Use these links to rapidly review the documentEVANS & SUTHERLAND COMPUTER CORPORATION FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the Fiscal Year ended December 31, 2003                  
|o                                                             | 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

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EVANS & SUTHERLANDCOMPUTER CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

|Utah(State or Other Jurisdiction of
Incorporation or Organization)            |  | 87-0278175(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------------- |  | ----------------------------------------------
|600 Komas Drive, Salt Lake City, Utah(Address of Principal Executive Offices) |  | 84108(Zip Code)                               
|Registrant's telephone number, including area code:(801) 588-1000            
|Securities registered pursuant to Section 12(b) of the Act:                  
|"None"                                                                       
|Securities registered pursuant to Section 12(g) of the Act:                  

| |  | Title of Class                                                                                  |  | 
| |  | ----------------------------------------------------------------------------------------------- |  | 
| |  | Common Stock, $.20 par value
6% Convertible Debentures Due 2012
Preferred Stock Purchase Rights |  | 

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 ý    No o

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of the voting and non-voting Common Stock held by non-affiliates of the registrant as of June 27, 2003,
the last business day of the registrant's most recently completed second fiscal quarter was approximately $27,165,816 based on the closing market price of the Common Stock on such date as reported by
The Nasdaq Stock Market.

The
number of shares of the registrant's Common Stock outstanding at February 27, 2004 was 10,486,637.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2004 Annual Meeting of Shareholders to be held on May 18, 2004, are incorporated by reference into
Part III hereof.



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EVANS & SUTHERLAND COMPUTER CORPORATION  FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2003



|PART I   |            |                                                
|-------- | ---------- | -----------------------------------------------
|         | Item 1.    |                                                
|         | Item 2.    |                                                
|         | Item 3.    |                                                
|         | Item 4.    |                                                
|PART II  |            |                                                
|         | Item 5.    |                                                
|         | Item 6.    |                                                
|         | Item 7.    |                                                
|         | Item 7A.   |                                                
|         | Item 8.    |                                                
|         |            | Report of Independent Accountants              
|         |            | Consolidated Balance Sheets                    
|         |            | Consolidated Statements of Operations          
|         |            | Consolidated Statements of Comprehensive Loss  
|         |            | Consolidated Statements of Stockholders' Equity
|         |            | Consolidated Statements of Cash Flows          
|         |            | Notes to Consolidated Financial Statements     
|         | Item 9.    |                                                
|         | Item 9A.   |                                                
|PART III |            |                                                
|         | Item 10.   |                                                
|         | Item 11.   |                                                
|         | Item 12.   |                                                
|         | Item 13.   |                                                
|         | Item 14.   |                                                
|PART IV  |            |                                                
|         | Item 15.   |                                                
|         | Signatures

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PART I

ITEM 1. BUSINESS

The financial data in this Annual Report on Form 10-K for the first three quarters of 2003 has been restated from amounts previously reported.
A discussion of the restatement in relation to the affected quarters of 2003 is provided in Note 3 of the Notes to Consolidated Financial Statements. An overview of the restatement is also
provided in Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

Evans & Sutherland Computer Corporation ("Evans & Sutherland", "E&S®", "we", "our", or "the Company") produces high-quality
visual systems used to display computer-generated images of the real world rapidly and accurately. With a 35-year history in computer graphics, E&S is widely regarded as both a pioneer and
leader in providing the world's most realistic visual systems. We design, manufacture, market and support visual systems to provide simulation training for a wide range of military and commercial
applications. We also provide visual systems for planetariums, science centers, and entertainment venues. Our products use a wide range of hardware, from desktop personal computers (PCs) to what we
believe are the most advanced image generation and display components in the world.

E&S
was incorporated in the state of Utah on May 10, 1968. Our principal offices are located at 600 Komas Drive, Salt Lake City, Utah 84108, and our telephone number is
(801) 588-1000. Through a link on our Web site,www.es.com, we make available, free of charge, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after
such material is electronically filed with or furnished to the SEC. We make our Web site content available for informational purposes only. The information provided on our Web site is not incorporated
by
reference into this Form 10-K. The above reports and other information are available, free of charge, atwww.sec.gov. Alternatively,
the public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330.

For
more than 30 years, we have had a significant share of the overall market for visual systems. We believe our market share has ranged from 20% to 50%. The market for simulation
visual systems varies from year to year, but we have estimated that it is generally in the range of $300 million to $500 million annually. Many visual system providers serve this market,
but our most significant competitors are companies that build the entire simulator. These companies sometimes choose to follow a strategy of vertical integration by providing their own visual systems.
Other competitors include a number of smaller companies that generally offer components rather than complete visual systems. In addition, large contractors and system integrators sometimes build
visual systems from components available in the open market.

E&S
visual systems are extremely important components of a complete simulator because the visual system is the most critical element in creating a realistic immersive
environmentthe visual system is, by definition, "what you see." Most E&S visual systems are used as part of vehicle simulators, which are models of actual vehicles, such as aircraft
cockpits. These simulators are used for training operators as well as for practicing tactics or strategy, which may require the coordinated operation of multiple simulators. Simulators are used in
both commercial and military settings and include all types of vehicles operating in space, air, ground, sea or undersea locations. The simulator itself may be built by one of many companies, often
the same company that built the actual vehicle.

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We
also produce digital planetarium systems, which are based on the same technology as our products for simulation. These systems are essentially simulators of the larger universe, and
can create simulated trips through other worlds, or through parts of our own world not accessible to real vehicles.

Visual
systems are made of three major components: a visual computer, a display and a visual database. E&S designs and manufactures all of these components at varying prices and
performance levels.

The
computer portion of an E&S visual system is made of hardware and software, which is either designed and manufactured by us or is based on commercially available components. The
hardware may be as simple as a standard PC with a commercial graphics card, or as complex as a connected system of multiple racks of sophisticated electronics. The software takes advantage of
commercially available programs (such as Microsoft Windows) where possible, augmenting them with E&S-designed software to achieve the required image quality, functionality, and system
performance.

The
displays offered by E&S also cover a broad range, from standard computer monitors, to domes (as large as 24 meters in diameter), to cockpit-type displays with complex
mirrors and other optics. The image may be projected by different types of equipment, including multiple projector types.

Visual
databases are an important and growing part of our business. The visual database is the "content" that the system will display. Most customers have a desire for more content
(visual databases) to enhance the richness and variety of their training and simulations. In addition, visual databases are finding new applications in mission planning, damage assessment,
intelligence and other highly-time-sensitive defense and homeland security initiatives. We have developed a sophisticated set of tools to make the development of databases more
efficient and less costly, whether built by E&S or by others. E&S has an extensive library of databases, including airports, vehicles, large geographic areas, oceans, and seas with accurate wave
dynamics, and special effects.

All
E&S products are supported by an extensive R&D program as well as innovative, customer-tailored service and support. These programs, as well as specific E&S products, are discussed
in the Description of Products section of this report.

Description of Products

E&S offers a full range of visual system products for simulation, strategic visualization and digital theaters. These products are available either as complete
systems or subsystems and can include system integration and installation service and support.

Image Generators

Image generators (IGs) create computer-generated real-time images and send these images to display devices, such as projectors or computer monitors.
Primary IG offerings span the full range of price and performance, and simulation of all types of sensors is available, often configured as a separate IG, for nearly all E&S IG products. IGs are used
for military and commercial training simulation, strategic visualization and digital theater applications.

Our
high-end products include, EP-1000CT, EPX-5000, Harmony® 2 and ESIG® products.
EP-1000CT and EPX-5000 are based on E&S's Environment Processor (EP) software. EP offers a revolutionary approach to the way visual databases are created, updated,
and stored, and it is equipped with a whole-earth database model as part of the standard offering. Unlike traditional systems that use separate databases of specific, contained areas, this whole-earth
model provides customers with a trainable database of the entire world, an excellent advantage for long-range flight training. EP-1000CT, introduced in 2002, is designed for
commercial airline training and other simulation applications that require turnkey visual systems. EP-1000CT was certified Level D by the Joint Aviation Authority ("JAA") in 2003.
EPX-5000, introduced in late 2003, is the top of the line of our EPX (Environment

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Processor
Technology with Military Extensions) products. EPX-5000 has all the features of the EP-1000CT along with additional functionality required for military training, such
as sensor simulation. EPX-5000 shares a common hardware platform with the other E&S high-end image generators, the Pixel Engine-1. Harmony 2, another
of our high-end offerings, operates on our Integrator software but uses the same hardware as the EPX-5000. Typical applications include fast jet and helicopter training.

The
ESIG image generator family has been sold worldwide in both the military and commercial markets for more than a decade. The ESIG product line was one of the most popular IGs in the
history of the simulation industry, and continues to operate successfully in thousands of applications, often with E&S service and support. We still supply ESIGs to allow our customers to maintain
compatibility with installed systems.

Our
mid-range products include EPX-500 and RenderBeast. EPX-500, based on the same EPX technology as the EPX-5000, runs on
our simFUSION value-added PC IG. EPX-500 is extremely scalable, allowing customers a variety of configurations and price points. RenderBeast, introduced in 2003, is aimed at the design
visualization market. RenderBeast is made of a rack of simFUSION® image generators and application specific software that allows engineers and designers to create immersive visualizations
of their designs.

Our
low-cost IGs include the simFUSION product family and the EPX-50. The simFUSION value-added PC IG family of products was introduced in 1999. The product's
newest version, the simFUSION 6500, we believe offers the best simulation performance for its price. EPX-50 was designed for price-sensitive simulation applications and offers the features
of EPX software running on a commercially available PC and a commercially available graphics accelerator board. A true image generator, EPX-50 provides customers with the most realistic
scene fidelity, image quality, and performance available using consumer graphics boards.

Our
Digital Theater products include Digistar® 3, Digistar 3 SP, and Digistar II. Digistar 3 is designed for planetariums and domed theaters. It combines a complete color
star projection and astronomy package with a fully interactive, real-time 3D computer graphics system (image generator) adding all-dome video playback and digital surround
sound. Digistar 3 offers planetariums another unique advantageit can interact in real time with large audiences. Digistar 3 SP uses the same hardware and software as Digistar 3 projected
through a single DLP projector at lower resolution for domes 30 feet in diameter and smaller. Digistar II, a monochrome digital planetarium system, is still offered and supported.

Display Systems

Display systems consist of projectors, display screens, computer monitors and specialized optics. We offer these display systems in a broad range of
configurations, from onboard instrument displays to domes offering a 360-degree field of view, depending on the application. Our fully integrated systems include full dome mosaics,
collimated displays, rear projection systems, and retrofits and upgrades. Our display system products include the ESCP® family of calligraphic projectors, the TargetView®
family of target projectors, and the VistaView® head-tracked area-of-interest projector. In addition E&S offers supplemental display functions, such as
head trackers, night vision goggles, distortion correction and edge blending.

In
2003, we delivered the first-generation prototypes of our new laser based projector. This projector uses lasers and grating light valves to create images with unprecedented
resolution, brightness, contrast and color. In 2004, we plan to build the next generation of prototypes as well as plan to begin delivery of production laser projectors. The first deliveries will go
to the United States Air Force and to customers in the digital theater market, then to our other markets in 2005.

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Visual Databases, Tools, and Content

We offer a full complement of database (often referred to as synthetic environments) products and services. In addition to development of new databases, we will
update existing databases created by E&S or other companies. We offer a complete set of correlated databases in a variety of industry-standard formats. In addition, E&S has an extensive library of
models and textures that includes the majority of the world's major airports and military airfields. We also provide database training and support. In addition, we have an extensive library of shows
and show content for our digital theater market. These databases and shows constitute a significant competitive advantage for us.

In
2003, we introduced our EP and EPX software technology (described below). An extremely important part of this software is the way the software handles the visual databases used to
depict the real world. In the past, simulation systems (including those built by E&S) prepared the visual database by first collecting all the needed source data (such as imagery, elevation data,
features such as roads and buildings, moving models, etc.), then compiling all this data into a single database to be used by the image generator. The compilation step was difficult and generally
lengthy, and resulted in a form that was proprietary to the specific hardware for which it was designed. It was difficult to make any changes in this database, since a change would require that the
entire process of compilation be started again.

In
contrast, with EP and EPX, we have launched a revolutionary new way to build and distribute the visual database. As before, the first step is still to collect source data. However,
these source materials are not compiled into a single final form. Instead, the individual source elements are kept in their original form and stored in separate files. The EP or EPX software, running
on IG hardware, then assembles the source components in real time to create the image just as it is being viewed. In using this method, a "database" is actually a correlated set of source data, not a
single, pre-assembled entity.

We
believe this approach provides several significant benefits to our customers. First, it is very easy to make changes and update data, since new information can simply be inserted into
the relevant files. The EP or EPX system will identify the new information and use it in the simulation as needed. Second, our customers receive the actual source data, and with appropriate licensing
can use it with other systems that they may already have, since it is delivered in standard open formats.

Finally,
all EP and EPX systems are shipped with a whole-earth database already in place. Customers can begin using this database immediately. Later, they can add inserts with more
details or with special qualities for any geography of special interest or training value. Each additional area of interest simply adds to the whole-earth background already in place with the system.
Airports, military landing sites, mission-rehearsal zones and other items of interest can be added quite simply as inserts in this way.

Complete Training Solutions

We develop complete custom training solutions, such as the Mission Command Trainer (MCT) now in training for the United Kingdom's School of Army
Aviation (Aviation Command and Tactics Trainer, ACTT). MCT is a low-cost tactics simulator that provides realistic command training, mission planning, and mission rehearsal in a virtual
environment against an intelligent virtual enemy.

Customer Support Services

Customer support services are offered to prime contractors, system integrators and military and commercial end-users. Our service and support product
offerings include a customized support package, called EncoreSM, which provides complete maintenance, spares and round-the-clock technical support;
SimTech Training, which provides training to customers' simulation technicians and engineers; and computer-based training.

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Description of Markets

We operate as one business; providing visual simulation solutions to an international customer base. Our customer base can be categorized into four customer
markets: military simulation, commercial simulation, digital theater and strategic visualization.

Military Simulation

We are an industry leader in providing visual systems to government simulation customers, offering tailored solutions to meet a full range of training
requirements. We offer a complete line of products, from low-cost desktop solutions to highly advanced visual systems, to the domestic and international military simulation market. In
addition, we offer complete training solutions for tactical command and air traffic control, database development services, custom display systems, and long-term service and support.

The
military simulation market has continued to shrink as funds have been and continue to be diverted to immediate military requirements. As a result, we project this market to remain
flat at least for the next year, and then expect to see growth in 2005.

During
2003, we launched a new visual system product line for military simulation, EPX. EPX is Environment Processor (EP) Technology with Military Extensions. Already in training for
commercial aviation applications, EP offers customers unprecedented value, flexibility and reliability. EPX is available in our high-end, mid-range and low cost IG products,
EPX-5000, EPX-500 and EPX-50. The EP and EPX systems are the only software products in the simulation industry that can run across a full range of hardware
platforms, using the same software and the same databases. This commonality offers customers the significant capability to exactly match hardware performance and cost to their specific application,
and to mix different platforms in a total system while maintaining software, database and training commonality.

EPX
features rapid database creation and update, a whole-earth model with high-resolution insets, host compatibility with our ESIG system, revolutionary environment creation
tools, legacy database compatibility, and a common sensor architecture. EPX is already gaining market acceptance worldwide.

Early
in 2004, we announced that the U.S. Army has chosen the EPX-50 system for the Close Combat Tactical Trainer (CCTT) visual upgrade program. CCTT is one of the largest
simulation programs ever fielded, using the E&S ESIG image generator for nearly 450 simulators for ground warfare operations. The EPX-50 will offer the U.S. Army increased performance and
lower cost, while assisting in their transformation objectives to use standardized hardware to reduce costs over time.

We
continue to market and sell other visual systems products in this market, including Harmony 2, simFUSION and ESIG, along with a variety of display systems solutions.

Commercial Simulation

E&S supplies visual systems to the world's commercial airlines, airframe manufacturers, and independent training providers for pilot training. Developed to meet
the exacting statutory requirements of the world's civil aviation authorities, we believe our commercial simulation products have an excellent reputation for quality, reliability and innovation.

During
2003, commercial airlines reduced their purchases of new aircraft compared to prior years. This resulted in a reduction in the number of new simulators required for training.
However, many airlines are upgrading their installed simulators as a cost-effective way to improve training at minimal additional cost. Due to our large share of the installed base of
visual systems in this market and because our EP products provide an attractive upgrade path, we have benefited from significant upgrade activity. In 2003, we were successful in securing contracts for
both new simulators and

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upgrades
from customers that include Lufthansa, Air France, Southwest Airlines, Emirates, Federal Express, GECAT, Alteon and CHC. We project this market to remain flat with expected market recovery to
occur sometime in 2005.

EP-1000CT
received its first JAA Level D certification in May of 2003, and an additional nine systems were certified before the year ended. In 2003, we received an order for
an EP-1000CT visual system for a helicopter simulator. This will be the first application of EP-1000CT for this very demanding form of pilot training.

Digital Theater

E&S uses state-of-the-art visual simulation technology to provide one of the world's most advanced digital theater systems for
planetariums, science centers and themed entertainment venues. During 2003, the digital theater market grew and our products gained market share. We expect a rebounding worldwide economy and project
funding increases to continue to drive the digital theater market growth into 2004. We believe that the Digistar 3 Laser now being introduced to this market also has the potential to broaden the
market and increase our market share.

Sales
of Digistar 3 products in 2003 were strong, with Digistar 3 now sold to or installed in 25 locations around the world. Key wins for Digistar 3 included new installations at
planetariums in Hamburg and Kiel, Germany and the Eugenides Foundation in Athens, Greece, which will be open for the 2004 Summer Olympics.

E&S
continues to produce and license show content for Digistar customers. E&S also introduced the Digistar 3 Laser to the science center and planetarium community late in
2003. This product was well received, and we expect to receive orders for the first Digistar 3 Laser systems early in 2004.

Strategic Visualization

In 2002, we began leveraging our simulation technologies and capabilities to address the emerging market for defense, intelligence and homeland security
visualization applications. Using our EP technology, we are developing strategic databases, which are special forms of visual databases built to allow visualization of a geographic area for mission
planning, mission preview, damage assessment and other time-sensitive applications.

In
2003, we received a 3-year contract from the Navy's Defense Modeling and Simulation Office to conceptualize, create, and test an architecture and process that will enable
imagery and sensor data from disparate sources to be rapidly validated, correlated, distributed and displayed in a standard format. In addition, we provided this visualization technology to ABC News
for its coverage of the war in Iraq.

Competitive Conditions

The primary competitive factors for our visual simulation products in the military, commercial and strategic visualization markets are performance, price,
service, and product availability. Many of our competitors in the military and commercial simulation markets, not only provide visual systems, they also build entire simulators and may sometimes
choose to follow a strategy of vertical integration by providing their own visual system. Such competitors include Boeing, CAE and Lockheed Martin. Other prime contractors that offer competing visual
systems are Flight Safety International and Thales Training and Simulation. Due to these competitive forces, we constantly strive to improve our products in order to offer the best performance
possible at a competitive price. We believe our range of products at different price points and performance points, our research and development investments and our ability to design and manufacture
value-added parts when not available as commercial parts enable us to compete effectively in this environment and will continue to do so in the foreseeable

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future.
In the military simulation market, we compete primarily with Lockheed Martin Training Systems, CAE and Quantum 3D. In the low-cost, PC-based market, our simFUSION
product competes against companies that focus on PC simulation using graphics accelerator cards. In the commercial simulation market we compete primarily with CAE. In the strategic visualization
market we compete primarily with General Dynamics, BAE and Northrop Grumman.

The
primary competitive factors in the digital theater market are functionality, performance, price, and access to customers and distribution channels. Our digital theater products
compete with traditional
optical-mechanical products and digital display systems offered by Konica-Minolta Planetarium Co. Ltd., GOTO Optical Mfg. Co., Carl Zeiss Inc., Spitz, Inc. and
Sky-Skan, Inc.

Backlog

On December 31, 2003, our backlog was $65 million compared with $60 million on December 31, 2002. The 2003 ending backlog contains
$9.8 million of government firm, unfunded orders. All government orders included in the 2002 year ending backlog were firm and funded orders. We anticipate that approximately
two-thirds of the 2003 backlog will be converted to sales in 2004.

Significant Customers

Worldwide customers using E&S products include U.S. and international armed forces, aerospace companies, most major airlines, laboratories, museums, planetariums,
and science centers. We measure and identify our significant customers based on direct sales. We no longer measure significant customers based on indirect sales through subcontractors or prime
contractors. While we no longer measure indirect sales, the U.S. government and the United Kingdom Ministry of Defence have been considered significant customers based on indirect sales in prior
years.

In
2003, direct sales to the U.S. government totaled $15.2 million or 18% of total sales, sales to Thales Training & Simulation Ltd. totaled $7.2 million or
9% of total sales, and sales to The Boeing Company totaled $3.3 million or 4% of total sales.

In
2002, direct sales to the U.S. government totaled $35.4 million or 29% of total sales, sales to Thales Training & Simulation Ltd. totaled $19.8 million or
16% of total sales, sales to The Boeing Company totaled $17.1 million or 14% of total sales, and sales to Lockheed Martin Corporation totaled $2.9 million or 2% of sales.

In
2001, sales to the U.S. government totaled $35.1 million or 24% of total sales, sales to Thales Training & Simulation Ltd. totaled $23.9 million or 16% of
total sales, sales to The Boeing Company totaled $15.1 million or 10% of total sales, and sales to Lockheed Martin Corporation totaled $1.8 million or 1% of sales.

Seasonality

We believe there is no inherent seasonal pattern to our business. Sales volume fluctuates quarter-to-quarter due to relatively large and
nonrecurring individual sales and customer driven shipping dates.

Intellectual Property

We own a number of patents and trademarks and we are a licensee under several others. Our portfolio of patents and trademarks is, as a whole, material to our
business. However, no one piece of intellectual property is critical to our business, thus no individual piece of our intellectual property is discussed on its own. In the U.S. and internationally, we
hold active patents that cover many aspects of our visualization technology. Several patent applications are presently pending in the U.S., Japan and several European countries, and other patent
applications are in preparation. We actively pursue

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patents
on our new technology and we intend to vigorously protect our patent rights. We routinely copyright software, documentation and chip masks designed by us and institute copyright registration
for such software, documentation and masks when appropriate.

