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


                                    FORM 10-K
(Mark One)
[X]    ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 1997

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
                  For the Transition Period from _____ to _____

                          Commission File Number 0-8771


                               EVANS & SUTHERLAND
                              COMPUTER CORPORATION
             (Exact name of registrant as specified in its charter)

            Utah                                                  87-0278175
(State or other jurisdiction of                              (I.R.S.  Employer
 incorporation or organization)                              Identification No.)

600 Komas Drive, Salt Lake City, Utah                               84108
(Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code: (801) 588-1000

           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 X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) 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. [X]

       The aggregate market value of the voting stock held by  non-affiliates of
the Registrant as of February 27, 1998 was approximately $186,775,000.

       The Registrant had issued and outstanding  8,925,444 shares of its common
stock on February 27, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

       Those sections or portions of the  Registrant's  1997 Proxy Statement for
its Annual Meeting of Shareholders  to be held on May 21, 1998 are  incorporated
by reference into Part III hereof.

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<PAGE>


                                    FORM 10-K

                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Evans & Sutherland Computer Corporation (Evans & Sutherland, E&S(R), or
the  Company)  was  founded by Drs.  David C. Evans and Ivan E.  Sutherland  and
incorporated  under the laws of the State of Utah on May 10, 1968.  E&S became a
publicly  owned  company in 1978.  The Company has its  principal  executive and
operations  facilities  in Salt Lake  City,  Utah,  on a  36-acre  campus in the
University  of Utah  Research  Park.  The  Company  also has  offices in Boston,
Massachusetts;  Dallas, Texas; Orlando,  Florida;  Beijing, China; Dubai, United
Arab Emirates; Horsham, England; and Munich, Germany.

         A leader in computer graphics since 1968, E&S develops and manufactures
hardware and software for visual systems that produce vivid and highly realistic
3D  (three-dimensional)  graphics  and  synthetic  environments.  The  Company's
product  offerings include a full range of  high-performance  visual systems for
simulation,  training,  and  virtual  reality  applications,  as well as graphic
accelerator products for personal computer workstations.

RECENT DEVELOPMENTS AND STRATEGIC ACTIVITIES

         Evans & Sutherland  continues to follow a three-point  growth strategy,
consisting of growing existing businesses, developing new businesses internally,
and  selectively  acquiring  businesses.  E&S formed the Digital Studio business
unit during 1997,  repositioned  the Digital  Theater  business  unit  (formerly
Education and  Entertainment),  and announced several new products utilizing the
Company's  Symphony(TM)  strategy. E&S also made a strategic minority investment
in a technology  company.  A summary of recent  developments  and key  strategic
activities that occurred in the past year are summarized below.

         The Company formed its Digital Studio business unit on January 8, 1997.
The unit provides  affordable,  state-of-the-art,  real-time systems for digital
content  production in the television,  film,  video,  corporate  training,  and
multimedia industries.  Digital Studio products are built around an open-systems
architecture  and the Windows NT  operating  environment.  The  business  unit's
MindSet(TM)  Virtual  Studio  System  and  FuseBox(TM)  software  is in  use  at
broadcast and video studios throughout the world.

     E&S  announced  several new products in its Symphony  strategy,  which is a
full range of hardware  and  software  products  based on Intel/NT  open systems
architectures.  Harmony(TM)  is the highest  performance  system of the Symphony
strategy. It is intended for applications that demand superior image quality and
deterministic  real-time  control.  At the same time,  Harmony delivers superior
price/performance,  making it the  technology  of choice  for  complex  training
requirements.  The first customer  shipment of the Harmony system is planned for
the second  quarter of 1998.  For  low-end  applications,  E&S shipped its first
Rhythm(TM)  system in 1997,  a  single-channel  image  generator  on a card with
on-board CPU and REALimage(TM) graphics rendering technology.  iNTegrator(TM) is
the  software  suite  that  creates  and  controls  the  synthetic  environments
displayed by the hardware.

         Continuing  with its  commitment  to  invest  in  innovative,  emerging
technologies,  on September  26, 1997,  E&S invested in Silicon  Light  Machines
(SLM), a privately held company. The investment provides additional funds to SLM
to further  develop  and  commercialize  its  patented  digital  high-resolution
display  technology,   called  Grating  Light  Valve(TM)  (GLV(TM))  technology.
Commercialization  of the technology is expected to benefit display systems used
by  E&S  in  government  and  commercial   simulation  and  in  digital  theater
applications.  James R. Oyler, President and Chief Executive Officer of E&S, was
also appointed to SLM's board of directors.

         In December  1997,  the  Entertainment  & Education  business  unit was
renamed Digital Theater. The change reflects the business unit's increased focus
on  hardware,  software  and  content  development  for digital  theater  venues
including   entertainment   centers,   planetariums,    science   centers,   and
universities.

<PAGE>

         Evans  &  Sutherland's  high  quality  electronics   manufacturing  and
software  development  was recognized by earning ISO 9001  certification,  which
acknowledges  that the Company's  processes  comply with  international  quality
standards as defined by the  International  Standards  Organization  (ISO).  The
Company's  operations  in Salt Lake City,  Utah received  certification  for its
manufacturing  and  research  and  development  during  1996,  and the ISO  9001
certification  was  expanded  to include all Salt Lake City  operations  in July
1997. In addition, the Company's operations in Horsham,  England earned ISO 9001
certification in February 1998; the Company's operations in Munich,  Germany are
expected to earn certification later this year.

         On December 31, 1997,  the Company  wrote-down to fair market value its
investment in Iwerks Entertainment, Inc. The write-down amounted to $1.5 million
and was due to a decline in fair value considered to be other than temporary. In
addition,  the Company wrote down its investments in  non-marketable  securities
$8.1 million.

         On February 18, 1998, the Company's  Board of Directors  authorized the
repurchase of up to 600,000 shares of the Company's common stock,  including the
327,000 shares still available from the repurchase authorization approved by the
board on November 11,  1996.  Subsequent  to February 18, 1998,  the Company has
repurchased  189,000 shares of its common stock;  thus, 411,000 shares currently
remain  available  for  repurchase.  Stock may be acquired in the open market or
through negotiated transactions. Under the program, repurchases may be made from
time to time,  depending on market  conditions,  share price, and other factors.
These  repurchases  are to be used  primarily  to  meet  current  and  near-term
requirements for the Company's stock-based benefit plans.

BUSINESS UNITS AND STRATEGY

         E&S is organized into six business  units.  Each business unit develops
and markets its products to a worldwide  customer base. These business units can
be  grouped  into  two  areas:  core  businesses  and new  businesses.  The core
businesses  are the  simulation-related  units in which  E&S has an  established
market presence with  significant  market share and which represent the majority
of the Company's  revenues and earnings.  The new  businesses are in high growth
markets  where  E&S  has  superior  technology  which  can  be  directed  to new
applications. The Company's business units are further described below.

Core Businesses

Government Simulation

Government Simulation provides visual systems for flight and ground training and
related services to the U.S. and international armed forces, NASA, and aerospace
companies.  E&S remains the industry leader for visual systems sales to the U.S.
and 22 foreign  governments for the purpose of training vehicle operators.  1997
marked a record year for sales, profitability, and backlog.

