables of
$4,716 at September 28, 2001 and $4,411 at December 31, 2000 ........... 32,445 34,572
Inventories ............................................................... 39,672 38,383
Costs and estimated earnings in excess of billings on uncompleted contracts 59,799 68,464
Prepaid expenses and other current assets ................................. 4,916 5,326
------------ ------------
Total current assets ............................................... 143,320 160,667

Property, plant and equipment, net ........................................... 44,711 48,665
Investment securities ........................................................ 1,960 5,429
Other assets ................................................................. 923 1,317
------------ ------------
Total assets ....................................................... $ 190,914 $ 216,078
============ ============

Liabilities and stockholders' equity:
Notes payable ............................................................. $ 22,793 $ 344
Accounts payable .......................................................... 20,024 27,087
Accrued expenses .......................................................... 39,156 39,832
Customer deposits ......................................................... 3,880 3,908
Billings in excess of costs and estimated earnings on uncompleted contracts 22,835 27,710
------------ ------------
Total current liabilities .......................................... 108,688 98,881
------------ ------------

Long-term debt ............................................................... 18,015 25,563
------------ ------------
Commitments and contingencies

Redeemable convertible preferred stock, class B-1, no par value;
authorized 1,500,000 shares; issued and outstanding zero shares at
September 28, 2001 and 901,408 shares at December 31, 2000 ................ -- 24,000
------------ ------------
Stockholders' equity:
Preferred stock, no par value; authorized 8,500,000 shares;
no shares issued and outstanding ....................................... -- --
Common stock, $.20 par value; authorized 30,000,000
shares; issued 10,729,361 shares at September 28, 2001
and 9,772,118 shares at December 31, 2000 .............................. 2,146 1,954
Additional paid-in capital ................................................ 48,964 24,752
Common stock in treasury, at cost; 352,500 shares ......................... (4,709) (4,709)
Retained earnings ......................................................... 18,454 46,018
Accumulated other comprehensive loss ...................................... (644) (381)
------------ ------------
Total stockholders' equity ......................................... 64,211 67,634
------------ ------------
Total liabilities and stockholders' equity ......................... $ 190,914 $ 216,078
============ ============

See accompanying notes to consolidated financial statements.

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)

Three Months Ended
-----------------------------
September 28, September 29,
2001 2000
------------ ------------

Sales ................................................ $ 29,601 $ 48,092
Cost of sales ........................................ 27,808 33,288
------------ ------------
Gross profit ................................ 1,793 14,804
------------ ------------
Operating expenses:
Selling, general and administrative ............... 8,057 7,620
Research and development .......................... 6,847 11,073
REALimage(R) transition costs ..................... 2,353 --
Restructuring charge .............................. 2,088 --
------------ ------------
Operating expenses .......................... 19,345 18,693
------------ ------------
(17,552) (3,889)
Gain on sale of business unit ........................ 504 --
------------ ------------
Operating loss .............................. (17,048) (3,889)

Other income (expense), net .......................... (939) 4,337
------------ ------------
Income (loss) before income taxes ........... (17,987) 448

Income tax expense (benefit) ......................... (1,678) 147
------------ ------------
Net income (loss) ................................... (16,309) 301

Accretion of preferred stock ......................... -- 57
------------ ------------
Net income (loss) applicable to common stock $ (16,309) $ 244
============ ============

Net income (loss) per common share:
Basic and Diluted ................................. $ (1.57) $ 0.03

Weighted average common and common
equivalent shares outstanding:
Basic ....................................... 10,365 9,383
Diluted ..................................... 10,365 9,388

See accompanying notes to consolidated financial statements.

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)

Nine Months Ended
-----------------------------
September 28, September 29,
2001 2000
------------ ------------

Sales ................................................ $ 117,330 $ 119,636
Cost of sales ........................................ 90,349 101,022
------------ ------------
Gross profit ................................ 26,981 18,614
------------ ------------
Operating expenses:
Selling, general and administrative ............... 24,379 26,701
Research and development .......................... 22,886 33,589
REALimage transition costs ........................ 5,297 --
Restructuring charge .............................. 2,088 --
------------ ------------
Operating expenses .......................... 54,650 60,290
------------ ------------
(27,669) (41,676)
Gain on sale of business unit ........................ 504 1,918
------------ ------------
Operating loss .............................. (27,165) (39,758)

Other income (expense), net .......................... (2,078) 3,781
------------ ------------
Loss before income taxes ................... (29,243) (35,977)

Income tax expense (benefit) ......................... (1,678) 19,090
------------ ------------
Net loss ............................................. (27,565) (55,067)

Accretion of preferred stock ......................... -- 171
------------ ------------
Net loss applicable to common stock ........ $ (27,565) $ (55,238)
============ ============

Net loss per common share:
Basic and Diluted .......................... $ (2.73) $ (5.90)

Weighted average common and common
equivalent shares outstanding:
Basic and Diluted .......................... 10,098 9,360

See accompanying notes to consolidated financial statements.

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)

Three Months Ended
------------------------------
September 28, September 29,
2001 2000
------------- -------------

Net income (loss) ............................ $ (16,309) $ 301

Other comprehensive income (loss):
Foreign currency translation adjustments -- 58
Unrealized losses on securities ......... (94) (324)
------------- -------------
Other comprehensive loss before income taxes . (94) (266)

Income tax benefit related to items of other
comprehensive loss ...................... -- --
------------- -------------
Other comprehensive loss, net of income taxes (94) (266)
------------- -------------
Comprehensive income (loss) .................. $ (16,403) $ 35
============= =============

Nine Months Ended
------------------------------
September 28, September 29,
2001 2000
------------- -------------

Net loss ..................................... $ (27,565) $ (55,067)
Other comprehensive income (loss):
Foreign currency translation adjustments 6 108
Unrealized losses on securities ......... (269) (826)
------------- -------------
Other comprehensive loss before income taxes . (263) (718)

Income tax benefit related to items of other
comprehensive loss ...................... -- --
------------- -------------
Other comprehensive loss, net of income taxes (263) (718)
------------- -------------
Comprehensive loss ........................... $ (27,828) $ (55,785)
============= =============

See accompanying notes to consolidated financial statements.

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

Nine Months Ended
-----------------------------
September 28, September 29,
2001 2000
------------ ------------

Cash flows from operating activities:
Net loss ................................................................................. $ (27,565) $ (55,067)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization ..................................................... 10,424 10,681
Gain on sale of business unit ..................................................... (504) (1,918)
Gain on sale of investment securities ............................................. (319) (6,706)
Loss on marketable securities ..................................................... -- 1,939
Loss on disposal of fixed assets .................................................. 310 --
Provision for losses on accounts receivable ....................................... 630 3,644
Provision for write down of inventories ........................................... 756 2,745
Provision for warranty expense .................................................... 1,320 832
Deferred income taxes ............................................................. -- 20,598
Other ............................................................................. 163 (116)
Changes in working capital:
Accounts receivable ............................................................ 1,497 (6,166)
Inventories .................................................................... (2,045) (6,356)
Costs and estimated earnings in excess of billings on uncompleted contracts, net 403 28,705
Prepaid expenses and other current assets ...................................... 409 1,350
Accounts payable ............................................................... (7,063) 9,872
Accrued expenses ............................................................... (2,104) 1,919
Customer deposits .............................................................. (27) (2,532)
------------ ------------
Net cash provided by (used in) operating activities ..................... (23,715) 3,424
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments ...................................................... -- (1,875)
Proceeds from sale of short-term investments ............................................. -- 752
Purchase of investment securities ........................................................ -- (500)
Proceeds from sale of investment securities .............................................. 3,594 --
Proceeds from sale of business unit ...................................................... 4,000 1,250
Investment in joint venture .............................................................. -- (711)
Purchases of property, plant and equipment ............................................... (6,551) (7,828)
Proceeds from sale of property, plant and equipment ...................................... 7 1,532
Increase in other assets ................................................................. (25) (999)
------------ ------------
Net cash provided by (used in) investing activities ..................... 1,025 (8,379)
------------ ------------
Cash flows from financing activities:
Borrowings under notes payable and line of credit agreements ............................. 186,081 13,297
Payments under notes payable and line of credit agreements ............................... (171,180) (15,430)
Decrease in restricted cash .............................................................. 991 --
Proceeds from issuance of common stock ................................................... 350 444
------------ ------------
Net cash used in financing activities ................................... 16,242 (1,689)
------------ ------------
Effect of foreign exchange rate on cash and cash equivalents ................................ 6 (49)
------------ ------------
Net change in cash and cash equivalents ..................................................... (6,442) (6,693)
Cash and cash equivalents at beginning of year .............................................. 11,898 22,110
------------ ------------
Cash and cash equivalents at end of period .................................................. $ 5,456 $ 15,417
============ ============

Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest ................................................................................. $ 2,042 $ 739
Income taxes ............................................................................. 750 (5,646)
Accretion of preferred stock ................................................................ -- 171

See accompanying notes to consolidated financial statements.

EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes necessary for a complete presentation of the
results of operations, the financial position, and cash flows, in conformity
with generally accepted accounting principles. This report on Form 10-Q for the
three months and nine months ended September 28, 2001 should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 2000.

The accompanying unaudited consolidated balance sheets and statements of
operations, comprehensive loss and cash flows reflect all normal recurring
adjustments which 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 interim three and nine month periods
ended September 28, 2001 are not necessarily indicative of the results to be
expected for the full year.

Certain amounts in the 2000 condensed consolidated financial statements and
notes have been reclassified to conform to the 2001 presentation.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133, as amended by SFAS 137
and SFAS 138, is effective for all fiscal years beginning after June 15, 2000.
SFAS 133 establishes new accounting and reporting standards for companies to
report information about derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company adopted SFAS 133 as of January 1,
2001. The impact of adopting SFAS 133 was not material to the financial
statements.

In July 2001, the FASB issued SFAS No. 141, "Accounting for Business
Combinations" and No. 142, "Accounting for Goodwill and Other Intangible
Assets". SFAS 141 is effective for the Company beginning July 1, 2001. The
Statement establishes accounting and reporting standards for business
combinations and prohibits the use of the pooling-of-interests method of
accounting for those transactions after June 30, 2001. SFAS 142 is effective for
the Company beginning January 1, 2002. The Statement establishes accounting and
reporting standards for goodwill and intangible assets. Beginning January 1,
2002, the Company will no longer amortize goodwill, but will test for impairment
at least annually. The impact of adopting SFAS 142 is not expected to be
material to the financial statements.

In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" and No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", that replaces SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed Of". SFAS 143 is
effective for the Company beginning July 1, 2002. The Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The impact of adopting SFAS 143 is not expected to be material to the
financial statements. SFAS 144 establishes one accounting model for long-lived
assets to be disposed of by sale and addresses significant implementation
issues. SFAS No. 144 is effective for the Company beginning after January 1,
2002. Management does not expect the adoption of this statement to have a
material impact on its financial statements.

EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Liquidity

Management believes that existing cash, cash equivalents, borrowings available
under its various borrowing facilities, other asset-related cash sources and
expected cash from future operations will be sufficient to meet the Company's
anticipated working capital needs, routine capital expenditures and current debt
service obligations for the next twelve months. The Foothill Facility expires in
December 2002 and the Overdraft Facility expires on November 30, 2001 (see note
6). The Company is currently in negotiations to extend the Overdraft Facility,
and expects to reach a favorable agreement. With the Foothill Facility, third
quarter results caused the Company to fall short of the third quarter net worth
covenant in that Facility. However, based on fourth quarter projections provided
in advance to Foothill, a waiver was received on October 10. The net worth
covenant is cumulative going forward and the Company's performance in fourth
quarter 2001 is currently projected to fall short as well. As a result of these
factors, the Company reclassified the outstanding borrowings with Foothill from
long-term debt to a current liability.

However, cash generated in fourth quarter 2001 from the Nvidia transaction, the
second installment payment from the Real Vision transaction and cash from
operations is projected to cover the majority of the outstanding debt balance
with Foothill at the end of third quarter. In light of these factors, management
believes that Foothill is well appraised of our projected financial performance
and will work with the Company, on an ongoing basis, to continue the facility.

2. RECENT DEVELOPMENTS

On September 11, 2001, America was shocked at the devastating act of terrorism
on our native soil. Immediate impacts were realized in the aviation industry as
a direct result of these incidents. In the period since these tragic events,
airlines have cut back schedules and routes, retired aircraft earlier than
planned, reduced their employee base, and looked to vendors to support them
until the business returns to historic norms. Until such time, the Company will
feel some level of impact in its commercial business base. The short term impact
may consist of delays in customer orders, an extension in the delivery dates of
systems in backlog, extensions in customer payment terms, and/or cancellation of
existing orders.

On October 15, 2001, the Company, the Company's wholly-owned subsidiary Evans &
Sutherland Graphics Corporation, and Nvidia International Inc. ("Nvidia")
entered into agreements for the license and sale of nine US patents and foreign
equivalents being held for sale to Nvidia. Pursuant to the terms of the
agreements, Nvidia paid the Company $9.0 million cash on October 16, 2001. In
addition to the sale of nine E&S(R) US patents and foreign equivalents to
Nvidia, the agreements provide a grant back to E&S by Nvidia Corporation, the
parent of Nvidia International Inc., of continued rights in the patents within
E&S's field of use. The agreements also include a broad, non-exclusive,
worldwide cross-license of each companies' respective patents for use in the
other company's own products, which extends to each companies' subsidiaries. The
cross-license agreement also contained a mutual release of any claims either
party may have against the other.

3. TRANSITION COSTS AND SALE

REALimage Transition Costs

REALimage transition costs include all the expenses associated with the
operations and disengagement efforts of the REALimage Solutions Group for the
period April 2001 through August 2001. These costs totaled $5.3 million.

REALimage Business Transaction

On August 31, 2001, the Company executed an asset purchase and intellectual
property license agreement to sell the REALimage Solutions Group to Real Vision,

EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inc. for a maximum value of $12.3 million. The consideration to the Company
consisted of $4.0 million cash, a receivable for $2.3 million payable in
December 2001, and future royalties payable on a when and if earned basis of up
to a maximum of $6.0 million. The consideration to Real Vision, Inc. consists of
REALimage technology, other assets, and an obligation from the Company to
provide continued development of the REALimage technology during a seven-month
transition period concluding on April 1, 2002.

4. RESTRUCTURING CHARGE

In the third quarter of 2001, the Company initiated a restructuring plan focused
on reducing the operating cost structure of the Company. As part of the plan,
the Company recorded a charge of $2.1 million relating to a reduction in force
of approximately 80 employees. As of September 28, 2001, the Company had paid
$0.9 million in severance benefits. The majority of the remaining benefits will
be paid out over the next two quarters. The charge was recorded in accordance
with Emerging Issues Task Force Issue 94-03 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit (Including Certain Cost
Incurred in a Restructuring)" and Staff Accounting Bulletin No. 100,
"Restructuring and Impairment Charges".

5. INVENTORIES

Inventories consist of the following (in thousands):

September 28, December 31,
2001 2000
--------------- --------------
(Unaudited)

Raw materials $ 21,383 $ 26,701
Work-in-process 14,142 9,219
Finished goods 4,147 2,463
--------------- --------------
$ 39,672 $ 38,383
=============== ==============

6. DEBT

Long-term debt consists of approximately $18.0 million of 6% Convertible
Subordinated Debentures due in 2012 (the "6% Debentures"). The 6% Debentures are
unsecured and are convertible at each bondholder's option into shares of the
Company's common stock at a conversion price of $42.10 or 428,000 shares of the
Company's common stock, subject to adjustment. The 6% Debentures are redeemable
at the Company's option, in whole or in part, at par.