Research & Development

We consider the timely development and introduction of new products to be essential to maintain a competitive position and to capitalize on market opportunities.
Our research and development expenses were $21.7 million, $26.0 million and $32.8 million, in 2003, 2002 and 2001, respectively. As a percentage of sales, research and development
expenses were 26%, 21% and 23%, in 2003, 2002 and 2001, respectively. We continue to fund essentially all research and development efforts internally. We anticipate that high levels of research and
development will be needed to continue to ensure that we maintain our technical excellence, leadership and market competitiveness.

As
planned, E&S completed the next-generation civil airline product, EP-1000CT, enhanced the simFUSION PC image generator product line, and completed the
development of an improved in-line calligraphic projector in 2003. We also leveraged our EP technology for military applications, resulting in the EPX product line. This development
included the development of our PC image generator products EPX-50 and EPX-500, which are based on the EPX software architecture. Also, the associated
toolset to complement these products, Environment Creation Tool (ECT), was initiated in 2003. We anticipate completion of these products and toolset in 2004.

Another
focus for our R&D over the past five years has been the development of what we believe is a revolutionary new type of projector. This projector uses lasers and grating light
valves to create images with unprecedented resolution, brightness, contrast and color. We developed several prototypes of the laser projector in 2003, including deliveries to the U.S. Air Force. The
prototypes used first-generation components to provide proof-of-concept and allowed us to gather data on the applications and reliability of the grating light valves, the
lasers, and the electronic components. In 2004, we anticipate we will complete the second generation of the laser projector, and plan to begin delivery of production-ready laser projectors. In
addition, in 2004 we anticipate we will develop additional display applications for the laser projector, including planetariums and wide displays used in commercial airline and military simulation
applications.

Dependence on Suppliers

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

International Sales

International sales are calculated based on the location of the purchasing customer and were $45.2 million, $48.4 million, and $49.5 million
in 2003, 2002 and 2001, respectively. International sales represented 53%, 39% and 34% of total sales in 2003, 2002 and 2001, respectively. We believe that any inherent risk that may exist in our
foreign operations is not material. For additional information on our international sales and long-lived assets by location, see Note 21 of Notes to Consolidated Financial
Statements included in Part II of this annual report.

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Employees

As of February 27, 2004, Evans & Sutherland and its subsidiaries employed a total of 364 persons compared to 500 employees as of February 28,
2003. We believe our relations with our employees are good. None of our employees is subject to collective bargaining agreements.

Environmental Standards

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

Strategic Relationships

In the normal course of business E&S develops and maintains various types of relationships with key customers and technology partners. These relationships include
joint technology and product development agreements, research and development agreements, joint marketing agreements, teaming and joint venture agreements, value-added reseller agreements and original
equipment manufacturer agreements. These agreements are of necessity somewhat dynamic in nature to enable us to rapidly address changes in market and customer needs and leverage key trends in related
technology areas. It is anticipated that this philosophy will continue in 2004, and agreements will be continued or consummated as necessary to maintain our industry leading position.

Acquisitions and Dispositions

Pursuant to our most recent quarterly report filed on November 7, 2003, we announced our execution of an agreement to sell one of our buildings for
$8 million. The agreement required that we close on the sale no later than December 29, 2003; however, pursuant to the terms of the agreement, the potential buyer elected to terminate
the agreement on December 2, 2003, and we did not sell the building. We continue to market the property to prospective buyers.

Business Subject to Government Contract Renegotiation

A significant portion of the visual simulation business is dependent on contracts and subcontracts associated with government business. The U.S. Government, and
other governments, may terminate any of our government contracts and, in general, subcontracts, at their convenience as well as for default based on lack of performance. If any of our government
contracts were to be terminated for convenience, we generally would be entitled to receive payment for work completed; work performed, but not completed; allowable termination or cancellation costs;
and a negotiated profit for work performed, but not completed. Depending on the contract, if such an event was to occur, it could materially affect our sales, profits, and cash flow. Historically, our
experience indicates that termination for convenience is a rare occurrence.

Upon
termination for convenience of a fixed-price type contract, we normally are entitled, to the extent of available funding, to receive the purchase price for delivered items,
reimbursement for allowable costs for work-in-progress and an allowance for profit on the contract or adjustment for loss if completion of performance would have resulted in a
loss. Upon termination for convenience of a cost reimbursement contract, we normally are entitled, to the extent of available funding, to reimbursement of allowable costs plus a portion of the fee.
The amount of the fee recovered, if any, is related to the portion of the work accomplished prior to termination and is determined by negotiation.

U.S.
government contracts also are conditioned upon the continuing availability of congressional appropriations. Long-term government contracts and related orders are subject
to cancellation or restructuring if appropriations for subsequent performance periods become unavailable or are reduced from planned levels. Congress usually appropriates funds on a
fiscal-year basis even though contract performance may extend over many years. Consequently, at the outset of a program, a contract may be partially funded, and Congress determines the
annual appropriations and authorizations for subsequent fiscal-years in a multi-year contract.

11

---



Restructuring

In the first quarter of 2003, we restructured to reduce our operating costs in line with anticipated sales. As part of this restructuring, we recorded a charge of
$1.3 million related to a reduction in force of approximately 50 full-time equivalent employees. In the third quarter of 2003, we restructured to reduce our operating costs in order
to operate profitably going forward based on projected sales and expenses. As part of this restructuring, we recorded a total charge of $2.1 million, related primarily to a reduction in force
of approximately 70 full-time equivalent employees. We estimate that these restructurings will reduce expenses approximately $7.5 million per year going forward

Forward-Looking Statements and Associated Risks

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

ITEM 2. PROPERTIES

Evans & Sutherland's principal executive, engineering, manufacturing and operations facilities are located in the University of Utah Research Park, in Salt
Lake City, Utah, where we own five buildings totaling approximately 350,000 square feet. We occupy four buildings and the remaining building is vacant. We plan to sell the building we do not occupy.
The buildings are located on land leased from the University of Utah (the "U of U Property") with an initial term of 40 years or longer. All of the buildings are on land leases that expire in
2030, with a ten-year renewal option. All of our interests in the U of U Property are subject to a lien held by Wells Fargo Foothill to secure repayment of the borrowing facility as set
forth in Note 12 of the Notes to Consolidated Financial
Statements in Part II of this Form 10-K. We hold leases, including our subsidiaries, on several sales, operations, service and production facilities located throughout the
United States, Europe and Asia, none of which is material to our manufacturing, engineering or operating facilities. We believe that these properties are suitable for our immediate needs and we do not
currently plan to expand our facilities or relocate.

ITEM 3. LEGAL PROCEEDINGS

In May 2003, a claim was made against the Company by RealVision, Inc. relative to matters arising from the sale of a business unit to
RealVision, Inc. in 2001. The parties entered mediation in the fourth quarter of 2003, and continued discussions into 2004. In March 2004, an agreement was reached under which RealVision
will receive a settlement in the amount of $2.4 million of which E&S will pay approximately $0.9 million to resolve this claim, with the remainder of the settlement amount being paid by
E&S's insurance carrier. The Company has accrued its portion of the settlement.

In
the normal course of business, E&S has various 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, we believe the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial condition, liquidity or results
of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2003.

12

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain information regarding the executive officers of E&S as of February 27, 2004:

|Name               |  | Age |  | Position                                                        
|------------------ |  | --- |  | ----------------------------------------------------------------
|James R. Oyler     |  | 57  |  | President and Chief Executive Officer                           
|E. Thomas Atchison |  | 55  |  | Vice President, Chief Financial Officer, and Corporate Secretary
|Bob Morishita      |  | 53  |  | Vice President Human Resources                                  

James
R. Oyler was appointed President and Chief Executive Officer of Evans & Sutherland and a member of the Board of Directors in November 1994. Before joining
Evans & Sutherland, Mr. Oyler served as a Senior Vice President for Harris Corporation. He has nine years of service with E&S.

E.
Thomas Atchison was appointed Chief Financial Officer and Corporate Secretary in July 2003. He joined Evans & Sutherland in 1998 as a Director, when E&S acquired Silicon
Reality, Inc., and was appointed Vice President of Manufacturing, Service, and Support in October 2001. At Silicon Reality, Mr. Atchison was Vice President, Operations, Chief
Operating Officer, and Chief Financial Officer from October 1997 to June 1998. He has five years of service with E&S.

Bob Morishita
is Vice President of Human Resources. He joined Evans & Sutherland as Compensation Manager in 1982 and was appointed Human Resources Director in 1997 and
Human Resources Vice President in 2000. He has 22 years of service with E&S.

13

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

Our common stock trades on The Nasdaq Stock Market under the symbol "ESCC." The following table sets forth the range of the high and low bids per share of our
common stock for the fiscal quarters indicated, as reported by The Nasdaq Stock Market. Quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.

HIGH

LOW2003First Quarter

$
6.90

$
5.00Second Quarter

$
6.42

$
3.30Third Quarter

$
6.74

$
5.25Fourth Quarter

$
6.20

$
3.922002First Quarter

$
7.35

$
5.83Second Quarter

$
10.00

$
7.11Third Quarter

$
8.35

$
3.72Fourth Quarter

$
6.25

$
2.06


Approximate Number of Equity Security Holders

On February 27, 2004, there were 613 shareholders of record of our common stock. Because brokers and other institutions hold many of our shares on behalf
of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.

Dividends

We have never paid a cash dividend on our common stock, as previous retained earnings were used for the operation and expansion of our business. Currently, we
have an accumulated deficit. For the foreseeable future, we intend to follow our policy of retaining any future earnings to finance the development and growth of our business. The payment of dividends
is restricted under the terms of our credit facilities. See Note 12 of the Notes to Consolidated Financial Statements in Part II of this Form 10-K.

14

---

Securities Authorized For Issuance Under Equity Compensation Plans

As
of December 31, 2003:

|                                                           |  | Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
(a) |  | Weighted average
exercise price of
outstanding options,
warrants and rights
(b) |       | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------- | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 2,344,418                                                                                        |  | $                                                                               | 11.33 |                                                                                                                                                
|Equity compensation plans not approved by security holders |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                
|                                                           |  |                                                                                                  |  |                                                                                 |       |                                                                                                                                                
|Total                                                      |  | 2,344,418                                                                                        |  | $                                                                               | 11.33 |                                                                                                                                                
|                                                           |  |                                                                                                  |  |                                                                                 |       |                                                                                                                                                

Stock Purchase PlanWe have an employee stock purchase plan whereby qualified employees are allowed to have up to 10% of their
gross pay withheld each pay period to purchase our common stock at 85% of the market value of the stock at the time of the sale. During the period of December 24, 2002, through
February 18, 2003, the Employee Stock purchase Plan was inadvertently
oversubscribed in the amount of 10,373 shares. On February 27, 2003, our Board of Directors increased the number of shares available under this plan from 500,000 to 800,000 shares, and ratified
all prior issuances of shares under the plan. We filed an S-8 Registration Statement registering these shares on April 25, 2003. As of December 31, 2003, 265,751 shares of
our Common Stock remain available for future purchase under the Stock Purchase Plan. Our shareholders approved the Stock Purchase Plan on May 24, 2001. Information regarding the employee Stock
Purchase Plan is not included in the above table.

15

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data for the five fiscal years ended December 31 are derived from our Consolidated Financial Statements. The selected
financial data should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this annual report. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

|                                                      |                                     | 2003 |        | 2002    |   | 2001    |         | 2000 |         | 1999    |  
|----------------------------------------------------- | ----------------------------------- | ---- | ------ | ------- | - | ------- | ------- | ---- | ------- | ------- | -
|
|For the Year                                          |                                     |      |        |         |   |         |         |      |         |         |  
|Sales                                                 |                                     | $    | 84,776 |         | $ | 122,578 |         | $    | 145,263 |         | $
|Cost of sales                                         |                                     |      | 53,252 |         |   | 78,052  |         |      | 115,823 |         |  
|Inventory impairment                                  |                                     |      | 14,566 |         |   | 1,392   |         |      |        |         |  
|                                                      |                                     |      |        |         |   |         |         |      |         |         |  
|                                                      | Gross profit                        |      |        | 16,958  |   |         | 43,134  |      |         | 29,440  |  
|Expenses:                                             |                                     |      |        |         |   |         |         |      |         |         |  
|Selling, general, and administrative                  |                                     |      | 27,039 |         |   | 27,131  |         |      | 31,374  |         |  
|Research and development                              |                                     |      | 21,730 |         |   | 25,970  |         |      | 32,828  |         |  
|Restructuring charges                                 |                                     |      | 3,416  |         |   | 4,492   |         |      | 2,843   |         |  
|Impairment loss                                       |                                     |      | 1,151  |         |   | 311     |         |      | 220     |         |  
|                                                      |                                     |      |        |         |   |         |         |      |         |         |  
|                                                      | Operating expenses                  |      |        | 53,336  |   |         | 57,904  |      |         | 67,265  |  
|Gain on sale of assets held for sale                  |                                     |      | 1,406  |         |   | 1,212   |         |      | 9,000   |         |  
|Gain on sale of business unit                         |                                     |      |       |         |   | 253     |         |      | 774     |         |  
|Gain on curtailment of pension plan                   |                                     |      |       |         |   | 3,575   |         |      |        |         |  
|                                                      |                                     |      |        |         |   |         |         |      |         |         |  
|                                                      | Operating loss                      |      |        | (34,972 | ) |         | (9,730  | )    |         | (28,051 | )
|Other income (expense), net                           |                                     |      | (1,987 | )       |   | (2,454  | )       |      | (2,578  | )       |  
|                                                      |                                     |      |        |         |   |         |         |      |         |         |  
|                                                      | Loss before income taxes            |      |        | (36,959 | ) |         | (12,184 | )    |         | (30,629 | )
|Income tax expense (benefit)                          |                                     |      | (971   | )       |   | (463    | )       |      | (3,172  | )       |  
|                                                      |                                     |      |        |         |   |         |         |      |         |         |  
|                                                      | Net loss                            |      |        | (35,988 | ) |         | (11,721 | )    |         | (27,457 | )
|Accretion of redeemable preferred stock               |                                     |      |       |         |   |        |         |      |        |         |  
|                                                      |                                     |      |        |         |   |         |         |      |         |         |  
|                                                      | Net loss applicable to common stock |      | $      | (35,988 | ) | $       | (11,721 | )    | $       | (27,457 | )
|                                                      |                                     |      |        |         |   |         |         |      |         |         |  
|Net loss per common share                             |                                     |      |        |         |   |         |         |      |         |         |  
|                                                      | Basic and diluted                   |      | $      | (3.44   | ) | $       | (1.12   | )    | $       | (2.70   | )
|Average weighted number of common shares outstanding: |                                     |      |        |         |   |         |         |      |         |         |  
|                                                      | Basic and diluted                   |      |        | 10,471  |   |         | 10,422  |      |         | 10,169  |  
|At End of Year                                        |                                     |      |        |         |   |         |         |      |         |         |  
|Total assets                                          |                                     | $    | 93,382 |         | $ | 127,576 |         | $    | 177,353 |         | $
|Long-term debt, less current portion                  |                                     |      | 18,015 |         |   | 20,685  |         |      | 18,086  |         |  
|Redeemable, preferred stock                           |                                     |      |       |         |   |        |         |      |        |         |  
|Stockholders' equity                                  |                                     |      | 15,566 |         |   | 53,363  |         |      | 64,659  |         |  

16

---

Quarterly Financial Data (Unaudited)

The financial data in this Annual Report on Form 10-K for the first three quarters of 2003 has been restated from amounts previously reported
on Forms 10-Q. A discussion
of the restatement in relation to the affected quarters of 2003 is provided in Note 3 of the Notes to Consolidated Financial Statements. An overview of the restatement is provided in the
introduction to Management's Discussion and Analysis of Financial Condition and Results of Operations.

|                                      |         | Quarter Ended |        
|------------------------------------- | ------- | ------------- | -------
|
|
|
|2003(1)                               |         |               |        
|Sales                                 |         | $             | 22,578 
|Gross profit (loss)                   |         |               | (6,986 
|Net income (loss) before income taxes |         |               | (24,543
|Net income (loss)                     |         |               | (24,275
|Net income (loss) per share:(2)       |         |               |        
|                                      | Basic   |               |        
|                                      | Diluted |               |        
|
|
|2002                                  |         |               |        
|Sales                                 |         | $             | 32,563 
|Gross profit                          |         |               | 9,594  
|Net loss before income taxes          |         |               | (3,872 
|Net loss                              |         |               | (3,189 
|Net loss per share:(2)                |         |               |        
|                                      | Basic   |               |        
|                                      | Diluted |               |        

---

March 28,

June 27,

September 26,(in thousands, except per share info)Sales

$
(115
)
$
(6,186
)
$
(2,645
)Cost of sales


1,128


(3,634
)

(762
)Gross profit


(1,243
)

(2,552
)

(1,883
)Net income before income taxes


(1,243
)

(2,552
)

(1,883
)Net income


(1,243
)

(2,552
)

(1,883
)Income per share: basic and diluted


(0.12
)

(0.24
)

(0.18
)


17

---



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of
operations and financial condition. The discussion should be read in conjunction with our Consolidated Financial Statements and notes thereto, included herein under Item 8 of this Annual
Report. Information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements that involve risks and uncertainties. Many
factors could cause actual results to differ materially from those contained in the forward-looking statements below. See "Forward Looking Statements" and "Factors That May Affect Future Results,"
below.

Executive Overview

Business

Evans & Sutherland Computer Corporation ("Evans & Sutherland", "E&S", "we", "our", or "the Company") produces high-quality visual
systems used to display images of the real world rapidly and accurately. E&S is widely regarded as both a pioneer and a leader in providing the world's most realistic visual systems. We design,
manufacture, market and support visual systems for simulation with solutions that meet the training requirements for a wide range of military and commercial applications. We also provide this
leading-edge visual system technology and experience to planetariums, science centers, and entertainment venues. We develop and deliver a complete line of image generators, displays,
databases, services and support products that match technology to customer requirements. Our products and solutions range from the desktop PC to what we believe are the most advanced visual systems in
the world.

2003 Highlights and 2004 Outlook

2003 was an important year for E&S. We made substantial progress resolving many problems from prior years, and achieved initial success with new products and
strategies. This combination enabled us to achieve profitable operations in the final quarter of the year and lay the foundation for a return to sustained profitability in the future.

The
problems from past years were in two general categories: large military programs with cost overruns, and declining sales for our products.

The
large military programs, which we refer to in this report as the "Big Six programs", involved the delivery of advanced visual systems in the US and Europe between 1997 and 2003. The
total value was over $130 million, which made up a substantial portion of our sales in those years. The programs were complex in many ways, both contractually and technically, and for various
reasons we fell behind and incurred large excess costs and penalties, creating losses which we were not able to offset in other parts of the business. While these programs were extremely difficult for
us and caused major financial stress, we nevertheless successfully completed and delivered all requirements, with the exception of a few remaining items which we expect to complete in early 2004.

Declining
sales for our products occurred both for external and internal reasons. The primary external reason was a drastic shrinkage in our markets following the events of
September 11, 2001. Commercial airlines suffered severe financial disruptions and generally reduced purchases of equipment. In the United States military market, funds were diverted to
operational requirements and purchases of simulation equipment fell sharply. Overall, our markets shrank to half their former size, a significant decline in any industry. Internally, we suffered from
difficulties with our scheduling systems related to very complex programs and development.

18

---

Our
response was to shrink the size of our company in accordance with the size of our markets and with the completion of the Big Six programs, and to install new management and systems.
Overall, we reduced employment by about 60% from the peak in 2000, while revenue has fallen by about 50% from the same year. We reduced other recurring costs similarly. In addition, such a drastic
reduction in the size of the company led us to reduce excess inventories procured for previously higher sales projections, as well as to recognize other restructuring charges.

To
address the problems that we encountered with the Big Six programs and related development, we installed sophisticated new hardware and software infrastructure to provide more
accurate and timely
management of information. These systems reached maturity in 2003 in our military market, and we have since had no further problems of the types encountered in earlier military programs such as the
Big Six programs. We had scheduled the installation of these same systems in 2004 in our United Kingdom subsidiary, where we manage our commercial airline business. However, prior to their
installation we encountered problems there, arising from the incorrect recognition of costs, revenue, and profit on percent-complete contracts. To correct the errors, we restated the first three
quarters of 2003 condensed consolidated financial statements, which were previously unaudited. As a result, revenues were reduced and losses were increased for the quarters restated. Despite these
actions, our transition to profitability in the fourth quarter was still achieved.

Throughout
this very difficult period, we steadfastly maintained investment in new products as the primary pathway to rebuilding the company once our markets stabilize. We believe that
these efforts have now begun to bear fruit, and will do so increasingly during 2004 and the years beyond. In 2003, we introduced new products in both our simulation and digital theater businesses, and
delivered first prototypes of our new laser projector. In 2004, we anticipate we will continue to introduce new products in all these markets, with special emphasis on the delivery of the first
production-level model of the laser projector. All of the new products have enjoyed enthusiastic acceptance from our customers, enabling us to gain market share in a down market. We believe that our
EP (Environment Processor) software is, in fact, revolutionary in its structure and impact on rapid development of databases for training and mission rehearsal, and we believe that the laser projector
will revolutionize the market for large-format, high-accuracy displays. We have already received patents on the laser projector, with a large number of additional patents in process but
not yet awarded.

We
expect the continued success of our new products to return the company to profitability for the full year 2004, although the pattern of our current order book suggests we are likely
to operate moderately below break-even in the first half. Beyond this year, we anticipate a modest recovery in our markets in 2005. In addition, we believe the laser projector will start
to ship in higher volumes in 2005 and beyond, contributing a substantial new revenue stream to the company and potentially opening entirely new markets.

Because
of the major cost reductions which we have already completed, and because of our major investment in systems and software for internal operations, our infrastructure is capable
of meeting substantially higher sales requirements with very little increase in overhead or fixed costs. Therefore, we believe revenue growth will produce accelerating profit growth.