During 1997, the business unit was awarded a $35 million  long-term  contract to
supply six visual systems for the Medium  Support  Helicopter  Aircrew  Training
Facility  (MSHATF) being built for the U.K. Royal Air Force.  The visual systems
will be based on the Company's new Harmony image generator technology.

Evans  &  Sutherland   anticipates  continued  growth  in  this  marketplace  as
simulation  training  increases  in value as an  alternative  to other  training
methods, and as simulation training technology and  cost-effectiveness  improve.
Future customer  demands will include  lower-cost  PC-based  systems,  more open
systems with interoperable  databases,  and custom display systems, all of which
E&S is well positioned to provide.

Commercial Simulation

Commercial  Simulation  is the world's  leading  independent  supplier of visual
systems for flight simulators for commercial airlines. The continued strength in
sales  of  commercial  aircraft  contributed  to a  record  sales  year for this
business unit. It captured  approximately 75 percent of the worldwide  available
market for visual systems installed in full-flight training simulators for civil
airlines, training centers, simulator manufacturers, and airframe manufacturers.
Commercial  Simulation won contracts for  multi-unit  orders from major airlines
around  the world,  and sold its first  system to the  Airbus  Beijing  Training
Center in China.

<PAGE>

The business  unit's  hardware  platform,  consisting of an ESIG(R) 3350GT image
generator  and ESCP 2000  raster/calligraphic  projectors,  continues to set the
standard for image quality,  reliability, and ease-of-use. Its systems have been
approved by all major aviation regulatory  agencies.  In the future, the Company
believes  it will  enhance  its  industry-leading  position by using E&S Harmony
image  generators and advanced  display  products,  and by expanding its product
base to include other flight simulator products.

New Businesses

Board Products

Board Products (formerly Display Systems) supplies high-performance, high-margin
board-level  products for  simulation,  avionics,  and vehicle  displays.  Board
Products is transitioning from a project-oriented model to being a product-based
business, with desktop simulation solutions as its principal target.

The Company  believes that the Board  Product's  Rhythm  board,  a member of the
Company's  Symphony line of products,  is the highest density image generator in
the world. It combines the Company's powerful REALimage graphics technology with
an  onboard  processor  to create a  compact  and very  cost-effective,  low-end
simulation  solution.  Board Products intends to develop  full-capability  board
level image  generators and advanced display  products,  and to participate more
fully in the in-vehicle training marketplace.

Desktop Graphics

Desktop Graphics  provides  REALimage  graphics  accelerator  technology for the
world's leading manufacturers of NT-based personal computer workstations.  Since
inaugural shipments in June 1997, REALimage graphics acceleration technology has
been selected by 12 manufacturers of Windows NT-based computers,  earning it the
majority of  new-system  design wins.  In March 1998,  volume  production of the
third-generation   REALimage  chip  design  began,  thereby  keeping  pace  with
introductions of new, more powerful processors from Intel. The Company plans two
technology upgrades per year.

Real  Image  Technology(TM)  supports  the  full  range of  professional  OpenGL
graphics applications, including design engineering, simulation, digital content
creation, visualization, animation, and entertainment, among others.

Digital Studio

Digital Studio provides virtual studio products and services for digital content
production in the television,  film, video,  corporate training,  and multimedia
industries  at a fraction of the price of  traditional  proprietary  technology.
MindSet  Virtual Studio System and FuseBox  control  software  enable the use of
virtual  sets with live talent for the video.  The  MindSet  system is in use at
broadcast, production,  postproduction,  and educational institutions throughout
the  world.  In  December  1997,  E&S  announced  an order  from  China  Central
Television (CCTV).

As the first  Windows  NT-based  virtual set system,  MindSet  earned  immediate
distinction at the 1997 National  Association of Broadcasters  annual conference
by being cited as one of the ten best "Prime Time" digital  products on exhibit.
It also received an "Editors'  Choice" Award from AV Video Multimedia  Magazine,
and a "1997 Product Innovation Award" from Computer Graphics World Magazine.

The Company is discussing potential alliances with industry-leading providers of
physical studio sets, weather  information and data, and virtual set content for
the television broadcast industry. The Company believes that, once signed, these
and  similar  agreements  will  improve  customer  acceptance  of its system and
accelerate market penetration.

Digital Theater

Digital  Theater  focuses on hardware,  software,  and content  development  for
digital  theater  venues,  and  is  the  world's  leading  supplier  of  digital
planetarium  projection  systems  (Digistar(R) II). Digital Theater is dedicated
entirely to the emerging, large format digital theater marketplace.  Efforts are
focused  on  hardware,   software,  and  content  development.   That  focus  is
all-inclusive,  from  fundamental  technology to building a portfolio of content
for digital theater presentations.

<PAGE>

Digital  Theater's highest  performance  system,  StarRider Digital Theater,  is
designed to display full-color, computer-generated 3D images, in either playback
or real-time mode, onto a domed surface.  Exploration  Place in Wichita,  Kansas
was  first  to  select  StarRider;   followed  by  Chicago's  prestigious  Adler
Planetarium; both are scheduled to open in 1999.

NEW PRODUCT STRATEGY

         Building upon 30 years of expertise in the computer graphics  industry,
Evans &  Sutherland's  new  Symphony  family of products is designed to meet the
needs of developers and users of highly realistic synthetic environments. At the
core of its  technology  is an open  architecture  based on Intel and  Microsoft
hardware and software standards,  with front-end  computation  controlled by the
Windows  NT(R)  operating  system.  The  product  strategy  scales  easily  with
technology  improvements,  and supports  leading and widely  available  graphics
software.

         Industry standard technologies used in the Company's Symphony family of
products include:

1.       Windows NT: The  operating  system for hosting  modeling  software  and
         tools, as well as  administrative  and control functions in the new E&S
         products.

2.       Pentium(R)   Processors:   The  leading  processors  used  in  most  NT
         workstations are also used for geometry processing in the Company's new
         image  generators.  Future  generations  of E&S products  will track or
         mirror the  performance  improvements  of Intel  processors,  which are
         increasing  at the fastest  rate in the  industry.  E&S is working with
         Intel to deliver its  high-performance  REALimage  graphics  technology
         when  systems  based on  Intel's  Merced  processor  become  available,
         currently expected in 1999.

3.       OpenGL(R):  Image  database  elements are  rendered  through the OpenGL
         graphics library and Applications Programming Interface (API). However,
         new E&S products are  structured  in a  completely  modular  fashion to
         allow future use of Direct3D(R) and other graphics API's as they become
         accepted for professional applications.

4.       PCI(R)  and  AGP(R):  REALimage  is  compatible  with  PCI and  Intel's
         Accelerated  Graphics Port (AGP),  offering a full graphics feature set
         and OpenGL compatibility to workstation users with either requirement.