Due to the fourth quarter net worth projection falling below the Foothill
Facility covenant, the Company will continue to work with Foothill to waive the
fourth quarter covenant. However no assurance can be given that such
negotiations will result in modifications that will allow the Company to
continue to be in compliance or otherwise be acceptable to the Company. As of
September 28, 2001, the Company had $20.2 million in outstanding borrowings and
$6.8 million in outstanding letters of credit under the Foothill Facility. As of
November 9, 2001, the outstanding borrowings have decreased to $13.5 million and
the outstanding letters of credit have decreased to $5.9 million.

EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Evans & Sutherland Computer Limited, a wholly-owned subsidiary of Evans &
Sutherland Computer Corporation, has a $5.0 million overdraft facility (the
"Overdraft Facility") with Lloyds TSB Bank plc ("Lloyds"). As of September 28,
2001, Evans & Sutherland Computer Limited had $2.4 million in outstanding
borrowings under the Overdraft Facility. The Overdraft Facility is subject to
reduction or demand repayment for any reason at any time at Lloyds' discretion
and expires on November 30, 2001. The terms of the Overdraft Facility remain
unchanged as described in the Company's Form 10-K for the year ended December
31, 2000. The Overdraft Facility requires maintenance of certain financial
covenants. Evans & Sutherland Computer Limited is currently in compliance with
the financial covenants. On September 28, 2001, the Company had $1.0 million of
cash on deposit with Lloyds in a restricted cash collateral account to support
obligations that the bank guarantees. As of November 9, 2001, Evans & Sutherland
Computer Limited had no outstanding borrowings under the Overdraft Facility.

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK

On July 22, 1998, Intel Corporation ("Intel") purchased 901,408 shares of the
Company's preferred stock plus a warrant to purchase an additional 378,462
shares of the preferred stock at an exercise price of $33.28125 per share for
approximately $24.0 million. In March 2001, Intel converted the 901,408 shares
of the Company's preferred stock into 901,408 shares of the Company's common
stock and subsequently sold the stock. In March 2001, Intel and the Company
amended the preferred stock and warrant purchase agreement to terminate certain
contractual rights of Intel, including registration rights, board and committee
observation rights, right of first refusal, right of participation, right of
maintenance, standstill agreement, and right to require the Company to
repurchase the preferred stock in the event of any transaction qualifying as a
specific corporate event.

8. 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, warrants, Class B-1 Preferred
Stock and 6% Convertible Subordinated Debentures are considered to be common
stock equivalents.

Basic net income (loss) per common share is the amount of net income (loss) for
the period available to each share of common stock outstanding during the
reporting period. Diluted net income (loss) per share is the amount of net
income (loss) for the period available to each share of common stock outstanding
during the reporting period and to each share that would have been outstanding
assuming the issuance of common shares for all dilutive potential common shares
outstanding during the period.

For the three and nine months ended September 28, 2001, outstanding options to
purchase 2,576,000 shares of common stock, 428,000 shares of common stock
issuable upon conversion of the 6% Convertible Subordinated Debentures and
378,000 shares of common stock upon the exercise and conversion of warrants to
purchase additional Class B-1 Preferred Stock were excluded from the computation
of the diluted net income (loss) per common share because to include them would
have been anti-dilutive.

For the three months ended September 29, 2000, outstanding options to purchase
2,461,000 shares of common stock, 428,000 shares of common stock issuable upon
conversion of the 6% Convertible Subordinated Debentures, 901,000 shares of
common stock issuable upon conversion of the Company's Class B-1 Preferred Stock
and 378,000 shares of common stock issuable upon the exercise and conversion of
warrants to purchase additional Class B-1 Preferred Stock were excluded from the
computation of the diluted net income per common share because to include them
would have been anti-dilutive.

EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 29, 2000, outstanding options to purchase
2,668,000 shares of common stock, 428,000 shares of common stock issuable upon
conversion of the 6% Convertible Subordinated Debentures, 901,000 shares of
common stock issuable upon conversion of the Company's Class B-1 Preferred Stock
and 378,000 shares of common stock issuable upon the exercise and conversion of
warrants to purchase additional Class B-2 Preferred Stock were excluded from the
computation of the diluted net loss per common share because to include them
would have been anti-dilutive.

9. SEGMENT AND RELATED INFORMATION

The Company's business units have been aggregated into three reportable
segments: Simulation, REALimage Solutions, and Applications. These reportable
segments offer different products and services and are managed and evaluated
separately because each segment uses different technologies and requires
different marketing strategies. The Simulation segment provides a broad line of
visual systems for flight and ground simulators for training purposes to
government, aerospace and commercial customers. The REALimage Solutions segment
was developing graphics and video processing technology on a single chip for
digital video content creation and post-production and was sold in a transaction
discussed above (see note 3). The Applications segment provides digital video
applications for entertainment, educational and multimedia industries.

The Company evaluates segment performance based on income (loss) from operations
before income taxes, interest income and expense, other income and expense and
foreign exchange gains and losses. The Company's assets are not identifiable by
segment.

(in thousands, unaudited) Simulation REALimage Applications Total
Solutions
----------------------------------------------------

Three months ended September 28, 2001
Sales ............................ $ 26,816 $ 473 $ 2,312 $ 29,601
Operating loss ................... (16,358) (486) (204) (17,048)

Three months ended September 29, 2000
Sales ............................ $ 44,486 $ 1,196 $ 2,410 $ 48,092
Operating loss ................... (1,878) (1,474) (537) (3,889)

Nine months ended September 28, 2001
Sales ............................ $ 108,293 $ 1,714 $ 7,323 $ 117,330
Operating loss ................... (21,699) (5,138) (328) (27,165)

Nine months ended September 29, 2000
Sales ............................ $ 106,608 $ 4,232 $ 8,796 $ 119,636
Operating income (loss) .......... (35,849) (3,996) 87 (39,758)

EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. GEOGRAPHIC INFORMATION

The following table presents sales by geographic location based on the location
of the use of the product or services. Sales to individual countries greater
than 10% of consolidated sales are shown separately (in thousands):

Three Months Ended Nine Months Ended
------------------------ ------------------------
September 28, September 29, September 28, September 29,
2001 2000 2001 2000
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)

United States ................... $ 23,975 $ 32,896 $ 73,933 $ 76,936
United Kingdom .................. 1,459 6,352 23,979 17,378
Europe (excluding United Kingdom) 2,032 6,666 9,181 15,709
Pacific Rim ..................... 1,972 383 7,716 5,960
Other ........................... 163 1,795 2,521 3,653
---------- ---------- ---------- ----------
$ 29,601 $ 48,092 $ 117,330 $ 119,636
========== ========== ========== ==========

The following table presents property, plant and equipment by geographic
location based on the location of the assets (in thousands):

September 28, December 31,
2001 2000
--------------- --------------
(Unaudited)
United States $ 43,239 $ 47,777
Europe 1,472 888
--------------- --------------
$ 44,711 $ 48,665
=============== ==============

11. LEGAL PROCEEDINGS

Other than as set forth below, there have been no material changes to legal
proceedings from the information previously reported on the Company's annual
report on Form 10-K for the year ended December 31, 2000. The Company urges you
to review its annual report on Form 10-K for the year ended December 31, 2000
for a detailed description of these legal proceedings.

