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

E&S offers a range of products and services primarily for dome and planetarium theaters in educational institutions, training, and entertainment venues.  These products include state of the art planetarium and dome theater systems consisting of proprietary hardware and software, and other unique visual display systems primarily used to project digital video on large curved surfaces.  We also produce unique show content both for our own library which we license to customers and for specific customer requirements for planetarium and dome theaters. Additionally, we manufacture and install metal domes with customized optical coatings and acoustical properties that are used for planetarium and dome theaters as well as many other unique custom applications. Our dome engineering and manufacturing resources also design and supply geometrically complex structures for customized architectural treatments, often involving curved metal shapes with unique optical and acoustical properties.

We are an industry leader in providing full-dome hardware and software to an international customer base in the digital theater, planetarium, entertainment, training and educational markets.  In each of these markets we face highly competitive conditions where we compete on features, performance, and responsiveness to customer needs as well as on price.  E&S is unique among its competitors by virtue of its capability as a single source that can directly supply and integrate all of the equipment in the planetarium theater, including the projection system, sound, lighting, computer control system and domed projection screen.  We believe our range of visual systems and services at

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various price and performance levels, our research and development investments and capabilities, our responsiveness to customers, and our ability to design and manufacture value-added visual systems enable us to compete effectively. Our competitive strengths with visual systems and services aid the sale of our dome projection screens as customers often require a new dome projection screen with their visual system. We also believe our capabilities to design and manufacture domes and certain other architectural structures are very unique and enable us to compete effectively in all of the markets where these products are sold.

In the digital theater market our products compete with traditional optical-mechanical products and digital display systems offered by GOTO Optical Mfg. Co., Konica-Minolta Planetarium Co. Ltd., Carl Zeiss Inc., and Sky-Skan, Inc. The Company'sCompany’s digital display systems can beare configured with our proprietary projector systems or standard commercial projectors similar to systems sold by our competitors.  Our proprietary Digistar full-dome digital system, along with other customized software tools differentiate our digital theater systems and compete favorably with competitive digital display systems. Our SciDome planetarium system, which uses a dome theater version of a retail desktop astronomy product with curriculum tools for teachers, creates a unique competitive advantage when targeting smaller classroom planetarium theaters.

Our capabilities and products sometimes are used for special advance display applications primarily for wide audiences in specialty theaters and other visitor attractions. This includes the integration of the most advanced video projectors with customized lenses, software and unique application techniques to serve customers who are in search of extraordinary display of visual content. Our competition in these markets includes various specialty audio visual systems integrators and alternative solutions using other technologies.

We consider the timely development and improvement of our technology to be essential to maintain our competitive position and to capitalize on market opportunities.  We continue to fund essentially all research and development ("(“R&D"&D”) efforts internally. 

R&D efforts continue to improve Digistar, our popular full-dome digital system and a key component to our planetarium and dome theater products.  We also explore the possibility of other commercial applications for Digistar technology as opportunities arise. We conduct ongoing R&D to improve the functionality of SciDome to keep pace with updated versions of the desktop software it emulates and to take advantage of the latest digital display and theater technology. Some noteworthy specific R&D activities for our advance display and planetarium products include the development of unique techniques to display three dimensional digital video and the expansion of educational curriculum tools to cover new subject matter in addition to astronomy such as chemistry and earth sciences.  We continue to develop improvements to our dome products including optical coatings and ways to make the projection surface more uniform.  There are also R&D efforts ongoing to enhance components of the systems we sell, such as improvements to theater lighting.

We continually work with the new digital projection technologies to develop advanced visual display systems primarily to be used by wide audiences in specialty theaters and other visitor attractions. This includes the integration of the most advanced video projectors with customized lenses, software and unique application techniques to serve customers who are in search of extraordinary display of visual content.

Most of our current parts and assemblies are readily available through multiple sources in the open market; however, a limited number are available only from a single source.  In these cases, we either stock adequate inventory to cover future product demands, obtain the agreement of the vendor to maintain adequate stock for future demands, or develop alternative components or sources where appropriate.

As of December 31, 2016,2017, Evans & Sutherland and its subsidiaries employed a total of 9196 persons of which 8895 were employed full time. 

We believe our facilities and operations are within standards fully acceptable to the Environmental Protection Agency and that all facilities and procedures are operated in accordance with environmental rules and regulations, and international, federal, state and local laws.