PRODUCTS AND MARKETS

         Evans & Sutherland  provides a broad line of visual system products and
related  services for use in simulators  and trainers for military,  commercial,
and entertainment  applications.  The Company's product offerings  include:  (1)
visual  system  components  and  technology,  such as  Harmony  and  ESIG  image
generators  and  REALimage  controller  chip  technology;  (2) fully  integrated
systems,  such as the StarRider(TM)  domed theater system or the MindSet virtual
set; and (3) related services, such as system integration and database creation.
These  offerings,  described  below, are used in a wide variety of applications.
The product  and  service  offerings  are all  grounded in Evans &  Sutherland's
graphics  technology.  The  Company's  new  products  are based on open  systems
architecture  and the  Windows NT  operating  environment.  The goal has been to
continuously  improve the core  technology and offer it more broadly in existing
markets, as well as extend it into new markets. E&S products are sold worldwide.

         Generally,  E&S  products  consist  of  four  major  components.  These
components  are  available as  subsystems,  but are  commonly  sold as part of a
complete visual system delivered to an operator or prime contractor.

1.       Image generators (IG) create a  computer-generated  image and send this
         image to a display device,  such as a projector or CRT.  Primary E&S IG
         offerings include ESIG, Liberty(R),  Harmony, and REALimage technology.
         REALimage  graphics  technology is currently  manufactured  and sold by
         Mitsubishi as part of a chipset.

2.       Display  systems  consist  of  a  combination  of  projectors,  display
         screens, CRT screens, and specialized optics. These display systems are
         offered in a broad range of  configurations,  from  onboard  instrument
         displays to domes offering  360-degree field of view,  depending on the
         applications.

<PAGE>

3.       Databases of the synthetic  environment are offered as standard options
         or as custom creations.  Military databases are commonly customized and
         often cover large areas of terrain.  E&S provides database  development
         as well as database tools, such as EaSIEST(R) and iNTegrator. Databases
         developed  using  iNTegrator are a key element of the Symphony  product
         family.  These  can be run on a full  range of image  generators,  from
         REALimage-powered  desktop  graphics  accelerators to high-end  Harmony
         systems.

4.       System  integration,  installation,  and support  services are also key
         elements of most all systems and components sold.

         These  components  and  subsystems  are  often  integrated  and sold as
complete systems solutions.  For example,  the Digistar II and StarRider systems
consist of E&S developed image generators,  databases of synthetic  worlds,  and
display  systems.  These  are  integrated  by E&S  with  components  from  other
suppliers,  such as  audience  participation  systems  or the dome  itself.  E&S
combines and installs all these  components  into a complete system solution for
the planetarium and science center market.

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

MARKETING

         Evans & Sutherland's  products are marketed worldwide by the Company or
its agents.  The Company's  products and services are sold directly to end users
by E&S as a prime contractor, through subcontractors or other prime contractors,
and through system  original  equipment  manufacturers  (OEM).  E&S continues to
develop and form both domestic and international marketing alliances,  which are
proving to be an effective method of reaching specific markets. In addition, the
Company has OEM agreements for its visual system products with companies such as
STN Atlas  Elektronik  GmbH in Germany,  and  Mitsubishi  Precision Co., Ltd. in
Japan,  and  a  non-exclusive   partnership   with  Mitsubishi   Electronics  to
manufacture  and sell  REALimage-based  chipsets.  In most cases where E&S sells
through OEM suppliers,  the sales, marketing,  and product support functions are
provided by those OEM suppliers.

SIGNIFICANT CUSTOMERS

         Worldwide  customers  using E&S products  include most major  airlines,
U.S. and international armed forces, NASA,  aerospace companies,  film and video
studios,   laboratories,    museums,   planetariums,    science   centers,   and
location-based entertainment centers.

         Customers  accounting  for more than 10% of the  Company's net sales in
1997 included the U.S.  government  and Thomson  Training and  Simulation,  Ltd.
(Thomson).  In  1996,  the  U.S.  government,  Thomson,  Hughes  Training,  Inc.
(Hughes),  recently  acquired by Raytheon,  and Rikei  Corporation  (Rikei) each
accounted  for  more  than 10% of the  Company's  sales,  and in 1995,  the U.S.
government,   Hughes,  and  Loral  Corporation   (Loral),  now  Lockheed  Martin
Information  Systems,  Inc.,  each  accounted for more than 10% of the Company's
sales. Sales to the U.S.  government and prime contractors under U.S. government
contracts were $45.5 million in 1997 (29% of total sales), $25.8 million in 1996
(20% of total sales),  and $54.7 million in 1995 (48% of total sales). A portion
of these sales is also included in sales to Hughes and Loral.  Sales to Thomson
were $19.3 million in 1997 (12% of total  sales),  $15.8 million in 1996 (12% of
total sales), and $4.0 million in 1995 (4% of total sales). Sales to Hughes were
$14.0 million in 1997 (9% of total  sales),  $14.9 million in 1996 (11% of total
sales), and $11.0 million in 1995 (10% of total sales). Sales to Rikei were $8.1
million in 1997 (5% of total sales), $14.3 million in 1996 (11% of total sales),
and $8.8 million in 1995 (8% of total  sales).  Sales to Loral were $6.9 million
in 1996 (5% of total sales) and $34.3 million in 1995 (30% of total sales).  See
footnote 13 of "Notes to Consolidated  Financial  Statements" in Part II of this
report.

<PAGE>

COMPETITIVE CONDITIONS

         Primary competitive factors for the Company's products are performance,
price,  service,  and product  availability.  Because competitors are constantly
striving to improve their  products,  E&S must ensure that it continues to offer
products with the best performance at a competitive  price.  Prime  contractors,
including CAE  Electronics,  Ltd. (CAE),  Lockheed  Martin,  and Thomson,  offer
competing  visual  systems in the  government  simulation  market.  The  Company
believes it is able to compete effectively in this environment and will continue
to be able  to do so into  the  foreseeable  future.  In  1997,  the  Commercial
Simulation  business  unit was awarded  several  highly  competitive  orders and
gained  market  share  against CAE and  FlightSafety  International,  Inc.,  the
principal   competitors  in  the  commercial  simulation  market.  In  both  the
government and commercial simulation markets, competition for graphics computers
also comes from Silicon Graphics, Inc.

         The Desktop  Graphics  business unit competes  against  companies  like
Intergraph, Inc. as a system OEM that uses its own chip design, and 3Dlabs Inc.,
Ltd. that sells  chipsets to board  manufacturers.  Digital  Studio  competitors
consist primarily of smaller companies.  This market is still in its infancy and
may experience significant change. Board Products is also in a highly fragmented
market where consultive engineering is the primary mechanism for winning orders.
In the Digital Theater business,  the Company's DIGISTAR II digital  planetarium
product  competes  with  traditional  optical-mechanical  products.  Competitors
include  Minolta  Planetarium  Co. Ltd., Goto Optical Mfg. Co., Carl Zeiss Inc.,
and Spitz Inc. See  "Competitive  Environment"  under  "Factors  That May Affect
Future  Results" under Item 7 "Managements  Discussion and Analysis of Financial
Condition and Results of Operations" in Part II of this report.