19

---

Results of Operations

|                                     |                                      | Year Ended December 31, |        
|------------------------------------ | ------------------------------------ | ----------------------- | -------
|
|Sales                                |                                      | $                       | 84,776 
|Cost of sales                        |                                      |                         | 53,252 
|Inventory impairment                 |                                      |                         | 14,566 
|                                     |                                      |                         |        
|                                     |                                      | Gross profit            |        
|                                     |                                      |                         |        
|Expenses:                            |                                      |                         |        
|                                     | Selling, general, and administrative |                         |        
|                                     | Research and development             |                         |        
|                                     | Restructuring charges                |                         |        
|                                     | Impairment loss                      |                         |        
|                                     |                                      |                         |        
|                                     |                                      | Operating expenses      |        
|Gain on curtailment of pension plan  |                                      |                         |       
|Gain on sale of assets held for sale |                                      |                         | 1,406  
|Gain on sale of business unit        |                                      |                         |       
|                                     |                                      |                         |        
|                                     |                                      | Operating loss          |        
|Other income (expense), net:         |                                      |                         | (1,987 
|                                     |                                      |                         |        
|Loss before income taxes             |                                      |                         | (36,959
|Income tax benefit                   |                                      |                         | (971   
|                                     |                                      |                         |        
|                                     |                                      | Net loss                |        
|                                     |                                      |                         |        

Results of Operations Summary

Our 2003 sales significantly decreased primarily as a result of current conditions in the military market as military customers diverted funds to more pressing
requirements. Deliveries to commercial customers also declined because of cutbacks by airline customers after the terrorist attacks in 2001. We did achieve sales growth in both our
PC-based image generators and planetarium systems as a result of strong demand for our new simFUSION and Digistar 3 products.

Our
gross margins also declined in 2003. This was due primarily to a $14.6 million inventory impairment caused by customer order cancellations as the military realigned its
spending priorities. However, offsetting the impairment charges was improvement due to essentially completing the six large Harmony programs ("Big Six programs") which have driven significant losses
or extremely low margins in prior years. We also saw a decrease in our commercial gross margins, but expect improvements in 2004.

To
offset current market conditions, we executed two restructuring plans in 2003 and reduced our headcount by approximately 120 employees to reduce operating costs and create a cost
structure in line
with our anticipated sales. These actions were the primary cause of our $4.6 million reduction in our operating expenses from 2002 to 2003.

We
achieved strong reductions in our other expenses as we reduced interest expenses and debt levels in 2003, and reduced income tax expenses.

More
detailed explanations of our 2003 results are provided below.

20

---

Consolidated Sales and Gross Profit

Our total sales were $84.8 million in 2003, compared with $122.6 million in 2002 and $145.3 million in 2001. The 2003 sales decrease was
driven mainly by a reduction in sales in the military market. Sales to the military market decreased in 2003 primarily because 2002 contained two large programs with significant final product
deliveries. No new programs of this magnitude were awarded during 2003 to produce replacement sales. Also contributing to a decrease in sales to the military market was that approximately 85% of the
remaining sales from our Big Six programs were recognized in 2002, while approximately 10% was recognized in 2003. Four of these Big Six programs are now 100% complete and the remaining two are 99.9%
complete. Sales to the commercial market also declined in 2003. While orders increased significantly in 2003 from this market, a significant portion of those 2003 orders will routinely be delivered in
2004. In addition, we experienced a slight decrease in service and support sales. Sales of our PC-based image generator increased 70% in 2003 as a result of a strong demand for our new
simFUSION products. Sales of our planetarium systems also increased significantly in 2003, 129%, as a result of strong demand for our new Digistar 3 product.

From
2001 to 2002 sales to the military market decreased primarily as a result of a significant drop in orders over a period of these two years. Orders decreased approximately 35% in
2002 and 24% in 2001. Sales of our PC-based image generator declined approximately 50% in 2002 because the updated simFUSION product line was not launched until the third quarter of 2002
and customers were waiting for the release of this enhanced PC-based image generator. The new simFUSION product generated orders and sales in the third and fourth quarters of 2002. In
2002, sales of our planetarium systems declined 60% as customers delayed their orders of existing products in anticipation of our next generation products, which have now been launched and are
producing growth in orders and sales. Sales were also impacted by a worldwide slowdown of demand for planetarium equipment in 2002. In 2001, we also sold our REALimage business and discontinued the
operations of our RAPIDsite business; therefore, losing related sales in 2002. These 2002 decreases in sales were partially offset by a slight increase in service and support sales.

Trends
in the commercial and military markets remained unchanged in 2003, and are expected to continue through 2004. In the commercial market, commercial airlines have reduced purchases
of new aircraft compared to prior years. This has resulted in a reduction in the number of new simulators they require for training. However, many commercial airlines are upgrading their currently
installed simulators. As a result, we have benefited from this change because we had a large share of the installed base of visual systems and because our newly introduced EP-1000CT
product provides an attractive upgrade path due to its compatibility with the installed base. Military markets have continued to shrink as funds are diverted to more pressing military requirements. We
believe this diversion of funds will continue during 2004, but may result in some pent-up demand in 2005. In the military and commercial markets some large prime contractors, with whom we
may subcontract with, are moving the high-margin database and software work in-house instead of subcontracting out to other companies in order to protect their revenues and
margins. If this trend continues in future years it could negatively affect our revenues and profitability.

Our
gross margin percentages were 20.0% in 2003, compared with 35.2% in 2002 and 20.3% in 2001. Our 2003 gross margins primarily decreased as a result of a $14.6 million inventory
impairment loss. During 2003 certain significant orders that we had expected to receive as of December 31, 2002, and into early 2003 were cancelled by customers. These cancellations were
primarily the result of a re-alignment of military spending priorities during the first part of 2003. Accordingly, the future demand for our Harmony 1, ESIG, and TargetView products
significantly decreased compared to our prior projections because of these cancellations. As a result, we recorded a $14.6 million impairment to specific inventory during 2003. Note 4 of
the Notes to Condensed Consolidated Financial Statements of this annual report on Form 10-K contains a detailed description of this impairment.

21

---

From
2002 to 2003 gross margins percentages on sales to the military market decreased significantly as a result of a majority of the $14.6 million of inventory impairment
consisting mainly of products sold in the military market. Offsetting this was a significant reduction in the negative impact that the Big Six programs had. Gross margin percentages on sales to
commercial airline customers decreased significantly in 2003 as a result of pricing pressure that is currently in the commercial market and due to cost overruns. In addition, we experienced higher
than normal warranty and support costs due to part failures and an increase in our warranty provision for anticipated future warranty costs. These decreases were slightly offset by a small increase in
our service & support gross margin percentages.

From
2001 to 2002 our gross margins increased significantly because the Big Six programs had less of a negative impact in 2002 than in 2001. These six programs heavily contributed either
losses or small positive gross margins to 2001's overall gross profit. Additionally, gross margins on sales to commercial airline customers were up as 2002 included both positive adjustments for
completing programs below cost estimates and improved overall cost performance. In 2002 gross margin improvements were offset by an inventory impairment loss of $1.4 million related to our
restructuring plan decision to exit the simFUSION 4000 product line. The $1.4 million charge encompassed the total value for the
simFUSION 4000 inventory on hand. We took this impairment write-off because we anticipated reduced demand for simFUSION 4000 products as a result of customer migration to the updated
simFUSION products.

Operating Expenses, Other Items and Taxes

Our operating expenses were $53.3 million in 2003, compared with $57.9 million in 2002 and $67.3 million in 2001. Selling, general, and
administrative ("SG&A") expenses decreased $0.1 million during 2003. We achieved significant SG&A expense reductions primarily as a result of lower headcount and reductions in expenditures for
travel, consultants, and facilities costs. However, SG&A expenses remained near the 2002 level because in 2002 we reversed previous bad debt accruals of $0.7 million as a result of improved
collection experience. Additionally, our SG&A expenses in 2003 increased as a result of reductions in our rental income, which affect our rent expense. Research and development ("R&D") expenses
decreased $4.2 million in 2003 as a result of lower headcount and reduced development expenditures for materials and software.

SG&A
expenses decreased $2.9 million during 2002 as a result of lower headcount, lower labor costs, reduced use of consultants, and lower overheads. Additionally, due to improved
collection experience, previous bad debt accruals were reversed, which lowered 2002 SG&A expenses. SG&A also decreased $1.3 million in 2002 compared to 2001 as a result of our sale of the
REALimage Solutions Group in 2001. R&D expenses decreased $2.9 million in 2002 as a result of lower headcount, decreased effort on our Integrator software product as it neared completion, and
reduced overhead costs. R&D also decreased $4.0 million in 2002 compared to 2001 as a result of our sale of the REALimage Solutions Group in 2001. These R&D decreases were partly offset by
one-time material purchases for the development of both our EP-1000 line of new visual systems for commercial simulation and our new PC-based products.

During
2003, we recorded restructuring charges of $3.4 million related to reductions in force of approximately 120 full-time equivalent employees to reduce operating
costs as well as to create a cost structure in line with anticipated sales. We estimate that this restructuring will reduce expenses by approximately $7.5 million per year going forward. We are
continuing cost reduction actions in order to further reduce operating expenses to return to profitable performance.

During
2002, we recorded a restructuring charge of $4.5 million related to a reduction in force of approximately 230 employees in an attempt to reduce the operating cost structure
as well as to create a cost structure in line with future sales. We estimate that this restructuring reduced expenses by

22

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approximately
$14 million per year going forward. During 2001, we recorded a restructuring charge of $2.8 million relating to a reduction in force of approximately 92 employees.

During
2003, we recognized an impairment loss of $1.2 million on certain fixed assets specifically used to build, test, and demonstrate our Harmony 1 product. During 2002, we
recognized an impairment loss of $0.3 million on software licenses that were used by employees who were terminated as a result of the 2002 reduction-in-force actions.
During 2001, we recognized an impairment loss of $0.2 million related to the write-off of goodwill acquired in the E&S acquisition of AccelGraphics, Inc. and Silicon
Reality, Inc. in 1998.

During
2002, we recognized a gain on the amendment of our pension plan of $3.6 million. In order to match current market practices, the pension plan was amended to curtail accrual
of future benefits. At the same time, the E&S 401(k) plan was amended to permit the Board of Directors to grant additional discretionary matching contributions based on profitability as well as other
financial and operational considerations.

During
2003, E&S recognized a gain on assets held for sale of $1.4 million on the sale of a building. During 2002, we recognized a gain on assets held for sale of
$1.2 million on the sale of a building. During 2001, we recognized a gain on the sale of assets held for sale of $9.0 million due to the sale of certain 3D-graphics patents and a gain on
the sale of a business unit of $0.8 million as a result of the sale of our REALimage Solutions Group.

Our
other income (expense) was $2.0 million in net expense in 2003, $2.5 million in net expense in 2002, and $2.6 million in net expense in 2001. Interest expense
decreased to $1.4 million in 2003 from $1.8 million in 2002 and from $2.5 million in 2001 due to our continued reduction of debt. During 2003 we also benefited from an increase in
interest income; however this was offset primarily by a $0.5 million write-down of a nonmarketable investment in Quantum Vision, Inc. Based on our analysis and meeting with
Quantum Vision, Inc. in the first part of 2003, we determined this technology would not enhance our own technology or strategic direction.

Our
income tax benefits were $1.0 million in 2003 compared to $0.5 million in 2002 and $3.2 million in 2001. The income tax benefits in 2003 and 2001 were primarily
due to the favorable resolution of certain potential tax liabilities of our foreign subsidiaries. The 2002 income tax benefit was the result of a change in the U.S. tax law, which allows us to use
additional net operating losses to offset taxable income.

Liquidity and Capital Resources

Overview

Summary information about our financial position as of December 31, 2003 and December 31, 2002, is presented in the following table (in thousands):

2003

2002Cash and cash equivalents

$
9,714

$
7,375Restricted cash


765


2,960Line of credit agreements


(7,685
)

(5,213
)Net short term cash/(indebtedness)


2,794


5,122Long-term debt


(18,015
)

(20,685
)Net cash/(indebtedness)

$
(15,221
)
$
(15,563
)Stockholders' equity

$
15,566

$
53,363


During
2003 we continued to take actions to adjust our business in order to reach profitability, to complete certain Harmony 1 programs, and to market two of our Salt Lake City buildings
for sale. In

23

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addition,
to bring costs in line with projected sales, we completed two restructurings during the year. We moved closer to completion of the Big Six programs, with only two remaining for final
completion at the end of 2003. This allowed us to collect $11.6 million related to these programs. We sold one of the two buildings we had for sale, with cash proceeds of $4.8 million.
These events allowed us rely less on our credit facilities during 2003 than in 2002. Our average balance outstanding on the credit facilities was $3.1 million in 2003 compared to
$12.3 million in 2002.

In
the first quarter of 2003 we were able to finalize the renewal of both of our lines of credit providing a maximum borrowing capability of $28.0 million. In addition, as
discussed under Credit Facilities below, we were in breach of one of the covenants at the end of the first quarter of 2003 that resulted in a waiver and an amended agreement, changing our financial
covenants and increasing our interest rates on borrowings. Both line of credit agreements expire in December 2004.

For
2004, we foresee decreasing reliance on our credit facilities, helped by the expected sale of our last building that remains for sale, to provide cash to fund our operating
activities. Over the past three years we have taken actions to reduce our operating cash requirements and our capital expenditure requirements. While these actions have significantly reduced our total
operating cash requirements, our current operations may not yield positive cash flow. Circumstances that could materially affect liquidity in 2004 include, but are not limited to, the following:
(i) our ability to successfully develop and produce new technologies and products, (ii) our ability to meet our forecasted sales levels during 2004, (iii) our ability to reduce
costs and expenses, and (iv) our ability to favorably negotiate a sale agreement related to the one building that is for sale.

For
years beyond 2004, if our projections are broadly correct and our markets start to recover in 2005, we believe that cash from operations will be sufficient for our planned needs. If
our projections are incorrect, then we may need to continue to supplement cash from operations with borrowing facilities. In addition, we have the option to use our remaining buildings that are
currently not for sale to finance our operations by selling these buildings or using other options available at the time that decision is made. Also, we believe that long-term our
investment in research and development and our current product strategy will allow our business to grow; thus future funding requirements are anticipated to be provided from our operating activities.

We
believe that existing cash, restricted cash, borrowings available under our various borrowing facilities, the sale of the one building currently held for sale, and expected cash from
future operations will be sufficient to meet our anticipated working capital needs, routine capital expenditures and current debt service obligations for the next twelve months. At December 31,
2003, our total indebtedness was $25.7 million. Both of our lines of credit expire in December 2004. If we continue to need these credit facilities, we may attempt to replace them;
however, there can be no assurances that
we will be successful in renegotiating our existing borrowing facilities or obtaining additional debt or equity financing. Our cash and restricted cash, subject to various restrictions previously set
forth below, are available for working capital needs, capital expenditures, strategic investments, mergers and acquisitions, stock repurchases and other potential cash needs as they may arise.

Impact of Big Six Programs

We have six Harmony 1 programs that have had a negative impact on our overall financial condition in prior years. Our work is essentially complete on these
programs and we are awaiting final acceptance by end users in two of these programs in order to invoice our last remaining milestones. Four of the Big Six programs are fully invoiced and collected.

At
the end of 2002, costs and estimated earnings in excess of billings on uncompleted contracts relating to the Big Six programs were $8.1 million. Our collections in 2003 were
$11.6 million. The Big Six programs balance of cost and estimated earnings in excess of billings on uncompleted contracts at

24

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the
end of 2003 was $3.3 million. We expect to convert this amount to invoicing and collections in 2004.

Cash Flow

|                                                    |  | For the following years ended Dec. 31 |      
|--------------------------------------------------- |  | ------------------------------------- | -----
|
|
|Net cash provided by (used in) operating activities |  | $                                     | (771 
|Net cash provided by (used in) investing activities |  |                                       | 997  
|Net cash provided by (used in) financing activities |  |                                       | 2,113
|                                                    |  |                                       |      
|Increase (decrease) in cash and cash equivalents    |  | $                                     | 2,339
|                                                    |  |                                       |      

In
2003 and 2002 our overall liquidity improved as we were able to reduce the magnitude of our reliance on our credit facilities. As a result, in 2003 we were able to maintain much lower
borrowing balances compared to prior years, and in 2002 we effectively reduced our borrowings on our lines of credit $12.8 million.

We
were able to accomplish this in three ways. First, the Big Six programs were a significant drain on our cash flow during 2001. In 2002, we made significant progress and neared
completion on most of these programs and were able to convert a significant portion of the related costs and estimated earnings in excess of billings on uncompleted contracts into invoicing and then
into collections. This trend continued in 2003, where we ended the year with only two of the Big Six programs awaiting final completion. Second, over the last two years we have been selling unneeded
facilities in Salt Lake City. In 2003 this provided $4.8 million and in 2002, $2.9 million in cash. Third, in each of the last three years we have taken actions to restructure our
business several times, mainly through reductions in force and the sale of non-core businesses, which significantly reduced cash requirements.

At
December 31, 2003, we had working capital of $22.8 million, including cash and restricted cash of $10.5 million, compared to working capital of
$56.0 million at December 31, 2002, including cash and restricted cash of $10.3 million. During 2003, we used $0.8 million in our operating activities, generated
$1.0 million from our investing activities, and generated $2.1 million from our financing activities.

In
2003 cash used in our operating activities was mainly attributable to a $36.0 million net loss, offset by non-cash changes primarily consisting of
$15.7 million related to asset impairments and $6.8 million related to depreciation and amortization, and decreases in accrued expenses and accounts payables of $3.3 million and
$1.2 million, respectively. Accrued expenses decreased as a result of a reduction in our compensation and benefits accruals. This reduction is a result of our headcount reductions during 2003
and 2002. Accounts payables decreased as a result of our improved liquidity in 2003 as well as a result of an overall shrinkage of our business. Cash from our operating activities was
provided by an $11.6 million decrease in the net costs and estimated earnings in excess of billings on uncompleted contracts and a $2.4 million increase in customer deposits. Costs and
estimated earnings in excess of billings on uncompleted contracts decreased $11.1 million due to the completion and billings of all but two of the Big Six programs. Customer deposits increased
due to strong fourth quarter orders from both the commercial simulation and digital theater customer markets.

In
2002, cash provided by our operating activities was mainly attributable to decreases of $11.9 million in net costs and estimated earnings in excess of billings on uncompleted
contracts, $8.8 million in accounts receivables and $3.9 million in inventory. While the $11.7 million loss had a negative impact on cash, it was mainly offset by
$9.3 million in depreciation and amortization. Net costs and estimated earnings in excess of billings on uncompleted contracts decreased as a result of a decrease in costs and estimated
earnings in excess of billings on uncompleted contracts of

25

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approximately
$25.7 million primarily due to successful near completion of the Big Six programs and a decrease in billings in excess of costs and estimated earnings on uncompleted contracts of
approximately $14.0 million due primarily to $6.0 million in deliveries made in 2002 related to commercial simulation customer orders booked in 2001 and $3.6 million in deliveries
made in 2002 related to military simulation product orders in 2001. Also contributing to cash from operations was an $8.8 million decrease in accounts receivable due primarily to collections on
the Big Six programs and improved collections overall. The inventory decrease was mainly due to a decrease in raw material requirements as our sales decreased and due to converting
work-in-process inventory related to the Big Six programs into cost of sales as these contracts moved further towards completion.

Cash
provided by our investing activities was $1.0 million in 2003. The primary source was the sale of one of our buildings, which provided $4.8 million. This was offset by
investments in property, plant and equipment, which used $3.8 million. This is a continuation of our cost reduction plan associated with our restructuring efforts. Investments in property,
plant, and equipment were $3.4 million in 2002, $6.6 million in 2001, and $13.9 million in 2000.

Cash
provided by our financing activities was $2.1 million in 2003. This was primarily due to a change in restricted cash that generated $2.1 million. In 2002, we used cash
provided from operating activities to mainly reduce our credit facility borrowings by $12.9 million.

Credit Ratings

Our credit ratings were lowered by Moody's Investor Services ("Moody's") on multiple occasions during 2003. Our 6% Convertible Subordinated Debentures due in 2012
credit ratings were lowered from B2 to Caa2. Our Senior Implied Rating was downgraded from Ba to B3. These credit rating
downgrades may affect our future ability to renew our credit facilities, negotiate new credit facilities, and issue debt and equity securities.

With
respect to Moody's, issuers with a Ba rating are judged to have speculative elements and are subject to substantial credit risk. Issuers with a B rating are judged to have
speculative elements and are subject to high credit risk. Issuers with Caa ratings are in poor standing with Moody's and subject to very high credit risk. These issuers may be in default, according to
Moody's, or there may be present elements of danger with respect to principal and interest. The "1,2,3" modifiers show relative standing within the major categories, 1 being the highest, or best,
modifier in terms of credit quality.

Moody's
Senior Implied Ratings are generally employed for speculative grade corporate issuers. The Senior Implied Rating is an opinion of a corporate family's ability to honor its
financial obligations and is assigned to a corporate family as if it had a single class of debt and a single consolidated legal entity structure.

Credit Facilities

We have in place two lines of credit that allow us to bridge the gap between our daily cash requirements and the cash we have on hand, as well as provide for the
ability to issue letters of credit. We require access to these lines of credit, or others, in order to operate.

The
ability to issue letters of credit has become more important to our business as sales in countries other than North America and Western Europe have grown and become a larger
percentage of our gross sales. Letters of credit in many of these countries are required as part of any final contract.

In
December 2000, E&S entered into a secured credit facility (the "Foothill Facility") with Foothill Capital Corporation ("Foothill") that provided for borrowings and the issuance of
letters of credit up to $30.0 million. In December 2002, E&S and Foothill renegotiated and renewed the terms of the Foothill Facility, providing for borrowings and the issuance of
letters of credit up to $25.0 million. The

26

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Foothill
Facility, among other things, (i) requires E&S to maintain certain financial ratios and covenants, including a combined cash and borrowing availability financial covenant that adjusts each
quarter and a limitation of $12.0 million of aggregate capital expenditures in any fiscal year; (ii) restricts our ability to incur debt or liens; sell, assign, pledge or lease assets; merge
with another company; and (iii) restricts the payment of dividends and repurchase of any of our outstanding shares without the prior consent of the lender. The Foothill Facility expires in
December 2004.

Borrowings
under the Foothill Facility bear interest at the Wells Fargo Bank National Association prevailing prime rate plus 3.0% to 4.5%, depending on the amount outstanding. In
addition, the Foothill Facility has an unused line fee equal to 0.375% per annum times the difference between $25 million and the sum of the average undrawn portion of the borrowings, payable
each quarter. The Foothill Facility provides Foothill with a first priority perfected security interest in substantially all of our assets, including, but not limited to, all of our intellectual
property.