In the normal course of business, we develop and maintain various types of relationships with key customers and technology partners.  The teaming agreements are with industry partners and are intended to improve our overall competitive position.  The product development agreements enhance our products by the cooperative development of new features and capabilities necessary to maintain our industry leading position.

This annual report, including all documents incorporated herein by reference, includes certain "forward-looking statements"“forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, among others, those statements preceded by, followed by or including the words "estimates," "believes," "expects," "anticipates," "plans," "projects," "intends," "predicts," "may," "will," "could," "would," "potential"“estimates,” “believes,” “expects,” “anticipates,” “plans,” “projects,” “intends,” “predicts,” “may,” “will,” “could,” “would,” “potential” and similar expressions or the negative of such terms.  See Item 7 "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” included in Part II of this annual report on Form 10-K for a list of some of the forward-looking statements included in this Form 10-K.

The following sets forth certain information regarding the executive officers of E&S as of December 31, 2016.

Jonathan A. Shaw was appointed Chief Executive Officer and Director in September 2016.  He previously served as President and Chief Executive Officer of Spitz since November 2001. Prior to his appointment as President and Chief Executive Officer of Spitz, Mr. Shaw held various management positions since 1985. 

Paul L. Dailey was appointed Executive Vice President in December 2016. He was appointed Chief Financial Officer and Corporate Secretary in February 2007.  He became an executive officer of E&S in August 2006 when he was appointed Acting Chief Financial Officer and Corporate Secretary.  Prior to his appointments at E&S, Mr. Dailey served as Executive Vice President, Chief Financial Officer and Corporate Secretary of Spitz, where he started as Controller in 1983. Mr. Dailey is a Certified Public Accountant.

Kirk D. Johnson was appointed Chief Operating Officer and President in September 2016.  He previously served as Vice President and General Manager of Digital Theater since January 2002.  He joined E&S in April 1990 and has held various engineering and management positions throughout his service at E&S. 

Our principal executive, engineering, manufacturing and operations facilities are located in the University of Utah Research Park in Salt Lake City, Utah, where we lease two buildings totaling approximately 68,000 square feet.

Spitz owns and occupies an approximately 47,000 square-foot building on approximately 15.2 acres in Chadds Ford, Pennsylvania. The property serves as collateral under Spitz'sSpitz’s debt agreements through a mortgage granted to First Keystone Bank which is now The Bryn Mawr Trust Company, a commercial bank.

In the normal course of business, we may have various legal claims and other contingent matters.  We know of no legal claims outstanding that would have a material adverse effect on our consolidated financial position, liquidity or results of operations.

Not applicable

Our common stock trades on the Over-the-Counter Markets under the symbol "ESCC."“ESCC.”  On March 1, 2017,2018, there were approximately 430 holders of record of our common stock.  Because brokers and other institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

We have never paid a cash dividend on our common stock and have used funds generated internally to operate our business.  For the foreseeable future, we intend to follow our policy of retaining any future earnings to finance the development and growth of our business.

Additional information required by this item is incorporated by reference to the table captioned Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 20162017 in Item 12, "Security“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,"” of Part III of this annual report on Form 10-K.

The table below presents the high and low sales prices per share as reported by the Over-the-Counter Markets, by quarter for 20162017 and 2015.2016. The quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

Not applicable

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition.  The discussion should be read in conjunction with our consolidated financial statements and notes included in Item 8, "Financial“Financial Statements and Supplementary Data,"” of this annual report on Form 10-K.  Information set forth in "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” includes forward-looking statements that involve risks and uncertainties.  Many factors could cause actual results to differ materially from those contained in the forward-looking statements.  See "Forward-Looking Statements"“Forward-Looking Statements” below for additional information concerning these items.

The year ended 2017 produced $30,508 of sales which was less than the $32,944 of sales reported in 2016. The lower sales resulted in a reduction of gross profit in the amount of $1,122 mostly offset by a $860 reduction in operating and other expenses resulting in a $262 decrease of net income from $1,743 in 2016 produced healthyto $1,481 in 2017. Sales in 2017 were slightly less than expected due to the timing of customer orders and deliveries, however, this variability in sales and gross profit down slightly from 2015.are within the normal range for our current business environment. The continueddelay in customer deliveries and healthy sales and gross profit were attributable to strong sales bookings in 2014 through 2016. Thenew orders increased the sales backlog remained healthyto $27,360 as of December 31, 2017 compared to $24,444 at the end of 2016 which supports an encouraging outlook for 2017. Operating expenses decreased from $13,037 in 2015 to $9,721 in 2016; however, both 20152016. The operating and 2016 included certain expenses that are considered to be unusual and non-recurring.  Specifically, 2015 included a $3,620 charge for the settlement of the pension liabilities and 2016 included a severance obligation of a prior executive. With the exception of the pension settlement expense in 2015 and the severance expense in 2016, our operatingother expenses in 2016 were comparable to 2015.2017 are more reflective of our current operating structure reflecting a leaner executive management team implemented in 2016. We believe this reduced cost structure illustrates the profit potential of our business without the burden of the Pension Plan.business. With a leaner executive leadership team and the healthy sales backlog and encouraging sales prospects, we anticipate sales at levels that are expected to yield profitable results in 2017.