BACKLOG

         The Company's backlog was $154.9 million on December 31, 1997, compared
with $127.4  million on December  27,  1996,  and $76.8  million on December 29,
1995.  The  predominant  portion of the backlog as of December  31, 1997 was for
visual simulation products. It is anticipated that most of the 1997 backlog will
be converted to revenue in 1998.

INTERNATIONAL SALES

         Sales of product known to be ultimately  installed outside the U.S. are
considered  international  sales by the  Company and were $94.6  million,  $88.4
million, and $44.5 million in 1997, 1996, and 1995, respectively.  International
Sales  represented  59%,  68%, and 39% of total sales in 1997,  1996,  and 1995,
respectively. To take full advantage of this sales pattern, the Company operated
a wholly-owned  Foreign Sales Corporation  subsidiary  through fiscal year 1997,
the use of which resulted in tax benefits in 1997 of approximately $0.2 million.
For additional information,  see footnote 13 of "Notes to Consolidated Financial
Statements"  in Part II of  this  report.  See  "International  Business"  under
"Factors That May Affect Future  Results" under Item 7  "Managements  Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in Part II of
this report.

DEPENDENCE ON SUPPLIERS

         Most parts and  assemblies  used by E&S are readily  available  through
multiple  sources in the open market;  however,  a limited  number are available
only from a single source.  In these  instances the Company stocks a substantial
inventory  and/or  attempts to develop  alternative  components or sources where
appropriate.  See "Period to Period Fluctuations" under "Factors That May Affect
Future  Results" under Item 7 "Managements  Discussion and Analysis of Financial
Condition and Results of Operations" in Part II of this report.

PATENTS AND TRADEMARKS

         E&S owns a number of patents  and  trademarks  and is a licensee  under
several others.  Several patent applications are presently pending in the United
States,  Japan,  and  several  European  countries.  E&S  copyrights  chip masks
designed by the Company and has instituted  copyright procedures for these masks
in Japan.  E&S does not rely on, and is not  dependent  on, patent and trademark
ownership to maintain its competitive  position. In the event any or all patents
and/or trademarks were held to be invalid, management believes the Company would
not suffer significant  long-term damage.  However, E&S actively pursues patents
on its new technology.

<PAGE>

RESEARCH & DEVELOPMENT

         The Company's  research and  development  expenses were $25.5  million,
$21.8 million,  and $19.4 million in 1997,  1996, and 1995,  respectively.  As a
percentage of sales, research and development expenses were 16%, 17%, and 17% in
1997, 1996, and 1995, respectively.  The Company continues to fund substantially
all research and development  efforts  internally.  It is anticipated  that high
levels of research  and  development  will  continue in order to ensure that the
Company maintains technical excellence,  leadership, and market competitiveness.
See "Research and Development" and "Product  Development and Introduction" under
"Factors That May Affect Future  Results" under Item 7  "Managements  Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in Part II of
this report.

ENVIRONMENTAL STANDARDS

         The Company believes its 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.

EMPLOYEES

         As of  February  28,  1998,  Evans &  Sutherland  and its  subsidiaries
employed a total of 831 persons.  The Company  believes its  relations  with its
employees are good.  None of the  Company's  employees are subject to collective
bargaining agreements.

SEASONALITY

         E&S believes  there is no inherent  seasonal  pattern to its  business.
Sales  volume  fluctuates   quarter-to-quarter   due  to  relatively  large  and
nonrecurring individual sales and customer-established  shipping dates. Although
the Company's volume has been skewed toward the fourth quarter,  the Company has
worked  diligently  to smooth  quarter-to-quarter  revenues and expects  further
success in  achieving  this goal.  See  "Period  to Period  Fluctuations"  under
"Factors That May Affect Future  Results" under Item 7  "Managements  Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in Part II of
this report.

ITEM 2.         PROPERTIES

         Evans & Sutherland's principal executive,  manufacturing,  engineering,
and  operations  facilities are located in the University of Utah Research Park,
in Salt Lake City,  Utah,  where it owns six  buildings  totaling  approximately
440,000  square feet.  E&S occupies four  buildings and leases out the remaining
two  buildings.  The buildings are located on land leased from the University of
Utah on 40-year land leases. Two buildings have options to renew the land leases
for an additional  40 years,  and four have options to renew the land leases for
10 years.  The Company also owns 46 acres of land in North Salt Lake. E&S has no
encumbrance on any of the real property.  The Company and its subsidiaries  hold
leases on several sales,  service, and production  facilities located throughout
the United States, Europe, and Asia.

ITEM 3.         LEGAL PROCEEDINGS

         Neither  the  Company  nor any of its  subsidiaries  is a party  to any
material legal proceeding.  However, the Company is involved in ordinary routine
litigation incidental to its business.

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 1997.

<PAGE>

EXECUTIVE OFFICERS

         The following  sets forth certain  information  regarding the executive
officers of the Company as of March 31, 1998:

Name                          Age       Position
-----------                   ---      ---------------------------------------
Stewart Carrell               64       Chairman of the Board of Directors
James R. Oyler                52       President and Chief Executive Officer
John T. Lemley                54       Vice President and Chief Financial
                                       Officer
Stuart J. Anderson            58       Vice President and General Manager of
                                       Commercial Simulation
Gene R. Chidester             49       Vice President of Manufacturing
Bruce E. Erickson             53       Vice President and General Manager of
                                       Digital Studio
Charles R. Maule              47       Vice President and General Manager of
                                       Desktop Graphics
Mark C. McBride               36       Vice President, Corporate Controller and
                                       Corporate Secretary
C. Grant Schultz              54       Vice President and Treasurer
Ronald R. Sutherland          59       Vice President and General Manager of
                                       Government Simulation
Allen H. Tanner               44       Vice President and General Manager of
                                       Board Products
Stanley E. Walker             44       Vice President and General Manager of
                                       Digital Theater


Mr.  Carrell was elected  Chairman of the Board of  Directors  of the Company on
March 7, 1991. He has been a member of the Board for 14 years. He also serves as
the  Chairman of Seattle  Silicon  Corporation,  and he is a director of Tripos,
Inc.  From  mid-1984  until  October  1993,  Mr.  Carrell was Chairman and Chief
Executive Officer of Diasonics,  Inc., a medical imaging company.  From November
1983 until early 1987,  Mr.  Carrell was also a General  Partner in  Hambrecht &
Quist LLC, an investment banking and venture capital firm.

Mr. Oyler was appointed President and Chief Executive Officer of the Company and
a member of the Board of  Directors in December  1994.  He is also a director of
Ikos Systems, Inc. and Silicon Light Machines.  Previously,  Mr. Oyler served as
President of AMG, Inc. from mid-1990  through 1994 and as Senior Vice  President
of Harris Corporation from 1976 through mid-1990.  He has three years of service
with the Company.

Mr.  Lemley  joined the Company in  November  1995 as Vice  President  and Chief
Financial Officer.  Prior to coming to the Company, he was Senior Vice President
and Chief Financial Officer at Megahertz  Corporation.  Previously,  he was with
Medtronic,  Inc.,  where he was Corporate  Controller and Acting Chief Financial
Officer. Prior to Medtronic, Mr. Lemley spent 17 years in a variety of financial
management  positions with Hewlett Packard Company.  He has two years of service
with the Company.