Lockheed Martin Corporation v. Evans & Sutherland Computer Corporation (United
States (Middle) District Court (Florida), Case No. 6:00-cv-755-ORL-19C, filed on
May 23, 2000). On January 16, 2001, the Company filed a motion for partial
summary judgement, asking the court to dismiss all of the Lockheed's breach of
contract claims. The court denied that motion on August 30, 2001, citing the
existence of material disputed facts. On September 6, 2001 the court granted
Lockheed leave to amend its complaint, which was filed on September 17. The
Company filed a motion to dismiss these new claims on October 4, 2001, and
Lockheed has opposed it. The court has that motion under advisement. A trial
date is currently set for September 2002. Management of the Company disputes
Lockheed's allegations in the complaint, is vigorously defending the action, and
is vigorously prosecuting its counterclaims. Although management believes the
Company will ultimately prevail in the litigation, an unfavorable outcome of
these matters would have a material adverse impact on the Company's financial
condition and operations.

In the normal course of business, the Company has various other legal claims and
other contingent matters, including items raised by government contracting
officers and auditors. Although the final outcome of such matters cannot be
predicted, the Company believes the ultimate disposition of these matters will
not have a material adverse effect on the Company's consolidated financial
condition, liquidity or results of operations.

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 notes included in Item 1 of Part I of this
Form 10-Q. Except for the historical information contained herein, this
quarterly report on Form 10-Q includes certain "forward-looking statements"
within the meaning of that term in Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act of 1934, including, among others, those
statements preceded by, followed by or including the words "estimates,"
"believes," "expects," "anticipates," "plans," "projects" or similar
expressions.

These forward-looking statements are based largely on our current expectations
and are subject to a number of risks and uncertainties. Our actual results could
differ materially from these forward-looking statements. Important factors to
consider in evaluating such forward-looking statements include projection of
capital expenditures; plans for future operations; financing needs or plans;
plans relating to Evans & Sutherland Computer Corporation ("Evans & Sutherland,"
"E&S," or the "Company") products and services; risk of product demand; market
acceptance; economic conditions; competitive products and pricing; cancellation
of contracts or significant penalties due to delays in the timely delivery of
the Company's products; difficulties in product development and the
commercialization of technology; successful completion of the various business
arrangements involving the RAPIDsite(TM) business; and other risks detailed in
this filing and in the Company's most recent Form 10-K and quarterly reports on
Form 10-Q. Although the Company believes it has the product offerings and
resources for continuing success, future revenue and margin trends cannot be
reliably predicted. Factors external to the Company can result in volatility of
the Company's common stock price. Because of the foregoing factors, recent
trends are not necessarily reliable indicators of future stock prices or
financial performance and there can be no assurance that the events contemplated
by the forward-looking statements contained in this quarterly report will, in
fact, occur. For further information, refer to the business description and
additional risk factors sections included in Evans & Sutherland's Form 10-K for
the year ended December 31, 2000 and quarterly reports on Form 10-Q, as filed
with the Securities and Exchange Commission.

RECENT DEVELOPMENTS

OVERVIEW

Evans & Sutherland Computer Corporation is an established high-technology
company with outstanding computer graphics technology and a worldwide presence
in high-performance 3D visual simulation. In addition, E&S applies its core
technology into personal computer ("PC") products for both simulation and
workstations. The Company's core computer graphics technology is shared among
the Company's Simulation, REALimage Solutions, and Applications Groups.

Simulation Group

The Simulation Group provides a broad line of visual systems for flight and
ground training and related services to the United States and international
armed forces, NASA and aerospace companies. E&S remains an industry leader for
visual systems sales to various United States government agencies and more than
20 foreign governments for the primary purpose of training military vehicle
operators. The Simulation Group is a leading independent supplier of visual
systems for simulators for commercial markets, as well. In addition to aviation
training, other commercial visual applications include maritime, train, auto,
and motorcycle simulation.

The group's visual systems create dynamic, high quality, out-the-window scenes
that simulate the view vehicle operators see when performing tasks under actual
operating conditions. The visual systems are an integral part of full mission
simulators, which incorporate a number of other components, including cockpits
or vehicle cabs and large hydraulic motion systems.

The Simulation Group's products are installed in military and commercial airline
training facilities throughout the world. The Evans & Sutherland Image Generator
(" ESIG(R)") product line is the cornerstone of the group's product offerings.
ESIG models span a 15-year production period and have been continuously improved
to meet the ever-increasing demands of real time flight and ground vehicle
simulation requirements. The Harmony(R) product line advances the image quality
by addressing the complexities required to project the most realistic out-of-the
window and sensor visual scenes used by advanced tactical helicopters and
military jet pilots. Equivalent in processing capabilities to large mainframe
computers, the Harmony system's technology enables large field of view
projections, inlaid targets, and enhanced sensor and visual details. At the
other end of the processing spectrum, the lower cost of computing technology has
enabled E&S to develop a high-end personal computer image generator ("PCIG")
capability to meet the needs of the rapidly expanding market of lower cost
simulation applications such as ship handling, air traffic control and tower
simulation. Database models, software tools, and engineers facilitate the
development of high-end databases for use by the group's customer base.
Commercial airline databases simulate airports throughout the world, while the
military databases include advanced special effects and encompass large areas of
the world. The group's capabilities include advanced display systems and systems
integration while the service and support efforts associated with the group's
products include installation, spares, spares provisioning, system maintenance,
maintenance training, and system repairs.

REALimage Solutions Group

The REALimage Solutions Group was developing graphics and video processing
technology on a single chip for digital video content creation and
post-production. This product, referred to as "studio-on-a-chip", would bring
together both graphics and video processing technology on a single chip for
digital video content creation and post-production.

On August 31, 2001, the Company executed an asset purchase and intellectual
property license agreement to sell the REALimage Solutions Group to Real Vision,
Inc. for a maximum value of $12.3 million. The consideration to the Company
consisted of $4.0 million cash, a receivable for $2.3 million payable in
December 2001, and future royalties payable on a when and if earned basis of up
to a maximum of $6.0 million. The consideration to Real Vision, Inc. consists of
REALimage technology, other assets, and an obligation from the Company to
provide continued development of the REALimage technology during a seven-month
transition period concluding on April 1, 2002.

Applications Group

The Applications Group is composed of synergistic businesses that use E&S core
technology in applications targeted at niche markets. The Applications Group's
digital theater products include hardware, software and content for both the
entertainment and educational marketplaces. Digital theater focuses on immersive
all-dome theater applications combining colorful digitally produced imagery,
full-spectrum audio and audience-participation capability. The group is a
leading supplier of digital display systems in the planetarium marketplace. In
addition to projection and theater systems, the group develops and markets show
content for planetariums and domed theaters.

In 2001, the Applications Group continued to expand the market for E&S
RAPIDsite. E&S RAPIDsite is a photo-realistic visualization tool designed for
use by real-estate developers, consulting engineers, architects, and municipal
planners involved with all types of land development projects. RAPIDsite
features fast 3D-model construction, accelerated graphics rendering performance
and easy-to-use interactive exploration of a proposed development on a Windows
NT computer with an Open GL graphics accelerator. The Company is currently
evaluating various business arrangements of its E&S RAPIDsite business in order
to enhance the value of this business, including, but not limited to,
transferring the assets of this business to a wholly-owned subsidiary and
seeking outside investment to assist with the development of the E&S RAPIDsite
products. The Company cannot provide any assurance that it will be successful in
completing any business arrangement of RAPIDsite that would enhance the value of
this business.