Beyond 2018, we expect variable but reasonably consistent future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses and meet our obligations. As our recovery progresses from a large stockholders’ deficit eliminated mainly by the 2014 Pension Settlement, we expect to continue to improve our products and explore new opportunities to increase our sales and profits in an effort to grow shareholder value. We believe that our improving financial position could present more opportunities in this effort.

We intend to pursue new opportunities for our business while we continue to aggressively pursue opportunities indevelop and improve the digital theater and other markets served byproducts that serve our products, as well astraditional markets. We consider the development and improvementadvancement of new innovative products such as Digistar foressential to maintaining our leading share of the planetarium theaters.market. We will continue to develop and improve our planetarium products targeted for smaller venues inmore narrowly focused on education markets such as our SciDome product. We intend to also continue development and improvement of our dome products used by planetarium theaters and many other varied applications.  We intend to continue the production of quality show content for planetarium theaters.  We believe that the ability to include the wide range of complementary products in the systems we sell, along with access to the legacy customer base of E&S and our subsidiary, Spitz, provides a unique competitive advantage.

Sales decreased 7% from 20152016 to 20162017 due to lower sales of planetariumdome products to theme parks which was partially offset by an increase in sales of dome products to theme parks.

Our gross profit percentage was slightly higherlower in 20162017 when compared to 2015.2016.  The lower gross margin percentage in 2015 was affected by higher than expected costs to complete two2017 resulted from lower gross profit contributions on theme park projects which was mostly offset by improvements in contributions from planetarium projects.

The following table summarizes our operating expenses during the years ended December 31:

Research and development expenses were slightly higher in 20162017 compared to 2015.2016.  This was primarily due to redirecting resources from sales and marketing activities and the delivery of customer projects to research and development activities. Research and development activities consisted of exploration of new applications for our products, improvements to the software in our planetarium products, testing hardware to project high definition video on large dome screens, development of a graphical user interface device for dome theaters, improvements to theater lighting, testing of optical coatings for projection surfaces and developing techniques to make dome projection surfaces more uniform.

Pension expense was lower in 2016 compared to 2015 due to the termination of the Pension Plan in the second quarter of 2015. With the termination of the Pension Plan, the pension expense in 2016 and going forward is entirely the expenses attributable to our Supplemental Executive Retirement Plan ("SERP"(“SERP”).

The following table summarizes our other expense during the years ended December 31:

Interest expense in 20162017 and 20152016 consisted principally of imputed interest on the Pension Settlement Obligation. Interest expense also included interest paid on real estate debt in both years presented. Interest expense decreased in 2017 due to the reduction of debt and is expected to becontinue to decrease at a comparable rate in future years.

Other income (expense), net changed from expense of $6 in 2016 to 2016.

The following table summarizes our cash flows for the years ended December 31:

The fluctuation in the annual increase and decrease in cash and cash equivalents increased $3,089is mainly due to $6,823 during 2016, due primarilycash used in operating activities.

Operating Activities

The net cash used in operating activities in 2017 was attributable to an increase in working capital of $2,947 less $1,849 of cash provided by operating activities.

Investing activities used $174 of cash during 2016 consisting entirely of purchases of property and equipment.

Financing Activities

Financing activities used $173$592 of cash during 20152017 consisting entirely of purchases of property$211 for principal payments on debt obligations and equipment.

Financing activities used $484 of cash during 2016 consisting of $199 for principal payments on debt obligations, $356 for principal payments on the Pension Settlement Obligation andoffset by $71 in proceeds from the exercise of options.

Our Board of Directors has authorized the repurchase of 1,600,000 shares of our common stock.  As of February 15, 2017,22, 2018, 463,500 shares remained available for repurchase under the plans approved by the Board of

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Directors.  No shares were repurchased during 20162017 or 2015.2016.  Stock may be acquired on the open market or through negotiated transactions depending on market conditions, share price and other factors.