Mr.  Anderson  has  been  Vice  President  and  General  Manager  of  Commercial
Simulation  since  1994.  Prior to  joining  the  Company,  he served as General
Manager of Business Development for Hughes Rediffusion Simulation Ltd. from 1992
to 1994, and numerous other positions with Rediffusion  Simulation  beginning in
1961. He has three years of service with the Company.

Mr. Chidester has been Vice President of Manufacturing since 1994. He previously
served as Director of Graphics  Workstation  Manufacturing and has nine years of
service with the Company.

Mr.  Erickson was appointed Vice President and General Manager of Digital Studio
on  January  1,  1997.  He  previously  served as Vice  President  of New Market
Development in the Government  Simulation  business unit,  Vice President of the
Government  Business Group, and in other capacities with E&S. He has 11 years of
service with the Company.

<PAGE>

Mr. Maule has been Vice President and General Manager of Desktop  Graphics since
February 1996. Prior to joining the Company,  he was Vice President of Marketing
and Strategy for Concurrent  Computer  Corporation from October 1994 to February
1996.  Previously,  Mr.  Maule  served as Director of Business  Development  for
Lockheed  Missiles & Space Company from November 1992 to September  1994. He has
two years of service with the Company.

Mr. McBride has been Vice  President and Corporate  Controller  since  September
1996 and was appointed  Corporate  Secretary in March 1998. Prior to joining the
Company,   he  was  Senior  Vice  President  and  Chief  Financial   Officer  at
HealthRider,  Inc. from  September 1993 to September  1996.  From August 1985 to
September  1993,  he  was  employed  by  Price   Waterhouse   LLP,   independent
accountants, in various capacities, ending with Senior Manager. Mr. McBride is a
Certified Public Accountant. He has one year of service with the Company.

Mr.  Schultz has been Vice  President  and  Treasurer  since 1996. He previously
served as Corporate Controller. He has 22 years of service with the Company.

Mr.  Sutherland  has been Vice  President  and  General  Manager  of  Government
Simulation  since 1994. He previously  served as Executive Vice President of the
Government Sector, and Vice President of Simulation Products. He has 16 years of
service with the Company.

Mr.  Tanner  joined  the  Company in March 1996 as Vice  President  and  General
Manager of Board  Products.  Prior to joining the Company,  he was  President of
Terabit Computer  Specialty  Company,  Inc.  between 1979 and 1996.  Terabit was
acquired by E&S in March 1996. He has two years of service with the Company.

Mr. Walker joined the Company in July 1997 as Vice President and General Manager
of  Digital  Theater.  Prior to  joining  E&S,  he served  seven  years with MCA
Universal  Studios as Senior Project  Director and in a variety of other project
and technical  management  positions.  He has less than one year of service with
the Company.

<PAGE>

                                    FORM 10-K

                                     PART II

ITEM 5.  MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
                COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

         The Company's  common stock trades on The NASDAQ Stock Market under the
symbol  "ESCC".  The  following  table  sets forth the range of the high and low
sales prices per share of the  Company's  common  stock for the fiscal  quarters
indicated,  as reported by NASDAQ.  Quotations  represent actual transactions in
NASDAQ's  quotation  system  but do not  include  retail  markup,  markdown,  or
commission.

                                                  HIGH                  LOW

        1997:
        First Quarter                            28  3/8               22
        Second Quarter                           29  3/4               22  1/8
        Third Quarter                            33  1/2               26
        Fourth Quarter                           37                    28  1/4

        1996:
        First Quarter                            25                    19
        Second Quarter                           29                    21
        Third Quarter                            23  3/4               19  1/2
        Fourth Quarter                           26  1/4               20


APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

         On March  27,  1998,  there  were 833  shareholders  of  record  of the
Company's  common  stock.  Because  many of such  shares are held by brokers and
other institutions on behalf of shareholders,  the Company is unable to estimate
the total number of shareholders represented by these record holders.

DIVIDENDS

         Evans & Sutherland  has never paid a cash dividend on its common stock,
retaining its earnings for the  operation  and  expansion of its  business.  The
Company intends for the  foreseeable  future to continue the policy of retaining
its earnings to finance the development and growth of its business.

<PAGE>

ITEM 6.         SELECTED CONSOLIDATED FINANCIAL DATA

                (In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                       1997            1996             1995            1994           1993
                                    ---------       ----------       ---------       ----------     -------
<S>                                  <C>            <C>              <C>             <C>            <C>
FOR THE YEAR

Net sales                            $159,353       $ 130,564        $113,194        $ 113,090      $ 142,253

Gross profit                           75,214          64,629          50,426           52,464         76,575

Operating expenses                     60,825          53,110          50,825           68,976         79,811

Gain from sale of business unit             -               -          23,506                -              -

Operating earnings (loss)              14,389          11,519          23,107          (16,512)        (3,236)

Earnings (loss) before income
   taxes, extraordinary gain,
   and accounting change                6,838          16,029          33,580          (11,384)         2,831

Earnings (loss) before
   extraordinary gain and
   accounting change                    5,080          10,352          20,484           (5,559)         1,826

Net earnings (loss)                     5,080          10,352          20,811           (3,700)         4,093

Diluted earnings (loss) per
   common share:

     Earnings (loss) before
     extraordinary gain and
     accounting change                   0.53            1.12            2.33            (0.65)          0.22

     Net earnings (loss)                 0.53            1.12            2.37            (0.43)          0.49

Diluted weighted average number
   of common shares outstanding         9,502           9,222           8,785            8,520          8,287




AT END OF THE YEAR

Current assets                       $179,698         $159,213       $161,004          $127,051       $161,188
Current liabilities                    50,741           32,290         42,593            30,980         40,516
Current ratio                             3.5              4.9            3.8               4.1            4.0
Working capital                       128,957          126,923        118,411            96,071        120,672
Net fixed assets                       44,368           42,671         40,855            44,823         48,247
Total assets                          234,390          210,891        211,002           180,764        216,187
Long-term debt                         18,015           18,015         18,015            20,375         37,066
Stockholders' equity                  165,634          160,472        148,491           127,118        137,030
Stockholders' equity
   per outstanding share                18.27            17.72          17.04             14.86          16.41

</TABLE>
<PAGE>

QUARTERLY FINANCIAL DATA  (Unaudited)

(In thousands, except per share amounts)

<TABLE>
<CAPTION>

1997                                                                       Quarter Ended
                                                    March 28           June 27         Sep. 26          Dec. 31
                                                   ------------     ------------     -----------     ----------
<S>                                                 <C>               <C>             <C>              <C>

Net sales                                           $  33,642         $ 37,907        $  38,451        $ 49,353

Gross profit                                           15,128           17,424           19,284          23,378

Operating expenses                                     13,690           15,378           14,501          17,256

Operating profit                                        1,438            2,046            4,783           6,122

Other income (expense), net                               577              661              319          (9,108)

Earnings (loss) before income taxes                     2,015            2,707            5,102          (2,986)

Net earnings (loss)                                     1,411            1,975            3,825          (2,131)

Diluted earnings (loss) per common share                 0.15             0.21             0.40           (0.23)



1996                                                                       Quarter Ended
                                                    March 29           June 28         Sep. 27          Dec. 27
                                                   ------------     ------------     -----------     ----------

Net sales                                           $  26,686         $ 30,907        $  33,712        $ 39,259

Gross profit                                           12,494           14,715           16,764          20,656

Operating expenses                                     12,003           13,379           12,607          15,121

Operating profit                                          491            1,336            4,157           5,535

Other income, net                                         726            1,072            1,144           1,568

Earnings before income taxes                            1,217            2,408            5,301           7,103

Net earnings                                              755            1,493            3,286           4,818

Diluted earnings per common share                        0.08             0.16             0.35            0.52

</TABLE>
<PAGE>

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

         The  following  discussions  should  be read in  conjunction  with  the
Company's  Consolidated  Financial  Statements  contained herein under Item 8 of
this report.