RESULTS OF OPERATIONS

The following table presents the percentage of total sales represented by
certain items for the Company for the periods presented:

Three Months Ended Nine Months Ended
------------------------------ ------------------------------
Sept. 28, 2001 Sept. 29, 2000 Sept. 28, 2001 Sept. 29, 2000
------------- ------------ ------------- ------------
(Unaudited) (Unaudited)

Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 93.9 69.2 77.0 84.4
------------- ------------ ------------- -------------
Gross profit 6.1 30.8 23.0 15.6
------------- ------------ ------------- -------------
Operating Expenses:
Selling, general and administrative 27.2 15.9 20.8 22.3
Research and development 23.1 23.0 19.5 28.1
REALimage transition costs 8.0 - 4.5 -
Restructuring charge 7.1 - 1.8 -
------------- ------------ ------------- -------------
Operating expenses 65.4 38.9 46.6 50.4
------------- ------------ ------------- -------------
(59.3) (8.1) (23.6) (34.8)
Gain on sale of business unit 1.7 - 0.4 1.6
------------- ------------ ------------- -------------
Operating loss (57.6) (8.1) (23.2) (33.2)
Other income (expense), net (3.2) 9.0 (1.7) 3.2
------------- ------------ ------------- -------------
Income (loss) before income taxes (60.8) 0.9 (24.9) (30.0)
Income tax expense (benefit) (5.7) 0.3 (1.4) 16.0
------------- ------------ ------------- -------------
Net income (loss) (55.1) 0.6 (23.5) (46.0)
Accretion of preferred stock - 0.1 - 0.1
------------- ------------ ------------- -------------
Net income (loss) applicable to common stock (55.1)% 0.5% (23.5)% (46.1)%
============= ============ ============= =============

Third Quarter 2001 Compared to Third Quarter 2000

Sales

In the third quarter of 2001, sales decreased $18.5 million, or 38% ($29.6
million in the third quarter of 2001 compared to $48.1 million in the third
quarter of 2000). Sales in the Simulation Group decreased $17.7 million, or 40%
($26.8 million in the third quarter of 2001 compared to $44.5 million in the
third quarter of 2000). Sales in the REALimage Solutions Group decreased $0.7
million, or 58% ($0.5 million in the third quarter of 2001 compared to $1.2
million in the third quarter of 2000). Sales in the Applications Group declined
$0.1 million, or 4% ($2.3 million in the third quarter of 2001 compared to $2.4
million in the third quarter of 2000). The decrease in sales in the Simulation
Group is due to an adjustment to revenue on percent complete contracts to
military customers on projects using the Company's Harmony image generator,
lower sales volumes of visual systems to commercial airline customers and lower
sales volumes of PC-based image generators. These decreases in sales were
partially offset by an increase in revenues for service and support. The
adjustment to revenue on percent complete contracts was due to a review of the
estimated actual cost to complete the contracts which use the Company's Harmony
image generator and resulted in a negative adjustment to revenue of $12.5
million. The decrease in sales volumes to commercial airline customers was due
to orders being received later than expected and shipment dates being moved out
of the quarter resulting in fewer systems being shipped in the quarter. The
lower sales volumes of PC-based image generators was due to lower orders as
customers delayed their order dates and the volume of potential orders declined.
The increase in revenue for service and support was due to increased spare parts

volumes and increased prices on parts and repairs. Sales in the REALimage
Solutions Group declined as this group was sold during the third quarter of
2001. Sales in the Applications Group declined as decreases in sales volumes of
large format entertainment systems were only partially offset by increases in
sales volumes of planetarium system and growing E&S RAPIDsite sales.

Gross Profit

Gross profit declined $13.0 million, or 88% ($1.8 million in the third quarter
of 2001 compared to $14.8 million in the third quarter of 2000). As a percent of
sales, gross profit declined to 6.1% in the third quarter of 2001 compared to
30.8% in the third quarter of 2000. Gross profit in the Simulation Group was
negatively impacted by an adjustment for estimated actual costs at completion of
contract on percent complete contracts to military customers using the Company's
Harmony image generator of $15.2 million ($12.5 million as a reduction in sales
as discussed previously, and $2.7 million as an increase in cost of sales
relating to contracts with total estimated actual costs that exceed the contract
value). The decline in gross profit in the Simulation Group was also due to
lower sales volumes of visual systems to commercial airline customers and lower
sales volumes of PC-based image generators. These declines were partially offset
by increased gross profit from service and support due to higher spare parts
volumes and higher prices. Gross profit in the REALimage Solution Group
increased as a result of the sale of the group during the third quarter of 2001.
Gross profit in the Applications Group increased as the sales mix favored higher
margin planetarium systems and growing E&S RAPIDsite sales.

Selling, General and Administrative

Selling, general and administrative expenses increased $0.4 million, or 6% ($8.1
million in the third quarter of 2001 compared to $7.6 million in the third
quarter of 2000). As a percent of sales, selling, general and administrative
expenses were 27.2% in the third quarter of 2001 compared to 15.9% in the third
quarter of 2000. Selling, general and administrative expenses increased in the
Simulation Group as higher demonstration equipment costs, higher service and
support marketing effort and high bonus accrual expenses were partially offset
by lower advertising and lower labor costs due to lower headcount. Selling,
general and administrative expenses declined in the Applications Group as lower
orders resulted in lower sales commission costs. The decrease in selling,
general and administrative expenses in the third quarter of 2001 is also
partially due to all operating costs through August 31, 2001 associated with the
REALimage Solutions Group being recorded in the "REALimage transition costs"
expense category. Selling, general and administrative expenses were $8.6 million
including these costs associated with the REALimage Solutions Group.

Research and Development

Research and development expenses decreased $4.3 million, or 39% ($6.8 million
in the third quarter of 2001 compared to $11.1 million in the third quarter of
2000). As a percent of sales, research and development expenses were 23.1% in
the third quarter of 2001 compared to 23.0% in the third quarter of 2000.
Research and development expenses in the Simulation Group declined as a result
of lower labor and related expenses as the effort required on the Company's
Harmony, iNTegrator(R), Ensemble(R) and PC-based simulation products has
declined. Research and development expenses in the Applications Group were
essentially unchanged. The decrease in research and development expenses in the
third quarter of 2001 is also partially due to all expenses through August 31,
2001 associated with the REALimage Solutions Group being recorded in the
"REALimage transition costs" expense category. Research and development expenses
were $8.7 million including these costs associated with the REALimage Solutions
Group.

REALimage Transition Costs

REALimage transition costs include all the expenses through August 31, 2001
associated with the REALimage Solutions Group that were incurred in the third
quarter of 2001. These costs totaled $2.4 million and were 8.0% of revenues. On
August 31, 2001, the Company executed an asset purchase and intellectual
property license agreement to sell the REALimage Solutions Group to Real Vision,
Inc. for a maximum value of $12.3 million. The consideration to the Company
consisted of $4.0 million cash, a receivable for $2.3 million payable in
December 2001, and future royalties payable on a when and if earned basis of up
to a maximum of $6.0 million. The consideration to Real Vision, Inc. consists of

REALimage technology, other assets, and an obligation from the Company to
provide continued development of the REALimage technology during a seven-month
transition period concluding on April 1, 2002.

Restructuring Charge

In the third quarter of 2001, the Company initiated a restructuring plan focused
on reducing the operating cost structure of the Company. As part of the plan,
the Company recorded a charge of $2.1 million relating to a reduction iIn force
of approximately 80 employees. As of September 28, 2001, the Company had paid
$0.9 million in severance benefits. The majority of the remaining benefits will
be paid out over the next two quarters. The charge was recorded in accordance
with Emerging Issues Task Force Issue 94-03 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit (Including Certain Cost
Incurred in a Restructuring)" and Staff Accounting Bulletin No. 100,
"Restructuring and Impairment Charges". The Company did not incur any
restructuring charges during the three month period ended September 29, 2000.

Gain on Sale of Business Unit

On August 31, 2001, the Company executed an asset purchase and intellectual
property license agreement to sell the REALimage Solutions Group to Real Vision,
Inc. and recognized a gain of $0.5 million on the transaction. There was no such
event in the third quarter of 2000.