The effects of inflation were not considered material for the years 20162017 and 2015,2016, and are not expected to be material for the year 2017.

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

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

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

Inventories include materials at standard costs, which approximate actual costs, and inventoried costs on programs, including material, labor, subcontracting costs, as well as an allocation of indirect costs.  We periodically review inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and then provide a reserve we consider sufficient to reduce inventories to net realizable values.  Reserve adequacy is based on estimates of future sales, product pricing, and requirements to complete projects.  Revisions of these estimates would result in adjustments to our operating results.

We specifically analyze accounts receivable and consider historical experience, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and changes in payment terms when

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evaluating the adequacy of the allowance for doubtful accounts receivable.  Changes in these factors could result in material adjustments to the expense recognized for bad debts.

As part of the process of preparing our consolidated financial statements, we are required to estimate our actual income taxes in each of the jurisdictions in which we operate.  This involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatments of items, such as accrued liabilities, for tax and accounting purposes.  These differences result in deferred income tax assets and liabilities, which are included in our consolidated balance sheets.  We must then assess the likelihood that our deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance.  To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must include a corresponding adjustment within the income tax provision in the statement of comprehensive income (loss).income.  Significant judgment by management is required to determine our provision for income taxes, our deferred income tax assets and liabilities and any valuation allowance recorded against our net deferred income tax assets.

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the carrying values of the assets may not be fully recoverable. When this occurs, we review the value assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate.  When the expected future undiscounted cash flows from these assets do not exceed their carrying values, the Company determines the estimated fair value of such assets. Impairment is recognized to the extent the carrying values of the assets exceed their estimated fair values.  Assets held for sale are reported at the lower of their carrying values or fair values less costs to sell.

The foregoing contains "forward-looking statements"“forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including among others, those statements preceded by, followed by or including the words "estimates," "believes," "expects," "plans," "projects,"“estimates,” “believes,” “expects,” “plans,” “projects,” and similar expressions.

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These forward-looking statements include, but are not limited to, the following statements:

·Our belief that our range of products and services at various price and performance levels, our research and development investments and capabilities, and our ability to design and manufacture products will enable us to compete effectively. 

·Our belief that our facilities and operations are within standards fully acceptable to the Environmental Protection Agency and that all facilities and procedures are operated in accordance with environmental rules and regulations, and international, federal, state and local laws. 

·Our belief that our existing sources of liquidity, including marketable securities, will provide sufficient liquidity to meet our obligations through 2018 and beyond. 

·Our belief that our ability to include the wide range of complementary products offered by E&S and Spitz in the systems we sell, along with access to the legacy customer base of E&S and Spitz, provides a unique competitive advantage.  

·Our expectations for variable future sales and gross profits from our current product line at annual levels sufficient to cover or exceed operating expenses.   

·Our belief that an improved financial position may present business growth opportunities.  

·Our belief that any potential shortfalls in our forecasted revenues would be within a range whereby we could reduce variable costs in order to meet our 2018 obligations. 

·Our belief that the business cost structure creates the potential for long-term profitability. 

·Our belief that capital expenditures during 2018 will be similar to the capital expenditures incurred during 2017. 

·Our belief that the effects of inflation will not be material for 2018. 

·Our belief that approximately 90% of our backlog will be converted to sales in 2018.  

·Our belief that our 2017 orders will continue at a level sufficient to recognize sales in 2018 comparable to 2017. 

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.  Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.  Our actual results could differ materially from these forward-looking statements.  Important factors to consider in evaluating such forward-looking statements include risks of product demand, market acceptance, economic conditions, competitive products and pricing, difficulties in product development, and product delays.  In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this annual report will, in fact, occur.

The Company tests its recorded goodwill for impairment on an annual basis during the fourth quarter, or more often if indicators of potential impairment exist, by determining if the carrying value of each reporting unit exceeds its estimated fair value. Factors that could trigger impairment include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the Company'sCompany’s overall business and significant negative industry or economic trends. Future impairment reviews may require write-downs in the Company'sCompany’s goodwill and could have a material adverse impact on the Company'sCompany’s operating results for the periods in which such write-downs occur.

E&S amortizes the cost of intangible assets over their estimated useful lives. Amortizable intangible assets are reviewed at least annually to determine whether events and circumstances warrant a revision to the remaining period of amortization. Amortization expense was $27 and $41 for the yearsyear ended December 31, 2016, and 2015, respectively.