ITEMS FROM THE CONSOLIDATED STATEMENTS OF OPERATION (as a percent of sales)
<TABLE>
<CAPTION>

                                                                       Year-Ended     Year-Ended     Year-Ended
                                                                        Dec. 31,       Dec. 27,        Dec. 29,
                                                                          1997            1996           1995
                                                                      -----------    -----------    ---------
<S>                                                                     <C>            <C>            <C>

Net sales                                                                100.0  %        100.0 %        100.0 %
Cost of sales                                                             52.8            50.5           55.5
                                                                        ------         -------         ------
   Gross profit                                                           47.2            49.5           44.5
Expenses:
   Marketing, general and administrative                                  22.2            24.0           27.1
   Research and development                                               16.0            16.7           17.2
   Write-off of acquired research and development                            -               -            0.6
                                                                        ------         -------         ------
     Total expenses                                                       38.2            40.7           44.9
                                                                        ------         -------         ------
Gain from sale of business unit                                              -               -           20.8
Operating earnings                                                         9.0             8.8           20.4
Other income (expense), net                                               (4.7)            3.5            9.3
                                                                        --------       -------         ------
Earnings before income taxes and extraordinary gain                        4.3            12.3           29.7
Income tax expense                                                         1.1             4.4           11.6
                                                                        ------         -------         ------
Earnings before extraordinary gain                                         3.2             7.9           18.1
Extraordinary gain from repurchase of convertible
   debentures, net of income taxes                                           -               -            0.3
                                                                        ------         -------         ------
Net earnings                                                               3.2  %          7.9 %         18.4 %
                                                                        ======         =======         ======
</TABLE>


RESULTS OF OPERATIONS

SUMMARY

         Evans &  Sutherland  experienced  another  good  year in 1997.  Orders,
sales,  and backlog all  reached  record  levels.  Net sales  increased  22% and
operating  earnings  increased 25% over the prior year.  Net earnings,  however,
decreased  51%  resulting  from a write-down of  investments  in  non-marketable
securities in accordance  with Statement of Financial  Accounting  Standards No.
115.

SALES

         In 1997, sales increased 22% ($159.4 million compared to $130.6 million
in 1996). The improvement was primarily due to increased market share and strong
activity in both domestic and  international  markets.  U.S. sales increased 53%
($64.8  million  compared  to $42.2  million  in 1996),  primarily  due to a 76%
increase  in sales to the  U.S.  government  ($45.5  million  compared  to $25.8
million in 1996).  International  sales increased 7% ($94.6 million  compared to
$88.4  million in 1996),  resulting  from strong  sales  growth of 46% in Europe
($59.2 million  compared to $40.5 million in 1996),  partially offset by a sales
decrease  in the  Pacific  Rim region of 37% ($27.8  million  compared  to $44.3
million in 1996).  Based on  currently  booked  orders,  E&S  expects  continued
worldwide revenue growth in 1998.

         In 1996, sales increased 15% ($130.6 million compared to $113.2 million
in 1995).  The improvement over 1995 was primarily due to increased market share
and strong  international  activity.  International  sales  increased 99% ($88.4
million  compared to $44.5 million in 1995) and U.S. sales  decreased 39% ($42.2
million compared to $68.7 million in 1995).  Strong growth in the  international
markets was  primarily due to a 219% increase in sales in the Pacific Rim region
($44.3  million  compared to $13.9 million in 1995) and a 43% sales  increase in
Europe ($40.5 million compared to $28.4 million in 1995).

<PAGE>

COSTS AND EXPENSES

         Cost of  Sales,  as a  percent  of  sales,  were  53%,  51%,  and  56%,
respectively,  in 1997,  1996,  and 1995.  In 1997,  the increase in the cost of
sales  percentage  was due primarily to increased  competition  and lower margin
contracts  resulting from contracts in which the Company was  functioning as the
prime  contractor.  As forecast last year, this trend is expected to continue to
reduce  overall gross margins in 1998 and beyond.  In 1996,  the decrease in the
cost of sales  percentage  was due primarily to product mix and, in part, to the
Company-wide  restructuring  that  occurred  in 1994 and 1995  which  eliminated
non-profitable product lines and included a write-down of inventory.

         Total operating  expenses increased 15% in 1997 ($60.8 million compared
to $53.1 million in 1996),  but decreased as a percent of sales (38% compared to
41% in  1996),  continuing  the  trend  begun in 1996.  The  trend of  operating
expenses  increasing  in total but being lower as a percent of sales is expected
to continue in 1998.  In 1996,  total  operating  expenses  increased  6% ($53.1
million  compared to $50.1 million in 1995,  excluding the write-off of acquired
research  and  development  in 1995),  but  decreased as a percent of sales (41%
compared to 44% in 1995).

         Marketing,  general, and administrative  expenses increased 13% in 1997
($35.3 million compared to $31.4 million in 1996), but decreased as a percent of
sales (22% compared to 24% in 1996). In 1996, these expenses increased 2% ($31.4
million  compared to $30.7 million in 1995), but decreased as a percent of sales
(24% compared to 27% in 1995).  The increase in these  expenses in both 1997 and
1996 is due primarily to increased marketing costs related to tradeshow activity
and additional marketing and administrative expenses related to the operation of
the new business units.

         Research and development  expenses increased 17% in 1997 ($25.5 million
compared to $21.8  million in 1996),  but decreased as a percent of sales (16.0%
compared to 16.7% in 1996). In 1996, research and development expenses increased
12% ($21.8 million compared to $19.4 million in 1995), but slightly decreased as
a percent of sales  (16.7%  compared  to 17.2% in 1995).  The  increase in these
expenses in both 1996 and 1997 is due primarily to increased activity related to
the introduction of several new products, and additional expenses related to the
new  business  units.  Management  intends to  continue to reduce  research  and
development,  as a percent  of sales,  over the next few  years.  However,  high
levels of research and development will continue in support of essential product
development to ensure that the Company maintains technical excellence and market
competitiveness.  The Company  continues to fund  substantially all research and
development costs internally.