Other Income (Expense), Net

Other income (expense), net decreased $5.3 million (other expense, net of $0.9
million in the third quarter of 2001 compared to other income, net of $4.3
million in the third quarter of 2000). As a percent of sales, the third quarter
of 2001 had other expense, net of 3.2% compared to the third quarter of 2000
which had other income, net of 9.0%. Interest income was $8,000 in the third
quarter of 2001 compared to $0.2 million in the third quarter of 2000. Interest
expense was $0.7 million in the third quarter of 2001 compared to $0.3 million
in the third quarter of 2000. The increase in interest expense during the third
quarter of 2001 was attributable to increased borrowings under the Foothill
Facility. In third quarter of 2000, the Company recognized $6.7 million gain on
the sale of the Company's investment in Silicon Light Machines, Inc. in which
the Company received Cypress Semiconductor, Inc. ("Cypress") stock. There was no
such event in the third quarter of 2001. During 2000, the Company determined
that certain of its investments had incurred an other-than-temporary decline in
value and recorded a loss of $1.9 million. There was no such event for the third
quarter of 2001.

Income Taxes

Income tax expense (benefit) improved $1.8 million (a benefit of $1.7 million in
the third quarter of 2001 compared to an expense of $0.1 million in the third
quarter of 2000.) A benefit 0f $2.1M in the third quarter of 2001 was primarily
due to the favorable audit resolution of certain potential foreign tax
liabilities. An offset, in the amount of $0.4M, was paid in Japan for taxes
associated with the REALimage transaction. In the future, the taxes withheld in
Japan can be used as a tax credit against foreign income. However, timing
constraints in conjunction with a requirement for the Company to first utilize
its net operating loss carry forward, might eliminate future use of this credit.

Nine Months Ended September 28, 2001 Compared to Nine Months Ended
September 29, 2000

Sales

In the first nine months of 2001, sales decreased $2.3 million, or 2% ($117.3
million in the first nine months of 2001 compared to $119.6 million in the first
nine months of 2000). Sales in the Simulation Group increased $1.7 million, or
2% ($108.3 million in the first nine months of 2001 compared to $106.6 million
in the first nine months of 2000). Sales in the REALimage Solutions Group
declined $2.5 million, or 59% ($1.7 million in the first nine months of 2001
compared to $4.2 million in the first nine months of 2000). Sales in the
Applications Group declined $1.5 million, or 17% ($7.3 million in the first nine
months of 2001 compared to $8.8 million in the first nine months of 2000). Sales
increased in the Simulation Group due to increased sales volume of visual

systems to commercial airline customers, increased sales volumes of the
Company's simFUSION(TM) PC-based image generator, and increased volumes and
prices for service and support. In the first nine months of 2001, sales to the
Company's government customers were impacted by an adjustment to revenue on
percent complete contracts on projects using the Company's Harmony image
generator. The adjustment to revenue on percent complete contracts was due to a
review of the estimated actual cost to complete the contracts and resulted in a
negative adjustment to revenue of $12.5 million. In the first nine months of
2000, sales to the Company's government customers was impacted by two events.
First, Lockheed Martin Corporation cancelled the contract for the delivery of
visual systems to the United Kingdom Ministry of Defence ("UK MOD") for the
Combined Arms Tactical Trainer ("UK CATT") program. Second, sales in the first
nine months of 2000 included an adjustment to revenue on percent complete
contracts where a review of the estimated actual costs to complete on these
contracts resulted in a negative adjustment to revenue of $10.9 million. The
decline in sales in the REALimage Solutions Group is due to the sale of the
group on August 31, 2001 to Real Vision, Inc. as well as the group only
recording nominal sales of current products and delays in the introduction of
new products. The decrease in sales in the Applications Group is due to lower
sales volumes of large format entertainment products and planetarium systems,
which were offset by growing sales of the Company's E&S RAPIDsite real estate
planning tool. In addition, sales in the Applications Group in the first nine
months of 2000 included results from the Company's digital video business, which
was sold to RT-SET in the first quarter of 2000.

Gross Profit

Gross profit increased $8.4 million, or 45% ($27.0 million in the first nine
months of 2001 compared to $18.6 million in the first nine months of 2000). As a
percent of sales, gross profit increased to 23.0% in the first nine months of
2001 compared to 15.6% in the first nine months of 2000. Gross profit in the
first nine months of 2001 benefited from greater sales volumes and gross margins
on sales of visual systems to commercial airline customers and for service and
support. The improved gross margins on sales to commercial airline customers was
due to 2000 having a larger proportion of low margin programs. The improved
gross margins in service and support was due to higher prices being in effect
during the first nine months of 2001. In the first nine months of 2001, gross
profit in the Simulation Group was negatively impacted by an adjustment for
estimated actual costs at completion of contract on percent complete contracts
to government customers on programs using the Company's Harmony image generator
of $15.2 million ($12.5 million as a reduction in sales as discussed previously,
and $2.7 million as an increase in cost of sales relating to contracts with
total estimated actual costs that exceed the contract value). In the first nine
months of 2000, gross profit in the Simulation Group was negatively impacted by
the cancellation of the UK CATT contract resulting in the loss of revenue and
the write-off of obsolete and excess inventory specific to the UK CATT contract.
Gross profit in the REALimage Solutions Group increased as a result of the sale
of the group on August 31, 2001. Gross profit in the Applications Group
increased as the sales mix favored higher margin planetarium systems combined
with the contribution of growing E&S RAPIDsite sales.

Selling, General and Administrative

Selling, general and administrative expenses decreased $2.3 million, or 9%
($24.4 million in the first nine months of 2001 compared to $26.7 million during
the first nine months of 2000). As a percent of sales, selling, general and
administrative expenses were 20.8% in the first nine months of 2001 compared to
22.3% in the first nine months of 2000. Selling, general and administrative
expenses increased in the Simulation Group as higher demonstration equipment
costs, a higher service and support marketing effort and higher bonus accrual
expenses were partially offset by lower advertising and lower labor costs due to
lower headcount. Selling, general and administrative expenses declined in the
Applications Group as lower orders resulted in lower sales commissions and the
impact of the sale of the Company's digital video business in the first quarter
of 2000. The decrease in selling, general and administrative expenses in the
first nine months of 2001 is also partially due to all second and third quarter
operating costs through August 31, 2001 associated with the REALimage Solutions
Group being recorded in the "REALimage transition costs" expense category.
Selling, general and administrative expenses were $25.7 million including these
costs associated with the REALimage Solutions Group, representing a $1.0 million
decrease, or 4%, compared to the $26.7 million incurred during the first nine
months of 2000.

Research and Development

Research and development expenses decreased $10.7 million, or 32% ($22.9 million
in then first nine months of 2001 compared to $33.6 million in the first nine
months of 2000). As a percent of sales, research and development expenses were
19.5% in the first nine months of 2001 compared to 28.1% in the first nine
months of 2000. Research and development expenses in the Simulation Group
declined as a result of lower labor and related expenses as the effort required
on the Company's iNTegrator, Ensemble and PC-based simulation products has
declined. Research and development expenses in the Applications Group declined
in the first nine months of 2001 due to the impact of the sale of the Company's
digital video business in the first quarter of 2000. The decrease in research
and development expenses in the first nine months of 2001 is also partially due
to all expenses through August 31, 2001 associated with the REALimage Solutions
Group being recorded in the " REALimage transition costs" expense category.
Research and development expenses were $26.8 million including these costs
associated with the REALimage Solutions Group, representing a $6.8 million
decrease, or 20%, compared to the $33.6 million incurred during the first nine
months of 2000.