In
March 2003, we were not in compliance with the tangible net worth financial covenant of our Foothill Facility. In July 2003, the Foothill Facility was amended and the
March 2003 covenant breach was waived. The amendments deleted the tangible net worth covenant from the Foothill Facility and replaced it with a combined cash and borrowing availability
financial covenant that went into effect on June 27, 3003, and is in effect until the Foothill Facility expires. In addition, the interest rate that borrowings bear interest at was amended,
from a range of 1.5% to 3.0% to a range of 3.0% to 4.5% over the Wells Fargo Bank, N.A. prevailing prime rate, depending on the amount outstanding. Also, at no time will borrowings under the Foothill
Facility bear interest at a rate less than 10.25%. As of December 31, 2003, we were in compliance with all covenants.

As
of December 31, 2003, E&S had $3.7 million in outstanding borrowings and $3.6 million in outstanding letters of credit under the Foothill Facility. Our customers
can draw against these letters of credit if we fail to meet the performance requirements contained within the terms of each letter of credit. As of December 31, 2003, no amounts have been
accrued for any estimated losses under the obligations, as we believe it is probable that we will perform as required under our contracts. As of February 27, 2004, there were no outstanding
borrowings and the outstanding letters of credit were $4.3 million.

Evans
& Sutherland Computer Limited, a wholly-owned subsidiary of Evans & Sutherland Computer Corporation, had a $3.0 million overdraft facility (the "Overdraft Facility") with
Lloyds TSB Bank plc ("Lloyds"). At the discretion of Lloyds, the maximum amount borrowed against the Overdraft Facility can be increased for a short period of time that is predetermined by Lloyds.
Borrowings under the Overdraft Facility bear interest at Lloyds' short-term offered rate plus 1.75% per annum. As of December 31, 2003, there were $4.0 million in outstanding borrowings.
The Overdraft Facility is subject to reduction or demand repayment for any reason at any time at Lloyds' discretion. The Overdraft Facility expired on December 31, 2003. We have renewed the
Overdraft Facility with essentially the same terms, except that the borrowing limit is $2.5 million and it expires on December 31, 2004. Evans & Sutherland Computer Limited executed a
letter of negative pledge in favor of Lloyds whereby it agreed not to sell or encumber its assets, except in the ordinary course of business. Covenants contained in the Overdraft Facility restrict
dividend payments from Evans & Sutherland Computer Limited and required maintenance of certain financial covenants. In addition, at December 31, 2003, we had $0.8 million on deposit with
Lloyds in a restricted cash collateral amount to support certain obligations that the bank guarantees. As of February 27, 2004, there were not outstanding borrowings.

6% Convertible Subordinated Debentures due in 2012

As of December 31, 2003, we 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 our common stock at a conversion price of $42.10 or 428,000 shares of our common stock, subject to adjustment.
The 6% Debentures are redeemable at our option, in whole or in part, at par.

27

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Other

In 2004, we expect capital expenditures to be similar to 2003, spending approximately $3.0 million. There were no material capital expenditure commitments
at the end of 2003, nor do we anticipate any over the next several years.

On
February 18, 1998, E&S's Board of Directors authorized the repurchase of up to 600,000 shares of our 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, our Board of Directors authorized the repurchase of an additional 1,000,000 shares
of our common stock. On February 27, 2004, 463,500 shares remained available for repurchase. No shares were repurchased during 2003, 2002, or 2001. Stock may be acquired on 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 requires that we
obtain prior consent from Foothill before we repurchase any shares.

We
also maintain trade credit arrangements with certain of our suppliers. The unavailability of a significant portion of, or the loss of, the various borrowing facilities of E&S or trade
credit from suppliers would have a material adverse effect on our financial condition and operations.

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

Effects of Inflation

The effects of inflation were not considered material during fiscal years 2003, 2002, and 2001, and are not expected to be material for fiscal year 2004.

Off-Balance Sheet Arrangements

As part of our ongoing business, we normally do not participate in transactions that generate relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose entities ("SPEs"), which can be established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.

In
July 2000, we formed a joint venture with Quadrant Group plc ("Quadrant") known as Quest Flight Training Limited ("Quest"). Quest provides certain equipment, software, training
and other goods and services to the U.K. Ministry of Defence ("U.K. MoD") and other related governmental entities with regard to an upgrade of the U.K. MoD E-3D Facility and
E-3D Sentry Aircrew Training Services. We have a 50% interest in Quest which is accounted for as an investment under the equity method and therefore is not consolidated in our financial
statements. The financial position and operating results of Quest are immaterial to our financial results.

In
connection with the services of Quest to the U.K. MoD, during 2000 we entered into guarantees of various obligations of Quest. As of December 31, 2003, we had four guaranties
outstanding related to Quest. Pursuant to the first guaranty, we have guarantied, jointly and severally with Quadrant, the performance of Quest in relation to its contract with the U.K. MoD. If Quest
fails to meet its obligations under the contract then we (and Quadrant) are required to perform under the terms of the contract. Due to the length of the contract and the uncertainty of performance
for which we would be liable if Quest fails to perform, we cannot estimate the maximum amount of possible future payments. This guaranty is in place until 2030. Pursuant to the second guaranty, we
have guarantied, jointly and severally with Quadrant, up to a maximum amount of £1.0 million ($1.8 million as of December 31,

28

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2003),
the performance of Quest, where not subcontracted, and the performance of Quest where subcontracted, and the subcontractor is not liable to meet its obligation due to any limitation of
liability in the sub-contract agreement, thus preventing Quest from meeting its obligation under its contract with the U.K. MoD. This guaranty is in place until 2020. Pursuant to the third
guaranty, we have pledged our equity shares in Quest to guaranty payment by Quest of a loan agreement executed by Quest. The loan agreement terminates in 2020. The pledge of our equity shares in Quest
will expire at such time as Quest's obligations under the loan agreement are satisfied or the date on which the loan agreement is otherwise terminated. In the event of default on this loan agreement,
the lending institution can request that the trustee holding such equity shares surrender them to the lending institution in order to satisfy all amounts then outstanding under the loan agreement.
Pursuant to the fourth guaranty, we have guarantied payment, up to a maximum of £0.13 million ($0.2 million as of December 31, 2003), in the event that Quest has a
default event, as defined by its loan agreement. This guaranty is in place until 2020. As of December 31, 2003, no amounts have been accrued for any estimated losses under these guaranties
because we believe that Quest will meet all of its performance and financial obligations in relation to its contract with the U.K. MoD. However, if we are required to perform under any or all of the
four guaranties, it could have a material adverse impact on our operating results and liquidity.

Contractual Obligations

The impact that our contractual obligations as of December 31, 2003, are expected to have on our liquidity and cash flow in future periods is as follows:

|                                             |  | Payments due by period
|-------------------------------------------- |  | ----------------------
|
|Contractual obligations                      |  |                       
|Long-term debt, including current portion(1) |  | $                     
|Operating lease obligations                  |  |                       
|Purchase obligations(2)                      |  |                       
|                                             |  |                       
|Total(3)                                     |  | $                     
|                                             |  |                       

---

Restatement of 2003 Quarterly Financial Statements

The financial data in this Annual Report on Form 10-K for the first three quarters of 2003 has been restated from amounts previously reported
for the correction of certain accounting errors. A discussion of the restatement in relation to the affected quarters of 2003 is provided in Note 3 of the Notes to Consolidated Financial
Statements. All information presented in this Management's Discussion and Analysis of Financial Condition and Results of Operations reflects the restatement.

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Management Overview

Restatement of Financial Information.We restated certain of our previously filed unaudited condensed
consolidated financial statements for the three fiscal quarters ended March 28, 2003, June 27, 2003 and September 26, 2003 for the correction of accounting errors identified by
management.

The
aggregate effect of the restatement decreased sales previously reported for the first three quarters of 2003 by an aggregate of $8.9 million, increased net loss previously
reported for these periods by an aggregate of $5.7 million and increased the loss per share by $0.12, $0.24 and $0.18 for the fiscal quarter ended March 28, June 27 and
September 26, 2003, respectively.

Background on the Restatement.During our 2003 year-end close process and review,
we discovered certain errors that affected our previously issued quarterly unaudited condensed consolidated financial statements of the first three quarters of 2003. Accordingly, our 2003 quarterly
unaudited, condensed consolidated financial statements have been restated.

The
adjustments reflected in the restatement resulted from the incorrect application of certain accounting principles at our wholly-owned subsidiary, Evans & Sutherland Computer
Limited, that we determined were in error as a result of our in depth review of all aspects of the matter.

Management
and the Audit Committee took a leadership role in assessing these issues and in taking corrective action. Management performed an in depth review into several accounting
issues that arose in connection with the restatement, as more specifically described in Note 3 of the Notes to Consolidated Financial Statements included in this Form 10-K.
Following our in depth review, we concluded that while there were material weaknesses in our control environment, we cannot conclude that there was misconduct or that our employees intentionally used
improper accounting practices to manipulate earnings or that there was any fraud or intentional misconduct on the part of our officers or employees. Item 9A of this Annual Report on
Form 10-K provides a description of actions we have taken to improve our internal controls and procedures based on our review of our accounting and reporting policies.

Critical Accounting Policies

The policies discussed below are considered by management to be critical to an understanding of E&S's financial statements. Their application places significant
demands on management's judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies
are described in the following paragraphs. A summary of significant accounting policies can be found in Note 2 of the Notes to Consolidated Financial Statements. For all of these policies,
management cautions that future results rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Revenue Recognition

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

30

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

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

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

Accrued Expenses

Accrued expenses include amounts for liquidated damages and late delivery penalties (See Note 10 of the Notes to Consolidated Financial Statements). While
current contracts could include additional liquidated damages and late delivery penalties, we have included all amounts management believes E&S is liable for as of December 31, 2003. These
liquidated damages are based primarily on estimates of project completion dates. To the extent completion dates are not consistent with our estimates, these damage and penalty accruals may require
additional adjustments.

Allowance for Doubtful Accounts

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. We specifically analyze accounts receivables and consider historic experience, customer creditworthiness,
facts and circumstances specific to outstanding
balances, current economic trends, and payment term changes when evaluating adequacy of the allowance for doubtful accounts. Changes in these factors could result in material adjustments to the
expense recognized for bad debts.

Income Taxes

As part of the process of preparing our consolidated financial statements we are required to estimate our actual income taxes in each of the jurisdictions in
which we operate. This involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatments of items, such as accrued liabilities, for
tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We must then assess the likelihood that our
deferred 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 tax provision in the statement of operations. Significant management
judgment is required to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

31

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Recent Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board ("FASB") issued a revised Financial Accounting Standard No. 132 ("SFAS 132
(revised)"), "Employer's Disclosures about Pension and Other Postretirement Benefitsan amendment of FASB Statements No. 87, 88, and 106." SFAS 132 (revised) revises
employer's disclosure about pension plans and other post retirement benefits. SFAS 132 (revised) does not change the recognition or measurement of those plans required by SFAS Nos. 87, 88, and
106. It retains the disclosure requirements of the original SFAS 132 as well as requires additional disclosures about the assets, obligations, cash flow, and net periodic benefit cost of
defined benefit pension plans and other defined benefit postretirement plans. Certain of the additional disclosure are required for fiscal years ending after December 15, 2003, and are included
in the notes to these consolidated financial statements as applicable.

In
December 2003, the FASB issued a revision to Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN46R"). FIN46R clarifies the application of ARB
No. 51, "Consolidated Financial Statements" to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated financial support. FIN46R requires the consolidation of these entities, known
as variable interest entities, by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity's expected losses, receive a majority
of the entity's expected residual returns, or both. Among other changes, the revisions of FIN46R (a) clarified some requirements of the original FIN46, which had been issued in
January 2003, (b) eased some implementation problems, and (c) added new scope exceptions. FIN46R deferred the effective date of the Interpretation for public companies, to the end
of the first reporting period ending after March 15, 2004. Under these guidelines, we will adopt FIN46R in the first quarter of fiscal 2004. The adoption of this interpretation is not expected
to have a material effect on our business, results of operations, financial position, or liquidity.

In
May 2003, the FASB issued Statement of Financial Accounting Standard No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity." SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of this statement did not have a material impact on our financial statements.

In
May 2003, FASB's Emerging Issues Task Force (EITF) finalized EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue 00-21
addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. Specifically, this EITF Issue 00-21 addresses
how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. EITF Issue 00-21 applies to all deliverables within contractually binding
arrangements in all industries under which a vendor will perform multiple revenue-generating activities, except as noted in the Issue. EITF Issue 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue 00-21 did not have a material impact on our financial statements.

In
April 2003, the FASB issued Statement of Financial Accounting Standard No. 149 ("SFAS 149"), "Amendment to Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 149 is generally effective for contracts
entered into or modified after June 30, 2003. The adoption of this statement did not have a material impact on our financial statements.

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Forward Looking Statements

The foregoing contains "forward-looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the 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," and similar expressions.

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



33

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34

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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 information. Our actual results could differ materially from these forward-looking statements. In addition to the other
risks described in the "Factors That May Affect Future Results" discussed below, important factors to consider in evaluating such forward-looking statements include risk of product demand, market
acceptance, economic conditions, competitive products and pricing, difficulties in product development, product delays, commercialization and technology, and our ability to maintain credit facilities
to support our operations on favorable and acceptable terms. 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.

35

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Factors that may affect future results

Our domestic and international businesses operate in highly competitive markets that involve a number of risks, some of which are beyond our control. While we are
optimistic about our long-term prospects, the following discussion highlights some risks and uncertainties that should be considered in evaluating our growth outlook.

Cash Flow May Be Insufficient to Guarantee Access to Capital and Retire Existing Debt

If the company does not generate sufficient earnings to increase its cash position, then our ability to obtain future capital and to repay existing debt will be
reduced. While we have significantly reduced our debt in the last two years, we still have both short term and long term debt.

The
long term debt is in the form of convertible preferred bonds due in 2012. A portion of our short term debt bears interest at variable rates. Any increase in interest rates will
reduce funds available to us for our operations and future business opportunities.

Our Business Model Is Changing and May Not Produce Consistent Earnings

Our success depends on our ability to compete in an industry that is highly competitive, with rapid technological advances and constantly improving products in
both price and performance. In most market areas in which we operate we are experiencing increased competition, and we expect this trend to continue.

When
new systems are ordered, prices are below similar systems in the past. This condition requires a new business model to be successful in the market for visual systems. The new
business model emphasizes smaller systems and associated hardware revenue, with more dependence on software, databases, and support services.

While
E&S has made significant progress in adapting to this business model by introducing products emphasizing the new factors for success, there is no assurance that this model will
achieve its full objectives and ensure profitability in the future.

Covenants and Restrictions in Our Credit Documents Limit Our Ability to Take Certain Actions

Our credit documents contain significant financial and operating covenants that limit the discretion of management with respect to certain business matters. These
covenants include, among others, restrictions on our ability to:



We
must also meet certain financial ratios and tests, including a combined cash and borrowing availability financial covenant that adjusts each quarter and a limitation of
$12.0 million of aggregate capital expenditures in any fiscal year. Failure to comply with the obligations contained in the credit documents could result in an event of default, and possibly
the acceleration of the related debt and the acceleration of debt under other instruments evidencing debt that may contain cross-acceleration or cross-default provisions. Due to Foothill's amendments
and waivers on July 16, 2003 and July 25, 2003, of E&S's noncompliance with financial covenants on March 28, 2003, we were in compliance with our

36

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financial
covenants as of December 31, 2003. Should the need arise, we will negotiate with our lenders to modify and expand various financial covenants, however, no assurance can be given that
such negotiations will result in modifications that will allow us to continue to be in compliance or otherwise be acceptable to us.

Competitors May Infringe Our Intellectual Property

Currently, we rely on a combination of patents, trademarks, copyrights and common law safeguards including trade secret protection. To protect our intellectual
property rights in the future, we intend to continue to rely on a combination of patents, trademarks, copyrights and common law safeguards, including trade secret protection. We also rely on
restrictions on use, confidentiality and nondisclosure agreements and other contractual arrangements with our employees, affiliates, customers, alliance partners and others. The protective steps we
have taken may be inadequate to deter misappropriation of our intellectual property and proprietary information.

Specifically,
we may be unable to detect the unauthorized use of, or take appropriate steps to enforce our intellectual property rights. Effective patent, trademark, copyright and trade
secret protection may not be available in every country in which we offer or intend to offer our products and services to the same extent as in the United States. Failure to adequately protect our
intellectual property could harm or even destroy our brands and impair our ability to compete effectively. Further, enforcing our intellectual property rights could result in the expenditure of
significant financial and managerial resources and may not prove successful.

These
factors all become more important as we rely more on software and other forms of intellectual property that are more difficult to control than hardware.

Military Markets May Not Recover, Depressing Our Revenue and Earnings

Since September 11, 2001 both commercial and military markets for our products have declined significantly. The size of this decline was unprecedented in
our industry, and has created a condition of gross oversupply and extreme competition. This condition has put intense pressure on prices and margins, as well as forcing every company to significantly
reduce costs and operating expenses used in the production of visual systems.

While
commercial markets have begun to recover, military markets have not yet produced significant new revenue. In the US, the reduction in military spending for visual systems is
generally due to the demands of overseas deployments, while in Europe defense budgets have been under pressure for a number of years.

There
is no assurance that military spending will recover in the years ahead, leading to continued pressure on our revenue and earnings.

The Market for Visual Systems May Not Support Our Current R&D Spending

In a very fragmented market, there may be insufficient business to support current Research and Development. The market for visual systems is unusual in that it
is a small market that requires specialized and expensive R&D to achieve optimal results.

Unless
there is significant consolidation among competitors, the market may be too small to support any company large enough to invest in the necessary R&D. Currently, only two companies
are significantly investing in visual system R&DE&S, which invests its own funds, and CAE, whose R&D is supported by Canadian government subsidies.

37

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E&S
has addressed this situation by sharply targeting its R&D. We believe our R&D is highly efficient at this time, but we have no assurance that the market will provide sufficient
earnings in the future to continue this program.

Prime Contractors May Bring Workshare into Their Own Company and Decrease the Demand for E&S Products

Large prime contractors in the defense and aerospace industry have encountered the same competitive pressures described earlier for simulation and training
revenue. To protect their own revenue and margins, most have responded by putting pressure on smaller suppliers, as well as bringing work in-house to protect established engineering
organizations wherever possible.

This
trend has, in effect, created new competitors for E&S's traditional business. These in-house engineering groups attempt to do only the most profitable work, such as
software and databases, and leave hardware to others. Often the costs of these efforts are not visible to the end customer because they are part of a much larger contract.

If
these trends continue and the end customers accept the results, they could reduce demand for the most profitable future portions of our revenue stream and business model, software and
databases.

We May Not Continue to be Successful if We Are Unable to Develop, Produce and Transition Our Products

Our continued success depends on our ability to develop, produce and transition technologically complex and innovative products that meet customer needs. We have
no assurance that we will be able to successfully continue such development, production and transition.

The
development of new technologies and products is increasingly complex and expensive, which among other risks, increases the risk of product introduction delays. The introduction of a
new product requires close collaboration and continued technological advancement involving multiple hardware and software design and manufacturing teams within E&S as well as teams at outside
suppliers of key components. The failure of any one of these elements could cause our new products to fail to meet specifications or to miss the aggressive timetables the market demands.

The
process of planning and managing production, inventory levels, and delivery schedules also is increasingly complex. There is no assurance that acceptance of and demand for our new
products will not be affected by delays in this process.

Changes in Government Priorities May Impact the Military Simulation Market

During the last several years significant changes have been taking place in budget priorities for both US and international government spending, especially
military spending. Some of these changes have resulted in delays or reductions of purchases of visual systems. While we have downsized our company in accordance with these changes, we have no
assurance that such delays will not continue to occur or accelerate and cause further declines in our revenue from this market.

We Depend on Several Significant Customers and our Net Sales Could Suffer if Their Purchases Decline

We currently derive a significant portion of our sales from a limited number of non-U.S. government customers. The loss of any one or more of these
customers could have a material adverse effect on our business, financial condition and results of operations. We were dependent on five of our non-U.S. government customers for
approximately 25% of our consolidated sales in 2003. We expect that sales to a limited number of customers will continue to account for a substantial portion of our sales in the foreseeable future. We
have no assurance that sales from this limited number of customers will continue to reach or exceed historical levels in the future. We do not have supply contracts with any of our significant
customers.

38

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Our Operations Could Be Hurt by Terrorist Attacks and Other Activities that Make Air Travel Difficult or Reduce the Willingness of Our Commercial Airline Customers to Purchase
Our Simulation Products

During 2003, $20.0 million, or 24% of our total revenue generated was derived from sales of our simulation products to commercial airline companies and
other third parties in the commercial airline industry. The demand for our various commercial simulation products and services is heavily dependent upon new orders from these commercial airline
customers. In the event terrorist attacks or other activities make air travel difficult or reduce the demand or willingness of our customers to purchase our commercial simulation products, our revenue
may decline substantially.

Our Shareholders May Not Realize Certain Opportunities Because of the Anti-Takeover Effect of State Law

We may be subject to the Utah Control Shares Acquisition Act which provides that any person who acquires 20% or more of the outstanding voting shares of a
publicly held Utah corporation will not have voting rights with respect to the acquired shares unless a majority of the disinterested shareholders of the corporation votes to grant such rights. This
could deprive shareholders of opportunities to realize takeover premiums for their shares or other advantages that large accumulations of stock would provide because anyone interested in acquiring E&S
could only do so with the cooperation of our board of directors.

We May Face Risks Related to an SEC Investigation and Securities Litigation in Connection with the Restatement of our Financial Statements.

We are not aware that the SEC has begun any formal or informal investigation in connection with accounting errors requiring restatement of 2003 quarterly
financial statements for the first three quarters, or that any laws have been violated. However, if the SEC makes a determination that the Company has violated Federal securities laws, the Company may
face sanctions, including, but not limited to, monetary penalties and injunctive relief. In addition, the Company or its officers and directors could be named defendants in civil proceedings arising
from the restatement. We are unable to estimate what our liability in either event might be.

39

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risks to which we are exposed are changes in foreign currency exchange rates and changes in interest rates. Our international sales, which
accounted for 53% of our total sales in 2003, are concentrated in the United Kingdom, continental Europe and Asia. Foreign currency purchase and sale contracts may be entered into for periods
consistent with related underlying exposures and do not constitute positions independent of those exposures. We do not enter into contracts for trading purposes and do not use leveraged contracts. As
of December 31, 2003, we had nine material sale or purchase contracts in currencies other than U.S. dollars. As of December 31, 2003, we had no foreign currency derivative contracts.