OTHER INCOME (EXPENSE), NET

         Other  income  (expense),  net, was $7.6 million of expense in 1997 and
$4.5 million of income in 1996. This change was due primarily to a write-down of
the Company's investments in certain marketable and non-marketable securities of
$9.6  million  during  1997.  There  were no  gains  from  sales  of  investment
securities  in 1997  compared  to a $1.9  million  gain in  1996.  In  addition,
interest income  decreased 17% ($3.2 million in 1997 compared to $3.9 million in
1996). In 1996, other income, net, decreased 57% ($4.5 million compared to $10.5
million in 1995) due primarily to a lower gain on sale of investment  securities
($1.9  million  versus $7.1  million in 1995) and a decrease in interest  income
($3.9  million  versus  $4.8  million  in 1995).  In 1996,  cash and  marketable
securities  balances  were lower  compared to 1995,  primarily  as the result of
proceeds received from the sale of CDRS in April 1995.

EXTRAORDINARY GAIN

         Evans & Sutherland realized extraordinary gains in 1995 from repurchase
of its 6%  Subordinated  Convertible  Debentures at less than par. There were no
repurchases  of  debentures  by the Company in 1997 or 1996.  The  current  face
amount of debentures outstanding is $18.0 million.

INCOME TAXES

         Provision  for income taxes was 26%,  35%, and 39% of pre-tax  earnings
for 1997, 1996, and 1995  respectively.  In 1998, the Company expects the income
tax rate to approximate 1996 levels.

<PAGE>

 LIQUIDITY AND CAPITAL RESOURCES

         Funds to support the Company's  operations generally come from net cash
provided   by   operating    activities,    sale   of   marketable    securities
available-for-sale,  and proceeds from employee stock purchase and option plans.
The Company also has cash equivalents and short-term marketable securities which
can be used as needed.

         During 1997, net cash from operating  activities provided $14.3 million
and proceeds from employee stock purchases  contributed $3.1 million.  The major
uses of cash during the year included  purchases of capital  equipment for $10.8
million,  payments for repurchases of common stock of $4.6 million, the purchase
of investment  securities of $4.2 million,  and net payments under notes payable
to banks of $3.8 million.  The net result was a decrease in cash and  marketable
securities  of $5.9  million to $57.1  million at  December  31, 1997 from $63.0
million at December 27, 1996.  At December 31, 1997,  the Company has  unsecured
revolving line of credit agreements with foreign banks totaling $11.1 million of
which approximately $10.3 million was unused and available.  At the end of 1997,
there were no material  capital  commitments.  The Company believes that through
internal cash generation,  plus its cash equivalents,  marketable securities and
available  borrowings  under its line of credit  agreements,  it has  sufficient
resources to cover its cash needs during fiscal year 1998.

EFFECTS OF INFLATION

         The effects of inflation  were not  considered  material  during fiscal
years 1997,  1996, and 1995, and are not expected to be material for fiscal year
1998.

THE YEAR 2000 ISSUE

         Beginning  in  1996,  Evans  &  Sutherland  initiated  the  review  and
assessment of all its computerized hardware and internal-use software systems in
order to ensure that such  systems will  function  properly in the year 2000 and
beyond.  During  the last two  years,  the  Company's  computerized  information
systems  have  been  substantially  replaced  and are  believed  to be Year 2000
compliant.  It is possible,  however, that software programs acquired from third
parties and incorporated into other applications utilized by the Company may not
be fully Year 2000 compliant.  E&S intends to continue  testing,  replacing,  or
enhancing its internal applications through the end of 1999 to ensure that risks
related to such software are minimized.  Management  does not believe that costs
associated with Year 2000 compliance  efforts will have a material impact on the
Company's financial results or operations.

OUTLOOK

         Looking  forward,  the Company expects good revenue and earnings growth
in 1998. The biggest  challenge  facing the Company is maintaining  gross margin
levels,  especially  in  the  government  business  where  continuing  worldwide
pressure  on defense  budgets is severe and in  contracts  in which the  Company
functions as the prime contractor.  These pressures are expected to be partially
offset by continued  profit  improvement  in the Company's new  businesses.  New
product  startup  expenses are  expected to continue to depress  earnings in the
first  quarter of 1998 with  anticipated  recovery as new products  enter volume
production.

         An  important  indicator  for  the  Company  is  its  continued  strong
performance in winning new orders.  Record bookings in 1997 of over $186 million
resulted in a record year-end backlog of $155 million, most of which is expected
to be converted to revenue in 1998.

         The Company's investments in internal  infrastructure is also beginning
to produce  results,  contributing to an increase in productivity of 18% in 1997
as measured by revenue per employee.  In addition,  order  fulfillment  time was
reduced,  resulting in  improvements  in on-time  deliveries to  customers.  The
complete   reengineering   of   supply-chain   processes   contributed  to  this
improvement, as well as to improved inventory turns and overall product quality.
Corporate development activities, including mergers, acquisitions, and strategic
investments,  continue to be an important part of the Company's strategic growth
plan.

<PAGE>

         The foregoing  contains  forward-looking  statements that involve risks
and  uncertainties,  including  but not  limited to  quarterly  fluctuations  in
results,  the timely availability and customer  acceptance of new products,  the
impact  of  competitive   products  and  pricing,   general  market  trends  and
conditions,  and other risks  detailed  below in "Factors That May Affect Future
Results". Actual results may vary materially from projected results.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         Evans & Sutherland's  domestic and international  businesses operate in
highly  competitive  markets that  involve a number of risks,  some of which are
beyond the Company's  control.  While E&S  management  is  optimistic  about the
Company's long-term prospects,  the following  discussion  highlights some risks
and uncertainties that should be considered in evaluating its growth outlook.

Overview

         The  high-tech  nature of the  Company's  business  is  subject to both
national and  worldwide  economic and  political  influences  such as recession,
political instability,  the economic strength of governments,  and rapid changes
in technology.  The Company's  operating results are dependent on its ability to
rapidly develop, manufacture, and market innovative products that meet customers
needs.  Inherent in this  process  is a number of risks that the  Company  must
manage  in  order  to  achieve  favorable  operating  results.  The  process  of
developing new high technology  products is complex,  expensive,  and uncertain,
requiring  innovative  designs and  features  that  anticipate  customer  needs,
competing  solutions,  and technological  trends. The products,  once developed,
must be  manufactured  and  distributed  in  sufficient  volumes  and quality at
acceptable  costs  and  competitive   prices.   Furthermore,   portions  of  the
manufacturing  operations  are  dependent on the ability of suppliers to deliver
high quality components and subassemblies in time to meet critical manufacturing
and distribution  schedules.  Constraints in these supply lines and insufficient
quality could adversely affect the Company's  operating  results until alternate
sourcing can be  developed.  In  accordance  with the  provisions of the Private
Securities  Litigation  Reform Act of 1995, the cautionary  statements set forth
below  identify  important  factors  that could cause  actual  results to differ
materially  from  those  in the  forward-looking  statements  contained  in this
report.