REALimage Transition Costs

REALimage transition costs include all the expenses associated with the
REALimage Solutions Group that were incurred in the second and third quarters of
2001. These costs totaled $5.3 million and were 4.5% of revenues. On August 31,
2001, the Company executed an asset purchase and intellectual property license
agreement to sell the REALimage Solutions Group to Real Vision, Inc. for a
maximum value of $12.3 million. The consideration to the Company consisted of
$4.0 million cash, a receivable for $2.3 million payable in December 2001, and
future royalties payable on a when and if earned basis of up to a maximum of
$6.0 million. The consideration to Real Vision, Inc. consists of REALimage
technology, other assets, and an obligation from the Company to provide
continued development of the REALimage technology during a seven-month
transition period concluding on April 1, 2002. During the nine month period
ended September 29, 2000, no comparable transition costs were incurred.

Restructuring Charge

Gain on the Sale of Business Unit

On August 31, 2001, the Company sold its REALimage Solutions Group to Real
Vision, Inc. and recognized a gain of $0.5 million on the transaction. During
the first quarter of 2000, the Company sold certain assets of the Applications
Group relating to its digital video products business. In the first quarter of
2000, the Company recognized a $1.1 million gain on the transaction. In the
second quarter of 2000, the Company recognized $0.8 million of gain as certain
contingent events were not subsequent to the transaction

Other Expense, Net

Other income (expense), net declined $5.9 million, or 155% (other expense, net
of $2.1 million during the first nine months of 2001 compared to other income,
net of $3.8 million during the first nine months of 2000). As a percent of
sales, the first nine months of 2001 had other expense, net of 1.7% compared to
the first nine months of 2000 which had other income, net of 3.2%. Interest
income was $24,000 during the first nine months of 2001 compared to $0.5 million
for the first nine months of 2000. Interest expense was $1.8 million during the
first nine months of 2001 compared to $0.9 million during the first nine months
of 2000. In the first nine months of 2000, the Company recognized a $6.7 million
gain on the sale of the Company's investment in Silicon Light Machines, Inc. in
which the Company received shares of Cypress stock. There was no such event in

the first nine months of 2001. During 2000, the Company determined that certain
of its investments had incurred an other-than-temporary decline in value and
recorded a loss of $1.9 million. There was no such event in the first nine
months of 2001.

Income Taxes

Income tax benefit of $1.7 million was recorded for the first nine months of
2001 compared to an expense of $19.1 million during the first nine months of
2001. The benefit in the first nine months of 2001 was primarily due to the
favorable audit resolution of certain potential foreign tax liabilities. During
the second quarter of 2000, the Company increased its deferred tax asset
valuation allowance by $20.6 million. As a result of the net operating loss in
the first six months of 2000, the cumulative net operating losses for 2000, 1999
and 1998, and the cancellation of the UK CATT contract, the Company fully
reserved its net deferred tax assets which previously existed at the end of the
second quarter of 2000 and those deferred tax assets recognized during the first
six months of 2000. These net deferred tax assets relate to temporary
differences, tax credit carry forwards and net operating loss carry forwards.
The valuation allowance was recorded in accordance with SFAS 109, which requires
that a valuation allowance be established when there is significant uncertainty
as to the realizability of the deferred tax assets. The Company evaluates the
realizability of the deferred tax assets on a quarterly basis. If the deferred
tax assets are realized in the future, or if a portion or all of the valuation
is no longer deemed necessary, the related tax benefits will reduce future
income tax provisions.

FINANCIAL POSITION

During the first nine months of 2001, total assets decreased $25.2 million
($190.9 million at September 28, 2001 compared to $216.1 million at December 31,
2000). Current assets decreased $17.4 million ($14.3 million at September 28,
2001 compared to $160.7 million at December 31, 2000) as cash, cash equivalents
and restricted cash decreased $7.4 million, receivables decreased $2.1 million,
prepaid expenses and deposits decreased $0.4 million, and costs and estimated
earnings in excess of billings on uncompleted contracts decreased $8.7 million
while inventories increased $1.3 million. The decrease in cash, cash equivalents
and restricted cash was primarily due to the Company using such assets to fund
current operations. The decrease in cost and earnings in excess of billings was
due to less revenue being recognized during the first nine months of 2001 than
billing milestones achieved per the contract terms. Current liabilities
increased $9.8 million ($108.7 million at September 28, 2001 compared to $98.9
million at December 31, 2000) during the first nine months of 2001. Notes
payable increased $22.4 million, accounts payable decreased $7.1 million,
accrued expenses decreased $0.7 million, billings in excess of costs and
estimated earnings on uncompleted contracts decreased $4.9 million, while
customer deposits were essentially unchanged. The increase in notes payable was
due to the Company borrowing to facilitate operating and working capital needs
and the Foothill Facility borrowings being recorded as current debt rather than
long-term. The decrease in accounts payable was due to a reduction in the number
of material suppliers and the balances of those eliminated suppliers were paid
off. Billings in excess of costs declined due to greater revenue being
recognized than billing milestones met on those contracts using percent-complete
accounting.

Long-term debt decreased $7.5 million during the first nine months of 2001
($18.0 million at September 28, 2001 compared to $25.6 million at December 31,
2000). The decrease is due to the Company's Foothill borrowings being classified
as current debt. Redeemable preferred stock was zero at September 28, 2001 and
was $24.0 million at December 31, 2000 as Intel converted all of its preferred
shares to common shares in March 2001. Total stockholders' equity decreased $3.4
million during the first nine months of 2001 ($64.2 million at September 28,
2001 compared to $67.6 million at December 31, 2000). The decrease in total
stockholders' equity was due to the $27.6 million net loss for the first nine
months of 2001 which was partially offset by the conversion of redeemable
convertible preferred stock to common stock by Intel.

LIQUIDITY & CAPITAL RESOURCES

At September 28, 2001, the Company's working capital of $34.6 million included
cash, cash equivalents and restricted cash of $6.5 million, compared to working
capital of $61.8 million at December 31, 2000 including cash, cash equivalents
and restricted cash of $13.9 million. During the first nine months of 2001, the
Company used $23.7 million in its operating activities, generated $1.0 million
from its investing activities and generated $16.2 million from its financing
activities.

The Company's operating cash flow for the first nine months of 2001 was
negatively impacted by a net loss of $27.6 million, offset by $10.4 million in
depreciation and amortization and $2.9 million in provisions and other non-cash
charges, and the use of $8.9 million of the Company's working capital. The
Company's investing activities in the first nine months of 2001 included capital
expenditures of $6.6 million for equipment purchases and building improvements,
offset by $7.6 million from the sale of investment securities and the Company's
sale of its REALimage subsidiary. The Company's financing activities in the
first nine months of 2001 included net borrowings of $14.9 million, proceeds
from issuances of common stock of $0.4 million and a decrease in restricted cash
of $1.0 million.

In December 2000, the Company entered into a secured credit facility (the
"Foothill Facility") with Foothill Capital Corporation ("Foothill"). The
Foothill Facility provides for borrowings and the issuance of letters of credit
up to $30.0 million. The Foothill Facility expires in December 2002. The terms
of the Foothill Facility remain unchanged as described in the Company's Form
10-K for the year ended December 31, 2000. The Foothill Facility expires in
December 2002 and the Overdraft Facility expires on November 30, 2001 (see note
6). The Company is currently in negotiations to extend the Overdraft Facility,
and expects to reach a favorable agreement. With the Foothill Facility, third
quarter results caused the Company to fall short of the third quarter net worth
covenant in that Facility. However, based on fourth quarter projections provided
in advance to Foothill, a waiver was received on October 10. The net worth
covenant is cumulative going forward and the Company's performance in fourth
quarter 2001 is currently projected to fall short as well. As a result of these
factors, the Company reclassified the outstanding borrowings with Foothill from
long-term debt to a current liability.