We
reduce our exposure to changes in interest rates by maintaining a high proportion of our debt in fixed-rate instruments. As of December 31, 2003, 70% of our total
debt was in fixed-rate instruments. Had we fully drawn on our $25 million revolving line of credit with Foothill Capital Corporation and our foreign line of credit, 39% of our total
debt would be in fixed-rate instruments.

The
information below summarizes E&S's market risks associated with debt obligations as of December 31, 2003. Fair values have been determined by quoted market prices. For debt
obligations, the table below presents the principal cash flows and related interest rates at year end 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 12 of the Notes to Consolidated Financial Statements in Part II of this annual report.

|                |  | Rate |   | 2004 |       | 2005 |   | 2006 |   | 2007 |   | 2008 |   | Thereafter |   | Total  |  | Fair
Value
|--------------- |  | ---- | - | ---- | ----- | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ------ |  | ----------
|Debt            |  |      |   |      |       |      |   |      |   |      |   |      |   |            |   |        |  |           
|Bank Borrowings |  | 6.1  | % | $    | 7,685 |      |  |      |  |      |  |      |  |            |   |       |  | $         
|6% Debentures   |  | 6.0  | % |      |      |      |  |      |  |      |  |      |  |            | $ | 18,015 |  | $         
|                |  |      |   |      |       |      |   |      |   |      |   |      |   |            |   |        |  |           
|Total debt      |  |      |   | $    | 7,685 |      |  |      |  |      |  |      |  |            | $ | 18,015 |  | $         
|                |  |      |   |      |       |      |   |      |   |      |   |      |   |            |   |        |  |           

40

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following constitutes a list of Financial Statements included in Part II of this report:



The
following consists of a list of Financial Statement Schedules included in Part IV of this report:



Schedules
other than those listed above are omitted because of the absence of conditions under which they are required or because the required information is presented in the Financial
Statements or notes thereto.

41

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Report of Independent Auditors

The
Board of Directors and Stockholders
Evans & Sutherland Computer Corporation:

We
have audited the consolidated financial statements of Evans & Sutherland Computer Corporation and subsidiaries ("the Company") as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Evans & Sutherland Computer Corporation
and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



Salt
Lake City, Utah
March 12, 2004

42

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

|                                                    |                                                                                                               | December 31,                               |       
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------
|
|ASSETS                                              |                                                                                                              
|Current assets:                                     |                                                                                                               |                                            |       
|                                                    | Cash and cash equivalents                                                                                     |                                            | $     
|                                                    | Restricted cash                                                                                               |                                            |       
|                                                    | Accounts receivable, less allowances for doubtful receivables of $351 in 2003 and $856 in 2002                |                                            |       
|                                                    | Inventories, net                                                                                              |                                            |       
|                                                    | Costs and estimated earnings in excess of billings on uncompleted contracts                                   |                                            |       
|                                                    | Prepaid expenses and deposits                                                                                 |                                            |       
|                                                    | Assets held for sale                                                                                          |                                            |       
|                                                    |                                                                                                               |                                            |       
|                                                    |                                                                                                               | Total current assets                       |       
|Property, plant and equipment, net                  |                                                                                                               |                                            | 24,115
|Investments                                         |                                                                                                               |                                            | 2,011 
|Other assets                                        |                                                                                                               |                                            | 390   
|                                                    |                                                                                                               |                                            |       
|                                                    |                                                                                                               | Total assets                               |       
|                                                    |                                                                                                               |                                            |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                |                                                                                                              
|Current liabilities:                                |                                                                                                               |                                            |       
|                                                    | Current portion of long-term debt                                                                             |                                            | $     
|                                                    | Line of credit agreements                                                                                     |                                            |       
|                                                    | Accounts payable                                                                                              |                                            |       
|                                                    | Accrued expenses                                                                                              |                                            |       
|                                                    | Customer deposits                                                                                             |                                            |       
|                                                    | Billings in excess of costs and estimated earnings on uncompleted contracts                                   |                                            |       
|                                                    |                                                                                                               |                                            |       
|                                                    |                                                                                                               | Total current liabilities                  |       
|Long-term debt                                      |                                                                                                               |                                            | 18,015
|Pension and retirement obligations                  |                                                                                                               |                                            | 15,717
|                                                    |                                                                                                               |                                            |       
|                                                    |                                                                                                               | Total liabilities                          |       
|Commitments and contingencies (Notes 8, 11, and 15) |                                                                                                               |                                            |       
|Stockholders' equity:                               |                                                                                                               |                                            |       
|                                                    | Preferred stock, no par value; authorized 10,00,000 shares; no issued and no outstanding shares               |                                            |       
|                                                    | Common stock, $0.20 par value; authorized 30,000,000 shares; issued 10,836,072 in 2003 and 10,806,040 in 2002 |                                            |       
|                                                    | Additional paid-in-capital                                                                                    |                                            |       
|                                                    | Common stock in treasury, at cost; 352,500 shares                                                             |                                            |       
|                                                    | Retained earnings (accumulated deficit)                                                                       |                                            |       
|                                                    | Accumulated other comprehensive loss                                                                          |                                            |       
|                                                    |                                                                                                               |                                            |       
|                                                    |                                                                                                               | Total stockholders' equity                 |       
|                                                    |                                                                                                               |                                            |       
|                                                    |                                                                                                               | Total liabilities and stockholders' equity |       
|                                                    |                                                                                                               |                                            |       

See
accompanying Notes to the Consolidated Financial Statements

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

|                                                             |                                             | Year ended December 31,           |        
|------------------------------------------------------------ | ------------------------------------------- | --------------------------------- | -------
|
|Sales                                                        |                                             | $                                 | 84,776 
|Cost of sales                                                |                                             |                                   | 53,252 
|Inventory impairment                                         |                                             |                                   | 14,566 
|                                                             |                                             |                                   |        
|                                                             |                                             | Gross profit                      |        
|                                                             |                                             |                                   |        
|Expenses:                                                    |                                             |                                   |        
|                                                             | Selling, general, and administrative        |                                   |        
|                                                             | Research and development                    |                                   |        
|                                                             | Restructuring charges                       |                                   |        
|                                                             | Impairment loss                             |                                   |        
|                                                             |                                             |                                   |        
|                                                             |                                             | Operating expenses                |        
|Gain on sale of assets held for sale                         |                                             |                                   | 1,406  
|Gain on curtailment of pension plan                          |                                             |                                   |       
|Gain on sale of business unit                                |                                             |                                   |       
|                                                             |                                             |                                   |        
|                                                             |                                             | Operating loss                    |        
|Other income (expense):                                      |                                             |                                   |        
|                                                             | Interest income                             |                                   |        
|                                                             | Interest expense                            |                                   |        
|                                                             | Loss on write-down of investment securities |                                   |        
|                                                             | Gain on sale of investment securities       |                                   |        
|                                                             | Other                                       |                                   |        
|                                                             |                                             |                                   |        
|                                                             |                                             | Total other income (expense), net |        
|                                                             |                                             |                                   |        
|Loss before income taxes                                     |                                             |                                   | (36,959
|Income tax benefit                                           |                                             |                                   | (971   
|                                                             |                                             |                                   |        
|                                                             |                                             | Net loss                          |        
|                                                             |                                             |                                   |        
|Net loss per common share:                                   |                                             |                                   |        
|                                                             | Basic and diluted                           |                                   | $      
|                                                             |                                             |                                   |        
|Basic and diluted weighted average common shares outstanding |                                             |                                   | 10,471 
|                                                             |                                             |                                   |        

See
accompanying Notes to the Consolidated Financial Statement

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

|                                                                         |                                                | Year Ended December 31, |        
|------------------------------------------------------------------------ | ---------------------------------------------- | ----------------------- | -------
|
|Net loss                                                                 |                                                | $                       | (35,988
|Other comprehensive income (loss):                                       |                                                |                         |        
|                                                                         | Foreign currency translation adjustments       |                         |        
|                                                                         | Unrealized gain (loss) on securities           |                         |        
|                                                                         | Minimum pension liability adjustment (Note 11) |                         |        
|                                                                         |                                                |                         |        
|Other comprehensive income (loss) before income taxes                    |                                                |                         | (1,977 
|Income tax expense related to items of other comprehensive income (loss) |                                                |                         |       
|                                                                         |                                                |                         |        
|Other comprehensive income (loss), net of income taxes                   |                                                |                         | (1,977 
|                                                                         |                                                |                         |        
|Comprehensive loss                                                       |                                                | $                       | (37,965
|                                                                         |                                                |                         |        

See
accompanying Notes to the Consolidated Financial Statements

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EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        For the years ended December 31, 2003, 2002 and 2001        (In thousands)

|                                               |  | Common Stock |  |   |       |  |   | Retained
Earnings
(Accumulated
Deficit) |  | Accumulated
Other
Comprehensive
Income (Loss) |        |   |  
|---------------------------------------------- |  | ------------ |  | - | ----- |  | - | --------------------------------------- |  | --------------------------------------------- | ------ | - | -
|
|
|Balance at December 31, 2000                   |  | 9,772        |  | $ | 1,954 |  | $ | 24,752                                  |  | $                                             | (4,709 | ) | $
|Issuance of common stock for cash              |  | 67           |  |   | 14    |  |   | 458                                     |  |                                               |       |   |  
|Other comprehensive income                     |  |             |  |   |      |  |   |                                        |  |                                               |       |   |  
|Net loss                                       |  |             |  |   |      |  |   |                                        |  |                                               |       |   |  
|Conversion of preferred stock for common stock |  | 901          |  |   | 180   |  |   | 23,820                                  |  |                                               |       |   |  
|                                               |  |              |  |   |       |  |   |                                         |  |                                               |        |   |  
|Balance at December 31, 2001                   |  | 10,740       |  |   | 2,148 |  |   | 49,030                                  |  |                                               | (4,709 | ) |  
|Issuance of common stock for cash              |  | 66           |  |   | 13    |  |   | 383                                     |  |                                               |       |   |  
|Other comprehensive income                     |  |             |  |   |      |  |   |                                        |  |                                               |       |   |  
|Net loss                                       |  |             |  |   |      |  |   |                                        |  |                                               |       |   |  
|                                               |  |              |  |   |       |  |   |                                         |  |                                               |        |   |  
|Balance at December 31, 2002                   |  | 10,806       |  |   | 2,161 |  |   | 49,413                                  |  |                                               | (4,709 | ) |  
|Issuance of common stock for cash              |  | 30           |  |   | 6     |  |   | 162                                     |  |                                               |       |   |  
|Other comprehensive income                     |  |             |  |   |      |  |   |                                        |  |                                               |       |   |  
|Net loss                                       |  |             |  |   |      |  |   |                                        |  |                                               |       |   |  
|                                               |  |              |  |   |       |  |   |                                         |  |                                               |        |   |  
|Balance at December 31, 2003                   |  | 10,836       |  | $ | 2,167 |  | $ | 49,575                                  |  | $                                             | (4,709 | ) | $
|                                               |  |              |  |   |       |  |   |                                         |  |                                               |        |   |  

See
accompanying Notes to the Consolidated Financial Statements

46

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

|                                                                     |                                                                                         | 2003                                                                             |       | 2002    |        | 2001   |        
|-------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----- | ------- | ------ | ------ | -------
|Cash flows from operating activities:                                |                                                                                         |                                                                                  |       |         |        |        |        
|                                                                     | Net loss                                                                                |                                                                                  | $     | (35,988 | )      | $      | (11,721
|                                                                     | Adjustments to reconcile net loss to net cash provided by (used in) operating activies: |                                                                                  |       |         |        |        |        
|                                                                     | Depreciation and amortization                                                           |                                                                                  |       | 6,782   |        |        | 9,311  
|                                                                     | Gain on sale of business unit                                                           |                                                                                  |       |        |        |        | (253   
|                                                                     | Gain on curtailment of pension plan                                                     |                                                                                  |       |        |        |        | (3,575 
|                                                                     | Inventory impairment                                                                    |                                                                                  |       | 14,566  |        |        | 1,392  
|                                                                     | Impairment loss                                                                         |                                                                                  |       | 1,151   |        |        | 311    
|                                                                     | Gain on sale of assets held for sale                                                    |                                                                                  |       | (1,406  | )      |        | (1,212 
|                                                                     | Loss on disposal of property, plant, and equipment                                      |                                                                                  |       | 16      |        |        | 40     
|                                                                     | Gain on sale of investment securities                                                   |                                                                                  |       |        |        |        | (27    
|                                                                     | Write-down of investment                                                                |                                                                                  |       | 500     |        |        | 16     
|                                                                     | Provisions for losses on accounts receivable                                            |                                                                                  |       | 68      |        |        | (734   
|                                                                     | Provision for excess and obsolete inventory                                             |                                                                                  |       | 1,499   |        |        | 1,802  
|                                                                     | Provision for warranty expense                                                          |                                                                                  |       | 2,274   |        |        | 617    
|                                                                     | Other                                                                                   |                                                                                  |       | 107     |        |        | 214    
|                                                                     | Change in assets and liabilities:                                                       |                                                                                  |       |         |        |        |        
|                                                                     |                                                                                         | Accounts receivable                                                              |       |         | 333    |        |        
|                                                                     |                                                                                         | Inventories                                                                      |       |         | 141    |        |        
|                                                                     |                                                                                         | Costs and estimated earnings in excess of billings on uncompleted contracts, net |       |         | 11,638 |        |        
|                                                                     |                                                                                         | Prepaid expenses and deposits                                                    |       |         | (328   | )      |        
|                                                                     |                                                                                         | Accounts payable                                                                 |       |         | (1,225 | )      |        
|                                                                     |                                                                                         | Accrued expenses                                                                 |       |         | (3,320 | )      |        
|                                                                     |                                                                                         | Customer deposits                                                                |       |         | 2,421  |        |        
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|                                                                     |                                                                                         | Net cash provided by (used in) operating activities                              |       |         | (771   | )      |        
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|Cash flows from investing activities:                                |                                                                                         |                                                                                  |       |         |        |        |        
|                                                                     | Proceeds from sale of investment securities                                             |                                                                                  |       |        |        |        | 39     
|                                                                     | Proceeds from sale of business unit                                                     |                                                                                  |       |        |        |        |       
|                                                                     | Purchases of property, plant and equipment                                              |                                                                                  |       | (3,767  | )      |        | (3,394 
|                                                                     | Proceeds from sale of property, plant and equipment                                     |                                                                                  |       | 4       |        |        |       
|                                                                     | Proceeds from sale of assets held for sale                                              |                                                                                  |       | 4,760   |        |        | 2,917  
|                                                                     | Decrease (increase) in other assets                                                     |                                                                                  |       |        |        |        | (218   
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|                                                                     |                                                                                         | Net cash provided by (used in) investing activities                              |       |         | 997    |        |        
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|Cash flows from financing activities:                                |                                                                                         |                                                                                  |       |         |        |        |        
|                                                                     | Net borrowings (payments) on line of credit agreements                                  |                                                                                  |       | (250    | )      |        | (12,965
|                                                                     | Decrease (increase) in restricted cash                                                  |                                                                                  |       | 2,195   |        |        | (156   
|                                                                     | Proceeds from issuance of common stock                                                  |                                                                                  |       | 168     |        |        | 396    
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|                                                                     |                                                                                         | Net cash provided by (used in) financing activities                              |       |         | 2,113  |        |        
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|Effect of foreign exchange rate changes on cash and cash equivalents |                                                                                         |                                                                                  |      |         |        |       |        
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|Net change in cash and cash equivalents                              |                                                                                         |                                                                                  | 2,339 |         |        | (1,342 | )      
|Cash and cash equivalents at beginning of year                       |                                                                                         |                                                                                  | 7,375 |         |        | 8,717  |        
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|                                                                     | Cash and cash equivalents at end of year                                                |                                                                                  | $     | 9,714   |        | $      | 7,375  
|                                                                     |                                                                                         |                                                                                  |       |         |        |        |        
|Supplemental Disclosure of Cash Flow Information                     |                                                                                         |                                                                                  |       |         |        |        |        
|Cash paid (received) during the year for:                            |                                                                                         |                                                                                  |       |         |        |        |        
|                                                                     | Interest                                                                                |                                                                                  | $     | 965     |        | $      | 1,814  
|                                                                     | Income taxes                                                                            |                                                                                  |       | (209    | )      |        | (534   

See accompanying Notes to the Consolidated Financial Statements

47

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EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2003, December 31, 2002 and December 31, 2001

(1) BUSINESS AND BACKGROUND

Description of Business

Evans & Sutherland Computer Corporation ("Evans & Sutherland", "E&S", "we", "our", or "the Company") produces visual systems used to display images
of the real world rapidly and accurately.    We design, manufacture, market and support visual systems for simulation for use in a wide range of military and commercial applications. We
also provide visual system technology to planetariums, science centers, and entertainment venues. We develop and deliver a complete line of image generators, displays, databases, services and support
products that match technology to customer requirements. Our products and solutions range from the desktop PC to what we believe are the most advanced visual systems in the world.

Restatement

During our 2003 fiscal year-end close process, we identified certain errors that affected our previously issued quarterly unaudited condensed
consolidated financial statements for 2003.
Accordingly, our 2003 quarterly unaudited condensed consolidated financial statements and related financial information previously issued for the first three quarters of 2003 have been restated. For
further details on the nature of the errors and the related effects on our previously issued quarterly unaudited condensed consolidated financial statements see Note 3. Where appropriate, we
have identified all amounts that have been restated with the notation "restated" and all amounts previously reported in our previously issued quarterly unaudited condensed consolidated financial
statements for 2003 "previously reported."

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made in the 2002 and 2001 consolidated financial statements and notes to conform to the 2003 presentations.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting period. Critical accounting estimates include revenue recognition based on the percentage-of completion method, inventory reserve
estimates, accruals for potential liquidated damages and late penalties, allowance for doubtful accounts estimates and estimates of our income taxes. Actual results could differ from those estimates.

Revenue Recognition

Sales include revenue from system hardware and software products, database and software licenses and service contracts.

48

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The
following table provides information concerning revenue recognized based on type of revenue recognition applied (in thousands):

2003

2002

2001Percentage of completion

$
38,358

$
63,263

$
73,626Product sales


40,590


54,939


65,167Time and materials


4,602


1,168


3,814Other


1,226


3,208


2,656Total sales

$
84,776

$
122,578

$
145,263


Percentage-of-Completion.In arrangements where software is considered more than incidental to the
arrangement, revenue is recognized in accordance with SOP 97-2, "Software Revenue Recognition". In accordance with the provisions of SOP 97-2, revenue from arrangements that
require significant production, modification or customization of the software is recognized in accordance with the provisions of American Institute of Certified Public Accountants ("AICPA") Statement
of Position ("SOP") 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" using the
percentage-of-completion method. The Company utilizes a methodology of estimating the percent complete by calculating the ratio of costs incurred to management's estimate of
total anticipated costs. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs. We routinely review estimates on percent-complete contracts and
estimates are regularly revised to adjust for changes. Billings on uncompleted long-term contracts may be greater than or less than incurred costs and estimated earnings and are recorded
as an asset or liability in the accompanying consolidated balance sheets.

Our
percentage of completion sales include the design, manufacture and installation of complex visual systems generally sold as a single element arrangement to our customers. In those
rare cases where arrangements include multiple elements, we utilize SOP 97-2 as modified by SOP 98-9. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements such as software and maintenance to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based
on vendor specific objective evidence ("VSOE") that is specific to the vendor. The revenue allocated to software is generally recognized upon delivery of the products. The revenue allocated to
maintenance is recognized over the maintenance period, based upon VSOE, which we determine based on renewal rates in contracts.

Product Sales.Product sales are comprised of contracts which typically require a relatively short period of time to complete
the production, modification and customization of the software, and accordingly revenue is not recognized until delivery of the completed embedded software product occurs, the fee is fixed and
determinable, and collection is considered probable.

Time and Materials.Services sold to customers on a time and materials or cost-plus basis are recognized as the
related services are performed.

Other.Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single
element to our customers. Revenue from product maintenance contracts,

49

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including
separately priced extended warranty contracts, is deferred and recognized on a straight-line basis over the contract period.

Restricted Cash

We have restricted deposits related to borrowings on one of our line of credit agreements that are pledged as collateral and which mature or expire within one
year.

Trade Accounts Receivable

In the normal course of business, we provide unsecured credit terms to our customers. Accordingly, we maintain an allowance for doubtful accounts for possible
losses on uncollectable accounts receivable. We routinely analyze accounts receivable and costs in excess of billings, and consider history, customer creditworthiness, facts and circumstances specific
to outstanding balances, current economic trends, and payment term changes when evaluating adequacy of the allowance for doubtful accounts. Changes in these factors could result in material
differences to bad debt expense. Past due balances are reviewed individually for collectibility.

For
uncollectable accounts receivable we record a loss against the allowance for doubtful accounts only after exhaustive efforts have been made to collect and with management's approval.
Generally, realized losses have been within the range of management's expectations.

The
table below represents changes in allowance for doubtful receivables, in thousands:

Balance at
beginning
of year

Additions
charged
(reversed)
to cost and
expenses

Deductions
charged
(recovered)
against
provision

Balance
at end of
yearAllowance for doubtful receivablesDecember 31, 2003

$
856

$
68

$
573

$
351December 31, 2002


6,413


(734
)

4,823


856December 31, 2001


4,411


2,358


356


6,413


Inventories

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

50

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Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated
useful lives of the related assets. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs and
renewal costs are expensed as incurred.

Accounting for Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the book value of an asset may not be fully
recoverable. When this occurs, we periodically review the value assigned to the separate components of long-lived assets through comparison to anticipated, undiscounted cash flows from the
underlying assets to assess recoverability. When the expected future undiscounted cash flows from these assets do not exceed the carrying balances of the related assets, the Company then determines
the estimated fair value of such assets. The amount of impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets
held for sale are reported at the lower of their carrying amount or fair value less costs to sell.

Software Development Costs

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

Investments

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

We
account for our investments in non-marketable securities on both the cost and equity methods of accounting. In assessing the fair value of such investments, we consider
recent equity transactions that investees have entered into, the status of each investee's technology and strategies in place to achieve their objectives, as well as the investee's financial condition
and results of operations. To the extent there are changes in these assessments, adjustments may need to be recorded. For our investment accounted for on the equity method, adjustments are made to the
carrying amount of the investment to account for our equity in undistributed earnings of the investee. Investments are periodically evaluated for a decline in value that is considered
other-than-temporary. Any such decline is recognized as a loss in the statement of operations.

51

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Warranty Reserve

We provide a warranty reserve for estimated future costs of servicing products under warranty agreements extending for periods from 90 days to several
years. Anticipated costs for product warranties are based upon estimates derived from experience factors and are recorded at the time of sale or over the contract period for long-term
contracts.

The
following table provides the changes in our warranty reserves (in thousands):

2003

2002Beginning balance

$
968

$
1,966Provision for warranty expense


2,274


617Warranty charges against the reserve


(1,952
)

(1,615
)Ending Balance

$
1,290

$
968


Stock-Based Compensation

We have adopted the footnote disclosure provisions of Statements of Financial Accounting Standards ("SFAS") 123 and 148, "Accounting for Stock Based
Compensation". SFAS 123 encourages entities to adopt a fair value based method of accounting for stock options or similar equity instruments. However, it also allows an entity to continue
measuring compensation cost for stock based compensation using the intrinsic-value method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for
Stock Issued to Employees". We have elected to continue to apply the provisions of APB 25 and provide pro forma footnote disclosures required by SFAS 123 and 148.

We
account for our stock option plans under APB 25, under which no compensation cost has been recognized as all options granted under these plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. Had compensation cost for these plans been determined consistent with SFAS 123, our net loss and loss per common share would
have been changed to the following pro forma amounts (in thousands, except per share data):

|                                                                                                              |  | 2003 |         | 2002 |   | 2001    |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|Net loss, as reported                                                                                         |  | $    | (35,988 | )    | $ | (11,721 | )
|Deduct: Total stock based employee compensation expense determined under the fair value method for all awards |  |      | (442    | )    |   | (688    | )
|                                                                                                              |  |      |         |      |   |         |  
|Pro forma net loss                                                                                            |  | $    | (36,430 | )    | $ | (12,409 | )
|                                                                                                              |  |      |         |      |   |         |  
|Loss per share:                                                                                               |  |      |         |      |   |         |  
|Basic and dilutedas reported                                                                                 |  | $    | (3.44   | )    | $ | (1.12   | )
|Basic and dilutedpro forma                                                                                   |  |      | (3.48   | )    |   | (1.19   | )

52

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Income Taxes

We use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Concentration of Credit Risk

In the normal course of business, we provide unsecured credit terms to our customers. Accordingly, we perform ongoing credit evaluations of our customers and
maintain allowances for possible losses which, when realized, have generally been within the range of management's expectations. As discussed further in Note 22, we derive a significant portion
of our sales from a limited number of customers. The loss of any one or more of these customers could have a material adverse effect on our financial condition and results of operations.

(3) RESTATEMENT OF 2003 QUARTERLY FINANCIAL STATEMENTSUNAUDITED

The Company's previously issued unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of operations, comprehensive loss
and cash flows for the first three fiscal quarters of 2003 have been restated to correct certain accounting errors.

The
aggregate effect of the restatement increased previously reported net loss for the quarters ended March 28, 2003, June 27, 2003 and September 26, 2003 by
$1.2 million, $2.6 million and $1.9 million, respectively. The aggregate effect of the restatement increased previously reported basic and diluted loss per share for the quarters
ended March 28, 2003, June 27, 2003 and September 26, 2003, by $0.12, $0.24 and $0.18, respectively.

During
our 2003 year-end close process and review of the financial statements of our wholly-owned subsidiary, Evans & Sutherland Computer Limited
("E&S Ltd."), we identified certain errors in E&S Ltd.'s 2003 quarterly financial statements due to the incorrect application of certain accounting principles during the first three
quarters of 2003.

Adjustments
as a result of the restatement have been divided into the following three categories:



53

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Summary of Restated Items

|                                                                            |                   | Three months ended |         | Three months ended |   | Three months ended |      
|--------------------------------------------------------------------------- | ----------------- | ------------------ | ------- | ------------------ | - | ------------------ | -----
|
|
|
|Sales                                                                       |                   | $                  | 22,578  |                    | $ | 22,693             |      
|Cost of sales                                                               |                   |                    | 14,998  |                    |   | 13,870             |      
|Gross profit (loss)                                                         |                   |                    | (6,986  | )                  |   | (5,743             | )    
|Operating loss                                                              |                   |                    | (23,703 | )                  |   | (22,460            | )    
|Loss before income taxes                                                    |                   |                    | (24,543 | )                  |   | (23,300            | )    
|Net loss                                                                    |                   | $                  | (24,275 | )                  | $ | (23,032            | )    
|Net loss per common share:                                                  |                   |                    |         |                    |   |                    |      
|                                                                            | Basic and diluted |                    | $       | (2.32              | ) | $                  | (2.20
|Comprehensive loss                                                          |                   | $                  | (24,248 | )                  | $ | (23,005            | )    
|                                                                            |                   |                    |         |                    |   |                    |      
|
|
|
|
|Costs and estimated earnings in excess of billings on uncompleted contracts |                   | $                  | 19,975  |                    | $ | 18,630             |      
|Total current assets                                                        |                   |                    | 82,102  |                    |   | 80,757             |      
|Total assets                                                                |                   | $                  | 110,429 |                    | $ | 109,084            |      
|Customer deposits                                                           |                   | $                  | 3,665   |                    | $ | 2,538              |      
|Billings in excess of costs and estimated earnings on uncompleted contracts |                   |                    | 10,684  |                    |   | 9,223              |      
|Total current liabilities                                                   |                   |                    | 50,128  |                    |   | 47,540             |      
|Total liabilities                                                           |                   |                    | 81,262  |                    |   | 78,674             |      
|Accumulated deficit                                                         |                   |                    | (17,435 | )                  |   | (16,192            | )    
|Total stockholders' equity                                                  |                   |                    | 29,167  |                    |   | 30,410             |      
|Total liabilities and stockholders' equity                                  |                   | $                  | 110,429 |                    | $ | 109,084            |      

There was no net effect due to the errors discovered on cash provided by (used in) operations, cash provided (used in) investing activities, and
cash provided by (used in) financing activities in our previously issued quarterly condensed consolidated statements of cash flow in each of the first three quarters of 2003.

54

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(4) IMPAIRMENTS

Inventory impairments and impairment losses in 2003, 2002, and 2001 are presented in the table below (dollars in thousands):

2003

2002

2001Inventory impairment (by product):Harmony 1

$
10,000

$


$
ESIG


3,300





TargetView


1,266





simFUSION 4000





1,392


Total inventory impairment

$
14,566

$
1,392

$
Impairment loss:Fixed assets

$
1,151

$


$
Software licenses





311


Goodwill








220Total impairment loss

$
1,151

$
311

$
220


During
the first quarter of 2003 certain significant orders that we had expected to receive as of December 31, 2002, and into early 2003, were canceled by customers. We believe
these cancellations were primarily the result of a re-alignment of military spending priorities which occurred during the first quarter of 2003. The future demand for our Harmony 1, ESIG,
and TargetView products significantly decreased compared to our prior projections because of these cancellations. As a result, during the quarter ended March 28, 2003, we recorded a
$14.6 million impairment to specific inventory and a $1.2 million impairment to certain fixed assets related to the manufacture of these products.

Approximately
$10.0 million of the first quarter 2003 impairment related to our Harmony 1 inventory. Through the end of 2002 and into early 2003, we expected to finalize a sale of
two Harmony 1 systems, one as an option to a current U.S. government contract and another to a European prime contractor. During March 2003, we received notification from the U.S. customer that
it would not purchase the Harmony 1 system, as had been forecasted, due to a decision to migrate to a more current technology, specifically commercial off-the-shelf PCs or our
next-generation Harmony 2 product. Feedback from the European prime contractor was quite similar. Thus, the loss of these orders coupled with the overall shift in market demand resulted in
our determination that we had excess Harmony 1 inventory on hand. We currently do not have other prospects to sell this excess Harmony 1 inventory, and these components cannot be used in the
manufacture of other products. Accordingly, we determined that $10.0 million of inventory related to these systems was impaired. In addition, because we do not expect to sell any additional
Harmony 1 systems, we determined we had no further need for certain fixed assets specifically used to build, test, and demonstrate our Harmony 1 product. We recorded an additional impairment related
to these fixed assets, as we believe this equipment has no alternative use.

Approximately
$3.3 million of the first quarter 2003 impairment related to our ESIG inventory. Through the end of 2002 and into early 2003, we expected to finalize the sale of as
many as nine ESIG systems to a particular commercial customer. During March of 2003, we received notification from this customer that it would not purchase the ESIG systems as had been forecasted due
to its interest in our

55

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next-generation
EP-1000CT technology, which provides enhanced functionality at a comparable price. While we continue to have ESIG related inventory on hand for
other forecasted ESIG systems, the loss of this order, coupled with the increased demand for our next-generation EP-1000CT product, caused us to determine that we had inventory
in excess of our current purchase orders and forecasted demand.

Approximately
$1.3 million of the first quarter 2003 impairment related to our TargetView 100 inventory. In the first quarter of 2003, we had opportunities to propose TargetView
100 technology for a significant number of systems. During this timeframe, we discussed many potential solutions to the customer's requirements and became convinced that the TargetView 100 technology
had been superseded by newer technology. In light of this, our business opportunities for TargetView 100 systems have all but been eliminated and has resulted in our determination that we had excess
inventory on hand. Accordingly, we determined that $1.3 million of inventory related to these systems was impaired.

In
2002, we recorded an inventory impairment loss of $1.4 million related to our decision to exit the simFUSION 4000 product line. This impairment encompassed the total value of
the simFUSION 4000 inventory on hand. This decision was based on anticipated reduced demand as a result of customer migration to the next-generation simFUSION products.

In
2002, we recorded an impairment loss of $0.3 million related to software licenses that were used by employees that were terminated as a result of the fourth quarter 2002
reduction-in-force.

In
2001, we recorded an impairment loss of $0.2 million for the write-off of goodwill acquired in our acquisition of AccelGraphics, Inc. and Silicon
Reality, Inc. in 1998.

(5) INVENTORIES

Inventories consist of the following (in thousands):

December 31,2003

2002Raw materials

$
6,950

$
13,597Work-in-process


3,301


10,467Finished goods


5,722


7,309Total inventory

$
15,973

$
31,373


56

---



EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2003, December 31, 2002 and December 31, 2001

(6) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Comparative information with respect to uncompleted contracts is summarized as follows (in thousands):

|                                                                            |  | December 31, |         
|--------------------------------------------------------------------------- |  | ------------ | --------
|
|Accumulated costs and estimated earnings on uncompleted contracts           |  | $            | 229,970 
|Less total billing on uncompleted contracts                                 |  |              | (230,547
|                                                                            |  |              |         
|                                                                            |  |              | (577    
|                                                                            |  |              |         
|Costs and estimated earnings in excess of billings on uncompleted contracts |  |              | 10,922  
|Billings in excess of costs and estimated earnings on uncompleted contracts |  |              | (11,499 
|                                                                            |  |              |         
|                                                                            |  | $            | (577    
|                                                                            |  |              |         

(7) PROPERTY, PLANT AND EQUIPMENT

The cost and estimated useful lives of property, plant and equipment are summarized as follows (dollars in thousands):

|                                               |  |              |  | December 31, |        
|---------------------------------------------- |  | ------------ |  | ------------ | -------
|
|
|Buildings and improvements                     |  | 40 years     |  | $            | 29,249 
|Manufacturing machinery and equipment          |  | 3 to 8 years |  |              | 73,231 
|Office furniture and equipment                 |  | 8 years      |  |              | 5,454  
|Construction-in-process                        |  |             |  |              | 1,702  
|                                               |  |              |  |              |        
|                                               |  |              |  |              | 109,636
|Less accumulated depreciation and amortization |  |              |  |              | (85,521
|                                               |  |              |  |              |        
|                                               |  |              |  | $            | 24,115 
|                                               |  |              |  |              |        

See
Note 4 for information concerning impairment of property, plant and equipment that occurred in 2003.

(8) LEASES

Sublease rental income for all operating leases for 2003, 2002 and 2001 was $0.8 million, $1.3 million, and $2.2 million, respectively.

We
occupy real property and use certain equipment under lease arrangements that are accounted for as operating leases. Rental expenses for all operating leases for 2003, 2002 and 2001
were $3.9 million, $3.9 million, and $4.0 million, respectively.

57

---

At
December 31, 2003, the future minimum sublease rental income and lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one
year are as follows (in thousands):

Rental
income

Rental
commitmentYear ending December 31,2004

$
237

$
1,3302005





8282006





7642007





427Thereafter





9,232$
237

$
12,581


(9) INVESTMENTS

We had the following investments in securities and a joint venture (in thousands):

December 31,2003

2002Marketable securities available for sale

$
557

$
112Nonmarketable securitiesQuantum Vision Inc., (Quantum)





500Total Graphics Solution, N.V. (TGS)


500


500Other


16


16Total nonmarketable securities


516


1,016Investment in joint ventureQuest Flight Training Ltd. (Quest)


938


874Total investment securities

$
2,011

$
2,002


Quantum
is a start-up company that owns patented technology to improve cathode ray tube (CRT) performance used in large projection systems. TGS develops and markets portable
graphics software tools, which provide hardware independence for application developers. Each investment in non-marketable investment securities was made either to enhance a current
technology of E&S or to complement our strategic direction.

We
own, including total shares purchased or available to purchase under warrants, less than 5% of the outstanding common stock and common stock equivalents of Quantum and less than 15%
of TGS. We have rights to one of six seats on TGS's board of directors. There are no inter-company transactions, technological dependencies, related guarantees, obligations, contingencies, interchange
of personnel, nor ability to exercise significant influence for either of these companies. Accordingly, we account for Quantum and TGS utilizing the cost method.

58

---

In
2003, we determined that the technology that Quantum was developing was no longer a marketable, leading edge technology that had a foreseeable future. Also it was determined that this
technology would not benefit or enhance our current technology or strategic direction. As a result, management determined that the value of the investment had experienced a decline in value that was
deemed to be other-than-temporary. As a result, we wrote down the total value of this security.

We
have a 50% interest in Quest, a joint venture with Quadrant Group plc ("Quadrant") providing aircrew training services for the United Kingdom Ministry of Defence ("U.K. MoD") under a
30-year contract. The investment is accounted for under the equity method. Equity in earnings of Quest of $64,000, $46,000, and $74,000 is recorded in other income (expense) in 2003, 2002,
and 2001, respectively. The financial position and operating results of Quest are immaterial to our financial results.

In
connection with the services of Quest to the U.K. MoD, during fiscal 2000 we entered into guarantees of various obligations of Quest. As of December 31, 2003, we had four
guaranties outstanding related to Quest. Pursuant to the first guaranty, we have guarantied, jointly and severally with Quadrant, the performance of Quest in relation to its contract with the U.K.
MoD. If Quest fails to meet its obligations under the contract then we (and Quadrant) are required to perform under the terms of the contract. Due to the length of the contract and the uncertainty of
performance for which we would be liable if Quest fails to perform, we cannot estimate the maximum amount of possible future payments. This guaranty is in place until 2030. Pursuant to the second
guaranty, we have guarantied, jointly and severally with Quadrant, up to a maximum amount of £1.0 million ($1.8 million as of December 31, 2003), the performance of
Quest, where not subcontracted, and the performance of Quest where subcontracted, and the subcontractor is not liable to meet its obligation due to any limitation of liability in the
sub-contract agreement, thus preventing Quest from meeting its obligation under its contract with the U.K. MoD. This guaranty is in place until 2020. Pursuant to the third guaranty, we
have guarantied a certain loan agreement that Quest has entered into by agreeing to have a trustee hold our equity shares in Quest until such time as the loan agreement ends in 2020, or is canceled.
In the event of default on this loan agreement, the lending institution can request that the trustee turn over our equity shares in Quest to satisfy all outstanding amounts against this loan
agreement. Pursuant to the fourth guaranty, we have guarantied payment, up to a maximum of £0.13 million ($0.2 million as of December 31, 2003), in the event that
Quest has a default event, as defined by its loan agreement. This guaranty is in place until 2020. As of December 31, 2003, no amounts have been accrued for any estimated losses under these
guaranties because we believe that Quest will meet all of its performance and financial obligations in relation to its contract with the U.K. MoD. However, if we are required to perform under any or
all of the four guaranties, it could have a material adverse impact on our operating results and liquidity.

59

---

(10) ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

December 31,2003

2002Compensation and benefits

$
3,924

$
5,740Liquidated damages and late delivery penalties


1,734


1,050Restructuring (see Note 23)


1,611


2,032Warranty reserve (see Note 2)


1,290


968Other


3,967


3,303$
12,526

$
13,093


(11) EMPLOYEE RETIREMENT BENEFIT PLANS

Pension Plan (the "Plan")Effective April 23, 2002, the Board of Directors approved the redesign of our employee
retirement plans to match contemporary market practices and to improve our competitive position by aligning future funding for employee retirement benefits into the 401(k) plan. This action was
implemented by amending the Plan to curtail accrual of future benefits under the Plan. At the same time, the 401(k) plan was amended to permit the Board of Directors to grant additional discretionary
matching contributions based on our profitability and other financial and operational considerations.    This change to the pension plan had no effect on the benefits vested to current and
previous employees for their past service. Those benefits will be paid on retirement. Retirees currently receiving pension payments are also unaffected. Benefits at normal retirement age
(65) are based upon the employee's years of service, as of the date of the curtailment for employees not yet retired, and the employee's compensation prior to the curtailment. This pension plan
is a funded noncontributory defined benefit pension plan. Our funding policy is to contribute amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations.

Supplemental Executive Retirement Plan ("SERP")Amendments to curtail the SERP were approved at the May 16, 2002 Board
meeting. Those amendments were made for consistency with changes to our pension plan earlier in 2002. Specifically, we changed the executive retirement benefits from defined pension benefits under the
SERP, funded solely by E&S, to 401(k) and deferred compensation retirement benefits funded through both employee and Company contributions. As a result of the curtailment, the SERP is now consistent
with our pension plan in other areas including closing the SERP to new participants and freezing further SERP gains from any future salary increases. The SERP, which is unfunded, provides eligible
executives defined pension benefits, outside our pension plan, based on average earnings, years of service, and age at retirement.

401(k) Deferred Savings PlanWe have a deferred savings plan that qualifies under Section 401(k) of the Internal
Revenue Code. The plan covers all employees of E&S who have at least one year of service and who are age 18 or older. We make matching contributions on employee contributions. The 401(k) plan was
amended on April 23, 2002, to permit the Board of Directors to grant additional discretionary matching contributions based on our profitability and other financial and operational
considerations. Our contributions to this plan for 2003, 2002 and 2001 were $0.6 million, $0.9 million and $1.1 million, respectively.

60

---

Executive Savings Plan (ESP)The ESP is a deferred compensation plan that allows tax-deferred retirement savings
beyond the amount that can be contributed to the 401(k) plan. The ESP, a nonqualified plan that does not have the same protections as a qualified 401(k) plan, covers only a select group of management
employees. Participants earn matching amounts on their contributions. Consistent with the curtailment of the SERP, the ESP was amended on May 16, 2002 to permit the Board of Directors to grant
additional discretionary contributions. This plan is unfunded.

Life InsuranceWe purchase company-owned life insurance policies insuring the lives of participants in the ESP. The policies
accumulate asset values and exist to cover the cost of employee supplemental retirement benefit liabilities. At December 31, 2003 and 2002, the investment in the policies was
$2.2 million and $2.0 million, respectively, and net life insurance expense was $0.1 million $0.2 million, and $0.1 million, for 2003, 2002, and 2001, respectively.

E&S
uses a December 31 measurement date for both the Pension Plan and SERP.

Obligations and Funded Status

|                                          |  | At December 31 |       
|----------------------------------------- |  | -------------- | ------
|
|
|
|Change in benefit obligation              |  |                |       
|Benefit obligation at beginning of year   |  | $              | 38,585
|Service cost                              |  |                |      
|Interest cost                             |  |                | 2,533 
|Actuarial (gain) loss                     |  |                | 3,591 
|Benefits paid                             |  |                | (5,889
|Assumption change                         |  |                |      
|Curtailment                               |  |                |      
|                                          |  |                |       
|Benefit obligation at year end            |  | $              | 38,820
|                                          |  |                |       
|Change in plan assets                     |  |                |       
|Fair value at beginning of year           |  | $              | 36,663
|Actual return on plan assets              |  |                | 254   
|Employer contributions                    |  |                |      
|Benefits paid                             |  |                | (5,889
|                                          |  |                |       
|Fair value at end of year                 |  | $              | 31,028
|                                          |  |                |       
|                                          |  |                |       
|Funded status                             |  | $              | (7,792
|Unrecognized net actuarial loss (gain)    |  |                | 2,421 
|Unrecognized prior service cost (benefit) |  |                |      
|                                          |  |                |       
|Net amount recognized                     |  | $              | (5,371
|                                          |  |                |       

61

---

Amounts
recognized in the balance sheet consist of:

|                                       |  | Pension Plan |        | SERP |  
|-------------------------------------- |  | ------------ | ------ | ---- | -
|
|Prepaid benefit cost                   |  | $            |       |      | $
|Accrued benefit cost                   |  |              | (7,792 | )    |  
|Accumulated other comprehensive income |  |              | 2,421  |      |  
|                                       |  |              |        |      |  
|Net amount recognized                  |  | $            | (5,371 | )    | $
|                                       |  |              |        |      |  

The
accumulated benefit obligation for the Pension Plan was $38.8 million and $38.6 million at December 31, 2003 and 2002, respectively. The accumulated benefit
obligation for the SERP was $7.7 million and $6.5 million at December 31, 2003 and 2002, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets

|                               |  | Pension Plan |        | SERP
|------------------------------ |  | ------------ | ------ | ----
|
|Projected benefit obligation   |  | $            | 38,820 |     
|Accumulated benefit obligation |  |              | 38,820 |     
|Fair value of plan assets      |  |              | 31,028 |     

Components of Net Periodic Benefit Cost

|                                        |  | Pension Plan |        | SERP
|--------------------------------------- |  | ------------ | ------ | ----
|
|Service cost                            |  | $            |       |     
|Interest cost                           |  |              | 2,533  |     
|Expected return on assets               |  |              | (2,813 | )   
|Amortization of actuarial (gain) loss   |  |              |       |     
|Amortization of prior year service cost |  |              |       |     
|Curtailment gain                        |  |              |       |     
|Amortization of transition              |  |              |       |     
|                                        |  |              |        |     
|Net periodic benefit cost               |  | $            | (280   | )   
|                                        |  |              |        |     

Additional Information

|                                                                    |  | Pension Plan |       | SERP
|------------------------------------------------------------------- |  | ------------ | ----- | ----
|
|Additional minimum liability included in other comprehensive income |  | $            | 2,421 |     

We
recorded an additional minimum liability related to our Pension Plan of $2.4 million during 2003 due mainly to a net $5.6 million decrease in related plan assets.
Because the accumulated benefit obligation exceeded the fair value of plan assets and the accrued benefit cost (before the additional

62

---

minimum
liability) was less than the unfunded benefit obligation, the additional minimum liability was charged to other comprehensive income.