However, cash generated in fourth quarter 2001 from the Nvidia transaction, the
second installment payment from the Real Vision transaction and cash from
operations is projected to be roughly equal to the outstanding debt balance with
Foothill at the end of third quarter. In light of these factors, management
believes that Foothill is well appraised of our projected financial performance
and will work with the Company, on an ongoing basis, to continue the facility.

As of September 28, 2001, the Company had $20.2 million in outstanding
borrowings and $6.8 million in outstanding letters of credit under the Foothill
Facility. As of November 9, 2001, the outstanding borrowings have decreased to
$13.5 million and the outstanding letters of credit have decreased to $5.9
million.

Evans & Sutherland Computer Limited, a wholly-owned subsidiary of Evans &
Sutherland Computer Corporation, has a $5.0 million overdraft facility (the
"Overdraft Facility") with Lloyds TSB Bank plc ("Lloyds"). As of September 28,
2001, Evans & Sutherland Computer Limited has $2.4 million in outstanding
borrowings under the Overdraft Facility. The Overdraft Facility is subject to
reduction or demand repayment for any reason at any time at Lloyds' discretion
and expires on November 30, 2001. The terms of the Overdraft Facility remain
unchanged as described in the Company's Form 10-K for the year ended December
31, 2000. The Overdraft Facility requires maintenance of certain financial
covenants. Evans & Sutherland Computer Limited is currently in compliance with
the financial covenants. On September 28, 2001, the Company had $1.0 million of
cash on deposit with Lloyds in a restricted cash collateral account to support
obligations that the bank guarantees. As of November 9, 2001, Evans & Sutherland
Computer Limited had a zero outstanding balance against the Overdraft Facility.

As of September 28, 2001, the Company had approximately $18.0 million of 6%
Convertible Subordinated Debentures due in 2012 (the "6% Debentures"). The 6%
Debentures are unsecured and are convertible at each bondholder's option into
shares of the Company's common stock at a conversion price of $42.10 or 428,000
shares of the Company's common stock, subject to adjustment. The 6% Debentures
are redeemable at the Company's option, in whole or in part, at par.

On February 18, 1998, The Company's Board of Directors authorized the repurchase
of up to 600,000 shares of the Company's common stock, including the 327,000
shares still available from the repurchase authorization approved by the Board
of Directors on November 11, 1996. On September 8, 1998, the Company's Board of
Directors authorized the repurchase of an additional 1,000,000 shares of the
Company's common stock. Subsequent to February 8, 1998 through December 1999,
the Company repurchased 1,136,500 shares of its common stock, leaving 463,500
shares available for repurchase as of November 2, 2001. The Company has not
repurchased any shares of the Company's common stock since December 1999. Stock
may be acquired in the open market or through negotiated transactions. Under the
program, repurchases may be made from time to time, depending on market
conditions, share price, and other factors. The Foothill Facility restricts
certain repurchases by the Company of shares of its outstanding stock.

The Company also maintains trade credit arrangements with certain of its
suppliers. The unavailability of a significant portion of, or the loss of, the
various borrowing facilities of the Company or trade credit from suppliers would
have a material adverse effect on the Company's financial condition and
operations. The Company's liquidity for the next twelve months is dependent upon
collection of certain milestone billings.

In the event the Company's various borrowing facilities were to become
unavailable, the Company were unable to timely deliver products pursuant to the
terms of various agreements with third parties, or certain of the Company's
contracts were adversely impacted for failure to meet delivery requirements, the
Company may be unable to meet its anticipated working capital needs, routine
capital expenditures, and current debt service obligations on a short-term and
long-term basis.

The Company's cash and cash equivalents, subject to various restrictions
previously set forth, are available for working capital needs, capital
expenditures, strategic investments, mergers and acquisitions, stock repurchases
and other potential cash needs as they may arise.

TRADEMARKS USED IN THIS FORM 10-Q

E&S, Ensemble, ESIG, Harmony, iNTegrator, RAPIDsite, REALimage and simFUSION 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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risks to which the Company is exposed are changes in
foreign currency exchange rates and changes in interest rates. The Company's
international sales, which accounted for 19% of the Company's total sales in the
three months ended September 28, 2001 are concentrated in the United Kingdom,
continental Europe and Asia. Foreign currency purchase and sale contracts are
entered into for periods consistent with related underlying exposures and do not
constitute positions independent of those exposures. The Company does not enter
into contracts for trading purposes and does not use leveraged contracts. As of
September 28, 2001, the Company had no material sales or purchase contracts in
currencies other than U.S. dollars and had no foreign currency sales or purchase
contracts.

The Company reduces its exposure to changes in interest rates by maintaining a
high proportion of its debt in fixed-rate instruments. As of September 28, 2001,
45% of the Company's total debt was in fixed-rate instruments. Had the Company
fully drawn on its $30 million revolving line of credit with Foothill and its
$5.0 million overdraft facility with Lloyds, 39% of the Company's total debt
would be in fixed-rate instruments.

The information below summarizes the Company's market risks associated with debt
obligations as of September 28, 2001. Fair values have been determined by quoted
market prices. For debt obligations, the table below presents the principal cash
flows and related interest rates by fiscal year of maturity. Bank borrowings
bear variable rates of interest and the 6% Debentures bear a fixed rate of
interest. The information below should be read in conjunction with note 3 of
Notes to the Consolidated Financial Statements in Part I of this quarterly
report.

There- Fair
Debt Rate 2001 2002 2003 2004 2005 after Total Value
------- --------- --------- --------- --------- --------- --------- --------- ---------

Bank Borrowings 11.4% $ 2,530 $ 20,155 $ 108 - - - $ 22,793 $ 22,793
6% Debentures 6.0% - - - - - $ 18,015 18,015 7,927
--------- --------- --------- --------- --------- --------- --------- ---------
Total debt - - - - - $ 18,015 $ 40,808 $ 7,927
========= ========= ========= ========= ========= ========= ========= =========

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Lockheed Martin Corporation v. Evans & Sutherland Computer Corporation (United
States (Middle) District Court (Florida), Case No. 6:00-cv-755-ORL-19C, filed on
May 23, 2000). On January 16, 2001, the Company filed a motion for partial
summary judgement, asking the court to dismiss all of the Lockheed's breach of
contract claims. The court denied that motion on August 30, 2001, citing the
existence of material disputed facts. On September 6, 2001 the court granted
Lockheed leave to amend its complaint, which was filed on September 17. The
Company filed a motion to dismiss these new claims on October 4, 2001, and
Lockheed has opposed it. The court has that motion under advisement. A trial
date is currently set for September 2002, however the Company and Lockheed both
intend to seek an extension of the trial date and related dates, due to the
complexity of discovery. Management of the Company disputes Lockheed's
allegations in the complaint, is vigorously defending the action, and is
vigorously prosecuting its counterclaims. Although management believes the
Company will ultimately prevail in the litigation, an unfavorable outcome of
these matters would have a material adverse impact on the Company's financial
condition and operations.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit No. Exhibit Description

10.1 Asset Purchase and Intellectual Property
License Agreement between Real Vision Inc.
and Evans & Sutherland Computer Corporation,
dated August 31, 2001.

10.2 Initial License Agreement between Real
Vision Inc. and Evans & Sutherland Computer
Corporation, dated August 31, 2001.

10.3 Foothill Covenant waiver for the third
quarter 2001.

10.4 Master Sales Agreement between Evans &
Sutherland Computer Corporation and ATI
Technologies Inc., dated August 27, 2001.

10.5 Software License Agreement between Evans &
Sutherland Computer Corporation and ATI
Technologies Inc., dated August 27, 2001

(b) Reports on Form 8-K

None.

SIGNATURES

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 12, 2001 By: /S/ William M. Thomas
----------------------------------------
William M. Thomas, Vice President,
Chief Financial Officer and Corporate Secretary
(Principal Financial Officer)