Assumptions

Weighted-average assumptions used to determine benefit obligations at December 31

|                              |  | Pension Plan |   | SERP |  
|----------------------------- |  | ------------ | - | ---- | -
|
|Discount rate                 |  | 6.25         | % | 6.75 | %
|Rate of compensation increase |  | N/A          |   | N/A  |  

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31

|                                         |  | Pension Plan |   | SERP |  
|---------------------------------------- |  | ------------ | - | ---- | -
|
|Discount rate                            |  | 6.75         | % | 7.25 | %
|Expected long-term return on plan assets |  | 8.0          | % | 8.0  | %
|Rate of compensation increase            |  | N/A          |   | N/A  |  

The
long term rate of return on plan assets was determined as the weighted average of expected return of each of the asset classes in the target allocation of plan assets. The expected
return of each asset class is the investment managers' assessment of future returns. These expectations were compared to historical market returns to ensure that the expected return for each class was
a conservative estimate.

Plan Assets

E&S' Pension Plan weighted-average asset allocations at December 31, 2003 and 2002, by asset category, weighted-average planned targeted asset allocations
going forward, by asset category, and expected long-returns on plan assets, by category:

|                          |                  | Target % |    | 2003
(actual) |   | 2002
(actual) |   | Expected
Return |    
|------------------------- | ---------------- | -------- | -- | ------------- | - | ------------- | - | --------------- | ---
|Allocation of plan assets |                  |          |    |               |   |               |   |                 |    
|Cash and cash equivalents |                  | 0        | %  | 100           | % | 100           | % | 0.0             | %  
|Fixed income              |                  | 45       | %  | 0             | % | 0             | % | 2.5             | %  
|Domestic equities         |                  |          |    |               |   |               |   |                 |    
|                          | Small cap growth |          | 15 | %             | 0 | %             | 0 | %               | 1.7
|                          | Large cap growth |          | 15 | %             | 0 | %             | 0 | %               | 1.4
|                          | Large cap value  |          | 15 | %             | 0 | %             | 0 | %               | 1.4
|International equities    |                  | 10       | %  | 0             | % | 0             | % | 1.0             | %  
|                          |                  |          |    |               |   |               |   |                 |    
|                          |                  |          |    |               |   |               |   | 8.0             | %  

63

---

The
asset allocation policy, consistent with the long-term growth objectives of the Pension Plan, will be to invest on a diversified basis among the various asset classes as
determined by
the Plan Administrative Committee. The assets of the Pension Plan were temporarily invested in cash equivalents beginning in September 2002. The Committee has implemented a plan in 2004 to
return to the targeted asset allocation. Assets will be invested in a manner that will provide for long-term growth with a goal to achieve returns equal to or greater than applicable
benchmarks. Investments will be managed by registered investment advisors. When investing Pension Plan assets, the investment managers of separately managed accounts shall not utilize derivative
instruments for speculative purposes or to create leveraged positions.

No
equity securities of E&S were part of the Pension Plan assets as of December 31, 2003, and 2002, respectively.

Cash FlowContributions

E&S does not expect to make any contributions to either the Pension Plan or the SERP in 2004. Our funding policy is to contribute amounts sufficient to satisfy
regulatory funding standards, based upon independent actuarial valuations.

(12) DEBT

Included in long-term debt is 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 our common stock at a conversion price of $42.10 or 428,000 shares of our common stock subject to adjustment.
The 6% Debentures are redeemable at our option, in whole or in part, at par.

The
following is a summary of our line of credit agreements (dollars in thousands):

2003

2002Balance at end of year

$
7,685

$
7,883Weighted average interest rate at end of year


6.1
%

5.2
%Maximum balance outstanding during the year

$
11,298

$
24,647Average balance outstanding during the year

$
3,054

$
12,282Weighted average interest rate during the year


4.1
%

7.8
%


The
average balance outstanding and weighted average interest rate are computed based on the outstanding balances and interest rates at month-end during each year.

E&S
has a secured credit facility (the "Foothill Facility") with Wells Fargo Foothill ("Foothill") that provides for borrowings and the issuance of letters of credit up to
$25.0 million. The Foothill Facility, among other things, (i) requires E&S to maintain certain financial ratios and covenants, including a combined cash and borrowing availability
financial covenant that adjusts each quarter and a limitation of $12.0 million of aggregate capital expenditures in any fiscal year; (ii) restricts our ability to incur debt or liens;
sell, assign, pledge or lease assets; merge with another company; and (iii) restricts the payment of dividends and repurchase of any of our outstanding shares without the prior consent of the
lender. The Foothill Facility expires in December 2004.

64

---

Borrowings
under the Foothill Facility bear interest at the Wells Fargo Bank National Association prevailing prime rate plus 3.0% to 4.5%, depending on the amount outstanding. In
addition, the Foothill Facility has an unused line fee equal to 0.375% per annum times the difference between $25 million and the sum of the average undrawn portion of the borrowings, payable
each quarter. The
Foothill Facility provides Foothill with a first priority perfected security interest in substantially all of our assets, including, but not limited to, all of our intellectual property.

In
March 2003, the Foothill Facility was amended to delete the tangible net worth covenant from the Foothill Facility and replace it with a combined cash and borrowing
availability financial covenant that went into effect at the end of our second quarter fiscal-end, June 2003, and is in effect until the Foothill Facility expires. In addition, the
interest rate that borrowings bear interest at was amended, from a range of 1.5% to 3.0% to a range of 3.0% to 4.5% over the Wells Fargo Bank, N.A. prevailing prime rate, depending on the amount
outstanding. Also, at no time will borrowings under the Foothill Facility bear interest at a rate less than 10.25%.

As
of December 31, 2003, E&S had $3.7 million in outstanding borrowings and $3.6 million in outstanding letters of credit under the Foothill Facility. Our customers
can draw against these letters of credit if we fail to meet the performance requirements contained within the terms of each letter of credit. As of December 31, 2003, no amounts have been
accrued for any estimated losses under the obligations, as we believe it is probable that we will perform as required under our contracts.

Evans &
Sutherland Computer Limited, a wholly-owned subsidiary of Evans & Sutherland Computer Corporation, has a $3.0 million overdraft facility (the "Overdraft
Facility") with Lloyds TSB Bank plc ("Lloyds"). At the discretion of Lloyds, the maximum amount borrowed against the Overdraft Facility can be increased for a short period of time that is
predetermined by Lloyds. Borrowings under the Overdraft Facility bear interest at Lloyds' short-term offered rate plus 1.75% per annum. As of December 31, 2003, there were
$4.0 million in outstanding borrowings. The Overdraft Facility is subject to reduction or demand repayment for any reason at any time at Lloyds' discretion. The Overdraft Facility expired on
December 31, 2003. The Overdraft Facility was renewed after December 31, 2003 with essentially the same terms except that the borrowing limit is $2.5 million and it expires on
December 31, 2004. Evans & Sutherland Computer Limited executed a letter of negative pledge in favor of Lloyds whereby it agreed not to sell or encumber its assets, except in the
ordinary course of business. Covenants contained in the Overdraft Facility restrict dividend payments from Evans & Sutherland Computer Limited and require maintenance of certain financial
covenants. In addition, at December 31, 2003, we had $0.8 million on deposit with Lloyds in a restricted cash collateral account to support certain obligations that the bank guarantees.

(13) INCOME TAXES

The income tax benefit of $1.0 million for 2003 is primarily attributable to adjustments to prior years tax provisions as a result of favorable resolution
of certain worldwide tax contingencies. The income tax benefit of $0.5 million for 2002 is primarily attributable to the carryback of alternative minimum tax net operating losses pursuant to
the Job Creation and Workers Assistance Act of 2002. The income tax benefit of $3.2 million for 2001 is primarily attributable to adjustments to prior years tax provisions as a result of
favorable resolution of certain worldwide tax contingencies.

65

---



The
actual expense (benefit) differ from the expected tax expense (benefit) as computed by applying the U.S. federal statutory tax rate of 35 percent, as a result of the following
(in thousands):

2003

2002

2001Tax benefit at U.S. federal statutory rate

$
(12,936
)
$
(4,264
)
$
(10,720
)Gains of foreign subsidiaries





(325
)

(320
)Adjustment to prior year tax provisions


(1,002
)




(3,172
)State taxes (net of federal income tax benefit)








Research and development and foreign tax credits








(681
)Change in federal valuation allowance attributable to operations


12,807


3,582


12,599Other, net


160


544


(878
)$
(971
)
$
(463
)
$
(3,172
)


The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2003 and 2002 are presented below (in
thousands):

2003

2002Deferred tax assets:Warranty, vacation, and other accruals

$
2,516

$
3,075Inventory reserves and other inventory related temporary basis differences


9,037


4,832Pension accrual


5,931


5,091Long-term contract related temporary differences


180


181Net operating loss carryforwards


48,750


38,109Capital loss carryforwards


44


667Write-down of investment securities


1,711


1,526Credit carryforwards


3,561


3,552Other


285


374Total gross deferred tax assets


72,015


57,407Less valuation allowance


71,027


56,796Total deferred tax assets


988


611Deferred tax liabilitiesPlant and equipment, principally due to differences depreciation


(959
)

(543
)Other


(29
)

(68
)Total gross deferred tax liabilities


(988
)

(611
)Net deferred tax asset

$


$



66

---

Worldwide
income (loss) before income taxes for the years ended December 31, 2003, 2002, and 2001 consisted of the following (in thousands):

2003

2002

2001United States

$
(36,960
)
$
(13,140
)
$
(31,570
)Foreign


1


956


941$
(36,959
)
$
(12,184
)
$
(30,629
)


We
have total federal net operating loss carryovers of $130 million, of which, $26 million expires in 2023, $26 million expires in 2022, $22 million expires
in 2021, and the remainder expires between 2006 and 2019. We have various tax credit carryovers of $3.5 million that expire between 2004 and 2021. We also have state net operating loss
carryovers that expire depending on the rules of the various states to which the loss is allocated.

During
the years ended December 31, 2003 and 2002, we increased the valuation allowance on deferred tax assets by approximately $14.0 million and $3.6 million,
respectively. These amounts relate to an increase in the general valuation allowance established under provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which requires that a valuation allowance be established when it is more likely than not that the net deferred tax assets will not be realized.

(14) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, receivables, line of credit agreements, accounts payable, and accrued expenses approximates fair value because
of their short maturity. The fair value of our 6% Debentures ($10.3 million and $5.1 million as of December 31, 2003 and 2002, respectively) is based on quoted market prices.

(15) COMMITMENTS AND CONTINGENCIES

On September 23, 2003, we entered into a purchase agreement with a third party that commits E&S to purchase $1.1 million in software licenses and
engineering support to be used in product development and future products over a two year period, with continuous one year extensions optional. As of December 31, 2003, our remaining commitment
totaled $0.5 million.

In
November 2003, we entered into a settlement agreement with one of our customers. Based on our estimates, we expect that the costs associated with meeting the requirements of
the settlement agreement will approximate $1.2 million and we have accrued this amount.

On
December 1, 2003 we entered into a purchase agreement with a third party that commits E&S to purchase a minimum $1.0 million of licensed products and support for design
development software. The agreement is effective for a period of two years. As of December 31, 2003, our remaining commitment totaled $1.0 million.

Certain
of our contracts to deliver Harmony image generators contain liquidated damage provisions for delays in delivery. We incurred $0.6 million and $2.9 million for such
damages in 2003

67

---

and
2001, respectively. No damages were incurred in 2002. If further delays in the delivery of the Harmony image generator occur, we may incur additional liquidated damages.

(16) LEGAL PROCEEDINGS

In May 2003, a claim was made against the Company by RealVision, Inc. relative to matters arising from the sale of a business unit to
RealVision, Inc. in 2001. The parties entered mediation in the fourth quarter of 2003, and continued discussions into 2004. In March 2004, an agreement was reached under which RealVision
will receive a settlement in the amount of $2.4 million of which E&S will pay approximately $0.9 million to resolve this claim, with the remainder of the settlement amount being paid by
E&S's insurance carrier. The Company has accrued its portion of the settlement.

In
the normal course of business, E&S 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, we believe the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial condition, liquidity or
results of operations

(17) STOCK OPTION AND STOCK PURCHASE PLANS

Stock Option PlansWe have stock incentive plans that provide for the grant of options to officers, employees, consultants,
and independent contractors to acquire shares of our common stock at a purchase price generally equal to the fair market value on the date of grant. Options generally vest ratably over three years and
expire ten years from date of grant. We grant options to our non-employee directors under our Non-Employee Directors Plan. Option grants are limited to 10,000 shares per
director in each fiscal year. Options generally vest ratably over three years and expire ten years from the date of grant. A summary of activity follows (shares in thousands):

|                                                                         |  | 2003 |       | 2002 |   | 2001 
|------------------------------------------------------------------------ |  | ---- | ----- | ---- | - | -----
|
|Outstanding at beginning of year                                         |  |      | 2,410 |      | $ | 11.58
|Granted                                                                  |  |      | 243   |      |   | 5.85 
|Exercised                                                                |  |      |      |      |   | 5.88 
|Cancelled                                                                |  |      | (309  | )    |   | 8.83 
|                                                                         |  |      |       |      |   |      
|Outstanding at end of year                                               |  |      | 2,344 |      |   | 11.33
|                                                                         |  |      |       |      |   |      
|Exercisable at end of year                                               |  |      | 1,951 |      |   | 12.41
|                                                                         |  |      |       |      |   |      
|Weighted-average per share fair value of options granted during the year |  | $    | 2.48  |      |   |      
|                                                                         |  |      |       |      |   |      

As
of December 31, 2003, options to purchase 338,530 shares of common stock were authorized and reserved for future grant.

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The
following table summarizes information about fixed stock options outstanding as of December 31, 2003 (options in thousands):

|                  |  | Options outstanding |  |      |  |  
|----------------- |  | ------------------- |  | ---- |  | -
|
|
|
|$  3.15 - $  6.01 |  | 442                 |  | 8.36 |  | $
|6.03 -   10.69    |  | 439                 |  | 7.02 |  |  
|11.00 -   13.25   |  | 447                 |  | 3.57 |  |  
|13.38 -   13.56   |  | 669                 |  | 4.64 |  |  
|13.57 -   32.88   |  | 347                 |  | 3.87 |  |  
|3.15 -   32.88    |  | 2,344               |  | 5.47 |  |  

The
fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants
during 2003, 2002, and 2001:

2003

2002

2001Expected life (in years)

2.6

2.5

2.6Risk-free interest rate

1.5
%
1.4
%
3.0
%Expected volatility

69
%
75
%
37
%Dividend yield








Stock Purchase PlanWe have an employee stock purchase plan whereby qualified employees are allowed to have up to 10% of their
gross pay withheld each pay period to purchase our common stock at 85% of the market value of the stock at the time of the sale. Shares totaling 30,031, 54,000, and 63,000, were purchased under this
plan in fiscal 2003, 2002, and 2001. During the period of
December 24, 2002, through February 18, 2003, the Employee Stock purchase Plan was inadvertently oversubscribed in the amount of 10,373 shares, leaving no shares available for future
issuance under this plan. On February 27, 2003, our Board of Directors increased the number of shares available under this plan from 500,000 to 800,000 shares, and ratified all prior issuances
of shares under the plan. As of December 31, 2003, there were 265,751 shares available for purchase under this plan.

(18) PREFERRED STOCK



We have 5,000,000 authorized shares of Class A Preferred Stock. Prior to 1998, we had reserved 300,000 shares of Class A Preferred Stock as
Series A Junior Preferred Stock under a shareholder rights plan which expired in November 1998. In November 1998, the Board of Directors declared a dividend of one preferred stock
purchase right ("Right") for each outstanding share of common stock, par value $0.20 per share of E&S for shareholders of record on November 19, 1998, and for all future issuances of common
stock. The Rights are not currently exercisable or transferable apart from the common stock and do not have voting rights or rights to receive dividends. Each Right entitles the

69

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registered
holder to purchase from E&S one thousandth of a share of Preferred Stock at a price per share of $60.00, subject to adjustment. The Rights will be exercisable ten business days following a
public announcement of a person or group of affiliated persons acquiring beneficial ownership of 15% or more of our outstanding common shares or following the announcement of a tender offer or
exchange offer upon the consummation of which would result in the beneficial ownership by a person or group of affiliated persons of 15% or more of the outstanding E&S stock. The Rights may be
redeemed by E&S at a price of $0.01 per Right before November 30, 2008.

In
the event that we are acquired in a merger or other business combination transaction, provision shall be made so that each holder of a Right, excluding the Rights beneficially owned
by the acquiring persons, will have the right to receive, upon exercise thereof at the then current exercise price, that number of shares of common shares of the surviving company which at the time of
such transaction will have a market value of two times the exercise price of the Right. In the event that a person or group of affiliated persons acquires beneficial ownership of 15% or more of our
outstanding common shares, provision shall be made so that each holder of a Right, excluding the Rights beneficially owned by the acquiring persons, shall have the right to receive, upon exercise
thereof, a share of common stock at a purchase price equal to 50% of the then current exercise price.

On
June 7, 2000, E&S and American Stock Transfer & Trust Company amended the Rights to allow the State of Wisconsin Investment Board to acquire beneficial ownership up to
19.9% of our outstanding common shares without triggering the exercisability of the Rights.



We have 5,000,000 authorized shares of Class B Preferred Stock. On July 22, 1998, Intel Corporation ("Intel") purchased 901,408 shares of our
preferred stock, which were subsequently converted into 901,408 shares of our common stock in 2001.

(19) 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 and the 6% 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.

In
calculating net loss per common share, the net loss was the same for both the basic and diluted calculation. The diluted weighted average number of common shares outstanding during
2003, 2002, and 2001 excludes common stock issuable pursuant to outstanding stock options and the 6% Debentures because to do so would have had an anti-dilutive effect on loss per common
share. The total number of common shares excluded from diluted loss per share related to the above was approximately 2.8 million, 2.8 million, and 2.9 million in 2003, 2002, and
2001, respectively.

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(20) SEGMENT AND RELATED INFORMATION

During 2001, our operations included the Simulation Group, the REALimage Solutions Group and the Applications Group. In the third quarter of 2001 we sold the
REALimage Solutions Group. In the fourth quarter of 2001 we discontinued the RAPIDsite business, which was part of the Applications Group. Also in the fourth quarter of 2001, we consolidated the
planetarium equipment business of the Applications Group into the Simulation Group and incorporated the remaining technology of the Applications Group into the Simulation Group. As a result, we had
only one reportable segment in 2002 and 2003, the development and marketing of visual simulation systems.

(21) GEOGRAPHIC INFORMATION

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

2003

2002

2001United States

$
39,580

$
74,220

$
95,734United Kingdom


11,924


25,821


26,960Europe (excluding United Kingdom)


15,681


10,287


10,479Pacific Rim


14,655


8,889


9,069Other


2,936


3,361


3,021Total Sales

$
84,776

$
122,578

$
145,263


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

2003

2002United States

$
23,332

$
26,687Europe


783


1,601Total property, plant and equipment, net

$
24,115

$
28,288


(22) SIGNIFICANT CUSTOMERS

In 2003, sales to the U.S. government totaled $15.2 million or 18% of total sales. We had no other individually significant customers in 2003 based on
sales. However, we were dependent on five of our non-U.S. government customers for approximately 25% of our consolidated sales in 2003. In 2002, sales to the U.S. government totaled
$35.4 million or 29% of total sales, sales to Thales Training & Simulation ("Thales") totaled $19.8 million or 16% of total sales, and sales to The Boeing Company ("Boeing")
totaled $17.1 million or 14% of total sales. In 2001, sales to the U.S. government totaled $35.1 million or 24% of total sales, sales to Thales totaled $23.9 million or 16% of
total sales, and sales to Boeing totaled $15.1 million of 10% of total sales.

As
of December 31, 2003, aggregated accounts receivable from Boeing were $2.5 million or 12% of gross receivables. As of December 31, 2002, aggregated accounts
receivable from CAE, Inc. were

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$6.1 million
or 28% of gross accounts receivable and from agencies of the U. S. government were $2.9 million or 13% of gross accounts receivable.

As
of December 31, 2003, the amount of costs and estimated earnings in excess of billings on uncompleted contracts related to CAE Inc., Fedex Corporation and Indra Systemas
S.A. was 30%, 23%, and 11% of the total, respectively. As of December 31, 2002, the amount of costs and estimated earnings in excess of billings on uncompleted contracts related to CAE, the
U.S. government, and Thales was 28%, 21%, and 14% of the total, respectively.

(23) RESTRUCTURING CHARGES

In the third quarter of 2001, we initiated a restructuring plan focused on reducing the operating cost structure of E&S. As part of the plan, we recorded a charge
of $2.1 million relating to a reduction in force of approximately 80 employees. In the fourth quarter of 2001, we extended the restructuring plan and recorded a charge of $0.7 million
relating to a reduction in force of an additional 12 employees. As of December 31, 2001, we had paid $1.9 million in severance benefits related to these restructurings.

In
the second quarter of 2002, we recorded an additional restructuring charge. As part of this restructuring, we recorded a charge of $1.9 million related to a reduction in force
of approximately 90 employees. In the fourth quarter of 2002, we recorded another restructuring charge in order to create an operating cost structure in line with anticipated 2003 sales. As part of
this restructuring, we recorded a charge of $2.6 million related to a reduction in force of approximately 140 employees. In 2002 we had a total reduction in force of approximately 230 employees
resulting in recorded charges of $4.5 million, and paid $2.5 million in severance benefits.

In
the first quarter of 2003, we restructured to reduce our operating costs in line with anticipated sales. As part of this restructuring, we recorded a charge of $1.3 million
related to a reduction in force of approximately 50 full-time equivalent employees. In the third quarter of 2003, we restructured to reduce our operating costs to be in line with projected
sales and expenses. As part of this restructuring, we recorded a restructuring charge of $2.1 million. This charge primarily related to a reduction in force of approximately 70
full-time equivalent employees. In 2003 we had a total reduction in force of approximately 120 full-time equivalent employees resulting in recorded charges of
$3.4 million, and paid approximately $3.8 million in severance benefits.

The
majority of all remaining benefits will be paid out over 2004. The following table summarizes restructuring charges, severance benefits paid and the remaining restructuring accrual
for 2003, 2002, and 2001.

|                                |  | Balance at
12/31/02 |       | Restructure
charges |   | Severance
benefits paid |  | Balance at
12/31/03
|------------------------------- |  | ------------------- | ----- | ------------------- | - | ----------------------- |  | -------------------
|Remaining 2001 accrual          |  | $                   | 89    |                     | $ |                        |  | $                  
|Remaining 2002 accrual          |  |                     | 1,943 |                     |   |                        |  |                    
|2003 Q1 restructuring provision |  |                     |      |                     |   | 1,279                   |  |                    
|2003 Q3 restructuring provision |  |                     |      |                     |   | 2,137                   |  |                    
|                                |  |                     |       |                     |   |                         |  |                    
|                                |  | $                   | 2,032 |                     | $ | 3,416                   |  | $                  
|                                |  |                     |       |                     |   |                         |  |                    

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(24) ASSETS HELD FOR SALE

In 2003 we sold one of the two office buildings we had classified as assets held for sale, resulting in a $1.4 million gain. In 2002, we sold one of three
office buildings we had classified as assets held for sale, resulting in a $1.2 million gain. At December 31, 2003, we owned one office building, with a book value of $2.5 million
that is being held for sale. This building is no longer depreciated and is considered a current asset. We continue to market this property to prospective buyers.

In
the fourth quarter of 2001 E&S recognized $9.0 million upon the sale of certain of our key 3D-graphics patents, which were being held for sale, to NVIDIA Corporation.

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

"None"

ITEM 9A.    CONTROLS AND PROCEDURES

As of the end of the fiscal quarter ended December 31, 2003, we carried out an evaluation, under the supervision and with the participation of the
principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2003. Disclosure
controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in our reports filed with the SEC is accumulated and communicated to management, including the chief executive officer and chief financial
officer to allow timely decisions regarding required disclosure.

Based
on this evaluation, and except as discussed in the following paragraphs, the principal executive officer and principal financial officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. To enhance our disclosure control procedures, we added a Disclosure Review
Board to our process. This requires every executive, senior staff, and our legal counsel to participate in the planning, scheduling, drafting, and/or review process and to notify the Company's chief
financial officer of their completion of their associated tasks. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Evaluation of our internal controls and procedures related to the restatement.Our evaluation of our
internal controls and procedures included an in depth review of all aspects of the matter of certain material weaknesses we identified in the internal controls and procedures of our wholly-owned
subsidiary, Evans & Sutherland Computer Limited ("E&S Ltd.") as more fully disclosed in Note 3 of the Notes to
Consolidated Financial Statements included as part of this Form 10-K, and an in depth review of all aspects of the matter by the Audit Committee, the results of which are described
below.

Management
and the Audit Committee took a leadership role in assessing the underlying issues giving rise to the restatement and in ensuring proper steps were taken to improve our
internal control environment. Based on all information gathered during our in depth review of all aspects of the matter, we cannot conclude that there was misconduct or intentional use of improper
accounting practices to manipulate earnings or any fraud or intentional misconduct on the part of our officers or employees. The Audit Committee, however, also concluded that our accounting, financial
reporting and internal control functions needed improvement, including our system of documenting transactions. The Audit Committee determined that our management has proactively identified a number of
these issues and has appropriately taken steps to address them.

Actions taken in response to our evaluation.As a result of our findings described above, during the
first quarter of 2004, we began implementing the following improvements to our internal control procedures and our disclosure controls and procedures to address the issues we identified in our
evaluation of the these controls and procedures and those of our subsidiary, E&S Ltd.:



74

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We
believe that our internal controls and procedures and our disclosure controls and procedures have now been improved due to the scrutiny of such controls and procedures by management
and the Audit Committee. We believe our internal controls and procedures and our disclosure controls and procedures will continue to improve as we complete the implementation of the actions described
above.

Based
in part upon these changes, our CEO and CFO believe that as of the filing date of this Annual Report on Form 10-K, our disclosure controls and procedures are
reasonably designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC.

Other
than as described above, there have been no significant changes in our internal controls and procedures identified in our in depth review of those accounting practices and errors
giving rise to our restatement that have materially affected, or are reasonably likely to materially affect, our internal controls and procedures subsequent to the date of our evaluation.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding our directors is incorporated by reference from "Election of Directors" section in the Proxy Statement to be delivered to shareholders in
connection with the 2004 Annual Meeting of Shareholders to be held on May 18, 2004.

Information
required by Item 405 of Regulation S-K is incorporated by reference from "Compliance with Section 16(a) of the Securities Exchange Act of 1934" section
in the Proxy Statement to be delivered to shareholders in connection with the 2004 Annual Meeting of Shareholders to be held on May 18, 2004.

Information
concerning our current executive officers is incorporated by reference to the section in Part I hereof found under the the caption "Executive Officers of the
Registrant."

All
other information regarding directors and officers is herein incorporated by reference from the Proxy Statement to be delivered to shareholders in connection with the 2004 Annual
Meeting of Shareholders to be held on May 18, 2004.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding this item is incorporated by reference from "Executive Compensation" section in the Proxy Statement to be delivered to shareholders in
connection with the 2004 Annual Meeting of Shareholders to be held on May 18, 2004.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding this item is incorporated by reference from "Security Ownership of Certain Beneficial Owners and Management" section in the Proxy Statement
to be delivered to shareholders in connection with the 2004 Annual Meeting of Shareholders to be held on May 18, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding this item is incorporated by reference from the "Election of Directors" and "Executive Compensation" sections in the Proxy Statement to be
delivered to shareholders in connection with the 2004 Annual Meeting of Shareholders to be held on May 18, 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding this item is incorporated by reference from "Report of the Audit Committee of the Board of Directors" section in the Proxy Statement to be
delivered to shareholders in connection with the 2004 Annual Meeting of Shareholders to be held on May 18, 2004.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The following constitutes a list of Financial Statements, Financial Statement Schedules, and Exhibits required to be used in this report:







|2.1   |  | Agreement and Plan of Merger, dated April 22, 1998, among Evans & Sutherland Computer Corporation, E&S Merger Corp., and AccelGraphics, Inc., filed as Annex I to Evans & Sutherland Computer
Corporation's Registration Statement on Form S-4, SEC File No. 333-51041, and incorporated herein by this reference.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Articles of Incorporation, as amended, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation's Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 25, 1987, and incorporated
herein by this reference.                                                              
|3.1.1 |  | Amendments to Articles of Incorporation filed as Exhibit 3.1.1 to Evans & Sutherland Computer Corporation's Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 30, 1988, and incorporated
herein by this reference.                                                           
|      |  |                                                                                                                                                                                                                                                                                                                   

77

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|3.1.2 |  | Certificate of Designation, Preferences and Other Rights of the Class B-1 Preferred Stock of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation's Form 10-Q, SEC
File No. 000-08771, for the quarter ended September 25, 1998, and incorporated herein by this reference.                                                                                                                                                                 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   |  | Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.2 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2000, and incorporated herein by this
reference.                                                                                                                                                                                                                                                            
|3.3   |  | Amendment No. 1 to the Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.3 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2000, and
incorporated herein by this reference.                                                                                                                                                                                                                                     
|4.1   |  | Form of Rights Agreement, dated as of November 19, 1998, between Evans & Sutherland Computer Corporation and American Stock Transfer Trust Company which includes as Exhibit A, the form of Certificate of Designation for the Rights,
as Exhibit B, the form of Rights Certificate and as Exhibit C, a Summary of Rights, filed as Exhibit 1 to Evans & Sutherland Computer Corporation's Registration Statement on Form 8-A filed December 8, 1998, and
incorporated herein by this reference.
|4.2   |  | First Amendment to Rights Agreement dated as of June 7, 2000 between Evans & Sutherland Computer Corporation and American Stock Transfer & Trust Company, filed as Exhibit 10.14 to Evans & Sutherland Computer
Corporation's Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by this reference.                                                                                                                                                                         
|*10.1 |  | 1985 Stock Option Plan, as amended, filed as Exhibit 1 to Evans & Sutherland Computer Corporation's Post-Effective Amendment No. 1 to Registration Statement on Form S-8, SEC File No. 2-76027, and incorporated herein by
this reference.                                                                                                                                                                                                                                                      
|*10.2 |  | 1989 Stock Option Plan for Non-employee Directors, filed as Exhibit 10.5 to Evans & Sutherland Computer Corporation's Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 29, 1989, and
incorporated herein by this reference.                                                                                                                                                                                                                               
|*10.3 |  | 1991 Employee Stock Purchase Plan of Evans & Sutherland Computer Corporation, as amended as of February 21, 2001, filed as exhibit 4.1 to Evans & Sutherland Computer Corporation's Post Effective Amendment No. 1 to
Registration Statement on Form S-8, SEC File No. 33-39632, and incorporated herein by this reference.                                                                                                                                                                     
|*10.4 |  | Evans & Sutherland Computer Corporation 1998 Stock Option Plan, as amended as through May 17, 2000, filed as exhibit 4.1 to Evans & Sutherland Computer Corporation's Post Effective Amendment No. 1 to Registration
Statement on Form S-8, SEC File No. 333-58733, and incorporated herein by this reference.                                                                                                                                                                                  
|*10.5 |  | Evans & Sutherland Computer Corporation's 1995 Long-Term Incentive Equity Plan, filed as Exhibit 10.11 to Evans & Sutherland Computer Corporation's Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal
year ended December 29, 1995, and incorporated herein by this reference.                                                                                                                                                                                                 
|10.6  |  | Series B Preferred Stock and Warrant Purchase Agreement dated as of July 20, 1998, between Evans & Sutherland Computer Corporation and Intel Corporation, filed as Exhibit 4.2 to Evans & Sutherland Computer
Corporation's Form 10-Q, SEC File No. 000-08771, for the quarter ended September 25, 1998, and incorporated herein by this reference.                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

78

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|10.7   |  | Warrant to Purchase Series B Preferred Stock dated as of July 22, 1998, between Evans & Sutherland Computer Corporation and Intel Corporation, filed as Exhibit 4.3 to Evans & Sutherland Computer Corporation's
Form 10-Q, SEC File No. 000-08771, for the quarter ended September 25, 1998, and incorporated herein by this reference.                                                
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.8  |  | Employment agreement between Evans & Sutherland Computer Corporation and James R. Oyler, dated May 16, 2000, filed as Exhibit 10.6 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended
June 30, 2000, and incorporated herein by this reference.                                                                                                               
|10.9   |  | Overdraft Facility dated June 15, 2000 between Evans & Sutherland Computer Limited and Lloyds TSB Bank plc, filed as Exhibit 10.12 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended
June 30, 2000, and incorporated herein by this reference.                                                                                                               
|*10.10 |  | Amendment to employment agreement between Evans & Sutherland Computer Corporation and James R. Oyler, dated September 22, 2000, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 10-Q for the
quarter ended September 29, 2000, and incorporated herein by this reference.                                                                                       
|10.11  |  | Loan and Security Agreement by and between Evans & Sutherland Computer Corporation and Foothill Capital Corporation, dated December 14, 2000, filed as Exhibit 10.41 to Evans & Sutherland Computer Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by this reference.                                                    
|10.12  |  | Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture filing between Evans & Sutherland Computer Corporation, Chicago Title Company, Foothill Capital Corporation, dated December 14, 2000, filed as
Exhibit 10.42 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference herein.
|10.13  |  | Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture filing between Evans & Sutherland Computer Corporation, Chicago Title Company, Foothill Capital Corporation, dated December 14, 2000, filed as
Exhibit 10.43 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference herein.
|10.14  |  | Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture filing between Evans & Sutherland Computer Corporation, Chicago Title Company, Foothill Capital Corporation, dated December 14, 2000, filed as
Exhibit 10.44 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.       
|10.15  |  | Absolute Assignment of Sub-Leases and Rent by Evans & Sutherland Computer Corporation, dated December 14, 2000, filed as Exhibit 10.45 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended
December 31, 2000, and incorporated herein by this reference.                                                                                                          
|10.16  |  | Absolute Assignment of Sub-Leases and Rent by Evans & Sutherland Computer Corporation, dated December 14, 2000, filed as Exhibit 10.46 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended
December 31, 2000, and incorporated herein by this reference.                                                                                                          
|10.17  |  | Absolute Assignment of Sub-Leases and Rent by Evans & Sutherland Computer Corporation, dated December 14, 2000, filed as Exhibit 10.47 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended
December 31, 2000, and incorporated herein by this reference.                                                                                                          
|       |  |                                                                                                                                                                                                                                                                                                                                                                                         

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|10.18 |  | Pledge and Security Agreement between Evans & Sutherland Computer Corporation and Foothill Capital Corporation, dated December 14, 2000, filed as Exhibit 10.48 to Evans & Sutherland Computer Corporation's Form 10-K
for the year ended December 31, 2000, and incorporated herein by this reference.                                                                                                                                                                                                                             
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19 |  | Intellectual Property Security Agreement between Evans & Sutherland Computer Corporation and Foothill Capital Corporation, dated December 14, 2000, filed as Exhibit 10.49 to Evans & Sutherland Computer Corporation's
Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.                                                                                                                                                                                                                  
|10.20 |  | Amendment No. 1 to Series B Preferred Stock and Warrant Purchase Agreement between Evans & Sutherland Computer Corporation and Intel Corporation, dated effective as of March 1, 2001, filed as Exhibit 10.50 to
Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.                                                                                                                                                                               
|10.21 |  | Asset Purchase and Intellectual Property License Agreement between Real Vision Inc. and Evans & Sutherland Computer Corporation, dated August 31, 2001, filed as Exhibit 10.1 to Evans & Sutherland Computer
Corporation's Form 10-Q for the quarter ended September 28, 2001, and incorporated herein by reference.                                                                                                                                                                                                                
|10.22 |  | Initial License Agreement between Real Vision Inc. and Evans & Sutherland Computer Corporation, dated August 31, 2001, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter
ended September 28, 2001, and incorporated herein by reference.                                                                                                                                                                                                                                                 
|10.23 |  | Foothill Covenant waiver for the third quarter 2001, filed as Exhibit 10.3 to Evans & Sutherland Computer Corporation's Form 10-Q for the quarter ended September 28, 2001, and incorporated herein by reference.                                                                                                                                                                                                                                                                                                                   
|10.24 |  | Amendment Number One to Loan and Security Agreement and Waiver by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated February 22, 2002, filed as Exhibit 10.56 to Evans & Sutherland
Computer Corporation's Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.                                                                                                                                                                                          
|10.25 |  | Patent Purchase and License Agreement between Nvidia International Inc., Evans & Sutherland Computer Corporation, and Evans & Sutherland Graphics Corporation, dated October 15, 2001, filed as Exhibit 10.57 to
Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2001, and incorporated herein by this reference.                                                                                                                                                                               
|10.26 |  | Patent Cross License Agreement between Nvidia Corporation and Evans & Sutherland Computer Corporation, dated October 15, 2001, filed as Exhibit 10.58 to Evans & Sutherland Computer Corporation's Form 10-K for the year
ended December 31, 2001, and incorporated herein by this reference. Certain information in this exhibit was omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under
Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.
|10.27 |  | Amendment Number Two to Loan and Security Agreement and Waiver by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated August 14, 2002, filed as Exhibit 10.30 to Evans & Sutherland
Computer Corporation's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.                                                                                                                                                                                            
|10.28 |  | Amendment Number Three to Loan and Security Agreement and Waiver by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated December 11, 2002, filed as Exhibit 10.31 to Evans &
Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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|10.29  |  | Amendment Number Four to Loan and Security Agreement and Waiver by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated January 8, 2003, filed as Exhibit 10.32 to Evans & Sutherland
Computer Corporation's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.                 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30  |  | Foothill Limited Waiver of Certain Financial Covenants for the second quarter 2002 by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated July 24, 2003, filed as Exhibit 10.33 to
Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
|10.31  |  | Overdraft Facility Continuation agreement between Evans & Sutherland Computer Limited and Lloyds TSB Bank plc, dated February 18, 2003, filed as Exhibit 10.34 to Evans & Sutherland Computer Corporation's Form 10-K for
the year ended December 31, 2002, and incorporated herein by reference.                                                         
|*10.32 |  | Employment agreement between Evans & Sutherland Computer Corporation and L. Eugene Frazier, dated August 26, 2002, filed as Exhibit 10.35 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended
December 31, 2002, and incorporated herein by reference.                                                                              
|*10.33 |  | Amended and restated employment agreement between Evans & Sutherland Computer Corporation and David B. Figgins, dated August 26, 2002, filed as Exhibit 10.37 to Evans & Sutherland Computer Corporation's Form 10-K for
the year ended December 31, 2002, and incorporated herein by reference.                                                          
|*10.34 |  | Amended and restated Evans & Sutherland Computer Corporation's Supplemental Executive Retirement Plan (SERP), dated May 16, 2002, filed as Exhibit 10.38 to Evans & Sutherland Computer Corporation's Form 10-K for the
year ended December 31, 2002, and incorporated herein by reference.                                                               
|*10.35 |  | Amended and restated Evans & Sutherland Computer Corporation's Executive Savings Plan, dated May 16, 2002, filed as Exhibit 10.39 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended
December 31, 2002, and incorporated herein by reference.                                                                                      
|10.36  |  | Consent and Subordination Agreement by Foothill Capital Corporation, dated December 14, 2002, filed as Exhibit 10.40 to Evans & Sutherland Computer Corporation's Form 10-K for the year ended December 31, 2002, and
incorporated herein by reference.                                                                                                   
|*10.37 |  | Amended and restated employment agreement between Evans & Sutherland Computer Corporation and E. Thomas Atchison, dated July 1, 2003, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation's Form 10-Q for
the quarter ended September 26, 2003, and incorporated herein by reference.                                                        
|10.38  |  | Amendment Number Five to Loan and Security Agreement and Waiver by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated July 16, 2003, filed as Exhibit 10.2 to Evans & Sutherland
Computer Corporation's Form 10-Q for the quarter ended September 26, 2003, and incorporated herein by reference.                
|10.39  |  | Amendment Number Six to Loan and Security Agreement and Waiver by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated July 25, 2003, filed as Exhibit 10.3 to Evans & Sutherland
Computer Corporation's Form 10-Q for the quarter ended September 26, 2003, and incorporated herein by reference.                 
|21.1   |  | Subsidiaries of Registrant, filed herein.                                                                                                                                                                                                                                                                                                                 
|23.1   |  | Consent of Independent Auditors, filed herein.                                                                                                                                                                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                                                                                           

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|24.1 |  | Powers of Attorney for Messrs. James R. Oyler, E. Thomas Atchison, Gerald S. Casilli, Wolf-Dieter Hass, David J. Coghlan, and William Schneider, filed herein.                      
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein.                                    
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein.                                    
|32   |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herein.

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Trademarks Used in this Form 10-K

E&S, Harmony, ESIG, ESCP, Integrator, simFUSION, EPX, EP, Environment Processor, RenderBeast, TargetView, VistaView, MCT, RAPIDsite, REALimage, Encore, and
Digistar are trademarks or registered trademarks of Evans & Sutherland Computer Corporation. All other product, service, or trade names or marks are the properties of their respective owners.

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Schedule II

EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2003, 2002 and 2001
(in thousands)

|                                         |  | Balance at
beginning
of year |       | Additions
charged
(reversed)
to cost and
expenses |   | Deductions
charged
(recovered)
against
provision |   | Balance
at end of
year
|---------------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------- | - | ------------------------------------------------ | - | ----------------------
|Allowance for doubtful receivables       |  |                              |       |                                                   |   |                                                  |   |                       
|December 31, 2003                        |  | $                            | 856   |                                                   | $ | 68                                               |   | $                     
|December 31, 2002                        |  |                              | 6,413 |                                                   |   | (734                                             | ) |                       
|December 31, 2001                        |  |                              | 4,411 |                                                   |   | 2,358                                            |   |                       
|Inventory reserves                       |  |                              |       |                                                   |   |                                                  |   |                       
|December 31, 2003                        |  | $                            | 9,111 |                                                   | $ | 16,065                                           |   | $                     
|December 31, 2002                        |  |                              | 7,185 |                                                   |   | 3,194                                            |   |                       
|December 31, 2001                        |  |                              | 9,894 |                                                   |   | 943                                              |   |                       
|Warranty reserves                        |  |                              |       |                                                   |   |                                                  |   |                       
|December 31, 2003                        |  | $                            | 968   |                                                   | $ | 2,274                                            |   | $                     
|December 31, 2002                        |  |                              | 1,966 |                                                   |   | 617                                              |   |                       
|December 31, 2001                        |  |                              | 1,447 |                                                   |   | 2,197                                            |   |                       
|Accrued liquidated damages and penalties |  |                              |       |                                                   |   |                                                  |   |                       
|December 31, 2003                        |  | $                            | 1,050 |                                                   | $ | 1,850                                            |   | $                     
|December 31, 2002                        |  |                              | 1,500 |                                                   |   | 150                                              |   |                       
|December 31, 2001                        |  |                              | 3,091 |                                                   |   | 1,500                                            |   |                       

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|               |  | EVANS & SUTHERLAND COMPUTER CORPORATION
|-------------- |  | ---------------------------------------
|March 17, 2004 |  | By:                                    

Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

|/s/JAMES R. OYLERJames R. Oyler         |  | Director, Chief Executive
Officer and President
(Principal Executive Officer)                             | March 17, 2004
|--------------------------------------- |  | --------------------------------------------------------------------------------------------------------- | --------------
|/s/E. THOMAS ATCHISONE. Thomas Atchison |  | Vice President, Chief Financial
Officer, Corporate Secretary
(Principal Financial and Accounting Officer) | March 17, 2004
|*Gerald S. Casilli                      |  | Director                                                                                                  | March 17, 2004
|*Wolf-Dieter Hass                       |  | Director                                                                                                  | March 17, 2004
|*David J. Coghlan                       |  | Director                                                                                                  | March 17, 2004
|*William Schneider, Jr.                 |  | Director                                                                                                  | March 17, 2004
|By:                                     |  | /s/E. THOMAS ATCHISONE. Thomas Atchison*Attorney-in-Fact                                                  |               

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