Competitive Environment

         The computer industry is highly  competitive,  with rapid technological
advances and constantly improving price/performance.  As most areas in which E&S
operates  continue to grow, the Company is experiencing  increased  competition,
and it expects this trend to continue.  In recent years,  domestic and worldwide
political, economic, and technological developments have strongly affected these
markets,  requiring  adaptation  by market  participants.  Since  1994,  E&S has
followed  a  three-point   growth  strategy,   consisting  of  growing  existing
businesses,  developing new businesses  internally,  and  selectively  acquiring
businesses.  These strategies have broadened the Company's  business  portfolio,
creating  opportunities  for increased  efficiency  and market  competitiveness,
improved  access to new markets,  and reduced  exposure to airline  industry and
defense  budget  reductions.  In  addition,  E&S  continues  to  undertake  cost
reduction  efforts  throughout all business units while monitoring and adjusting
employment levels consistent with changing business requirements.

         Evans &  Sutherland's  executive  management  and  Board  of  Directors
continue to review and monitor the Company's  strategic plans in connection with
its  three-point  growth  strategy.   These  plans  include  assessing  business
combinations  and joint  ventures with  companies  engaged in similar or closely
related businesses, building market share in core businesses, and divesting less
well-positioned and non-core businesses to remain competitive.

Period to Period Fluctuations

         The Company's  operating results may fluctuate for a number of reasons.
Delivery   cycles  and  contract   lengths  are  typically  long  for  its  core
simulation-related  businesses, which make up the largest share of the Company's
revenues and earnings.  Well over half of each  quarter's  revenues  result from
orders  booked in previous  quarters.  Because the Company  plans its  operating
expenses,  many of which are  relatively  fixed in the short  term,  on expected
revenue, even a small revenue shortfall or shift may cause a period's results to
be below  expectations.  Such a revenue shortfall could arise from any number of
factors,  including  delays in the  availability  of products,  delays from chip
suppliers,  discontinuance  of  key  components  from  suppliers,  other  supply
constraints,  transit  interruptions,  overall economic  conditions,  or natural
disasters.  The timing of customer acceptance of certain large-scale  commercial
or government contracts may also have a significant effect on periodic operating
results.  U.S.  and  international  government  defense  budgets may require the
Company to delay or even cancel production due to lack of available funding.

<PAGE>

         Gross margins are heavily influenced by mix  considerations,  including
the mix of lower-margin prime contracts versus  sub-contracts,  new products and
markets versus  established  products and markets,  the mix of high-end products
versus  low-end  products,  as well as the mix of  configurations  within  these
product categories.
Future margins may not duplicate historical margins or growth rates.

         The Company's stock price, like that of other technology companies,  is
subject to significant  volatility.  If revenues or earnings in any quarter fail
to meet the  investment  community's  expectations,  there could be an immediate
impact on the  Company's  stock  price.  The stock price may also be affected by
broader market trends unrelated to the Company's performance.

Research and Development

         E&S  commits  a  significant   investment  in  long-term  research  and
development.   Developing  new  products  and  software  is  expensive  and  the
investment in product development often involves a long payback cycle. While the
Company  has every  reason to  believe  these  investments  will  ultimately  be
rewarded  with  revenue-generating   products,  customer  acceptance  ultimately
dictates the success of development and marketing efforts.  The Company plans to
continue  significant  investments  in software  research  and  development  and
related product  opportunities from which significant revenue is not anticipated
for a number of years.  Management  expects  total  spending  for  research  and
development in 1998 to increase over spending in 1997 in absolute  dollars,  but
not to increase as a percentage of sales.

Product Development and Introduction

         The  Company's  continued  success  depends  on its  ability to develop
technologically  complex and  innovative  products.  Product  transitions  are a
recurring part of the Company's business. A number of risks are inherent in this
process.  During fiscal 1998, for example,  the Company is heavily  committed to
meeting delivery  schedules for its Harmony and iNTegrator  products.  While E&S
has  every  expectation  to meet  these  schedules,  the  Company  has  customer
contracts that include liquidated damages if delivery schedules are not met.

         The development of new technology and products is increasingly  complex
and uncertain,  which  increases the risk of delays.  The  introduction of a new
product requires close  collaboration  and continued  technological  advancement
involving  multiple hardware and software design and manufacturing  teams within
the Company as well as teams at outside  suppliers  of key  components,  such as
chipsets. The failure of any one of these elements could cause the Company's new
products to fail to meet  specifications  or to miss the  aggressive  timetables
that the Company  establishes.  As the variety and  complexity  of the Company's
product  families  increase,  the process of planning  production  and inventory
levels also becomes increasingly complex. In addition, the extent to which a new
product gains rapid  acceptance is strongly  affected by the availability of key
applications  optimized  for  the  new  systems.  There  is  no  assurance  that
acceptance  of the  Company's new systems will not be affected by delays in this
process.

         Product life-cycles place a premium on Evans & Sutherland's  ability to
manage the  transition  from current  products to new products.  The Company may
announce new products,  while the product is in the final stages of development.
The Company's results could be adversely affected by such factors as development
delays, the release of products late to manufacturing, quality or yield problems
experienced by production or suppliers,  variations in product costs,  delays in
customer  purchases of existing  products in anticipation of the introduction of
new products, and excess inventories of older products and components.

U.S. Government Contracts

         In 1997,  29% of the Company's  sales were made to agencies of the U.S.
government, either directly or through prime contractors or subcontractors,  for
which there is intense  competition.  Accordingly,  a significant portion of the
Company's sales are subject to inherent risks, including uncertainty of economic
conditions,  changes in government  policies and  requirements  that may reflect
rapidly changing  military and political  developments,  and the availability of
funds.  These risks also include  technological  uncertainties and obsolescence,
and dependence on annual Congressional  appropriation and allotment of funds. In
the past,  some of the  Company's  programs  have been  delayed,  curtailed,  or
terminated.  Although E&S cannot predict such  uncertainties,  in the opinion of
management there are no spending  reductions or funding limitations pending that
would impact Company contracts.

<PAGE>

         Other  characteristics  of the industry are complexity of designs,  the
difficulty of forecasting  costs and schedules when bidding on developmental and
highly  sophisticated  technical work, and the rapidity with which product lines
become obsolete due to technological  advances and other factors  characteristic
of the industry.  Earnings may vary materially on some contracts  depending upon
the types of government  long-term contracts  undertaken,  the costs incurred in
their performance,  and the achievement of other performance objectives.  Due to
the intense competition for available U.S. government  business,  maintaining or
expanding  government  business  increasingly  requires E&S to commit additional
working   capital  for  long-term   programs  and   additional   investments  in
Company-funded research and development.

         As a U.S. government contractor or sub-contractor, Evans & Sutherland's
contracts and operations are subject to government oversight. The government may
investigate and make inquiries of the Company's  business  practices and conduct
audits of contract  performance and cost accounting.  These  investigations  may
lead  to  claims  against  the  Company.   Under  U.S.  government   procurement
regulations and practices, an indictment of a government contractor could result
in that  contractor  being  fined  and/or  suspended  for a period  of time from
eligibility  for  bidding  on, or for  award of,  new  government  contracts;  a
conviction  could result in debarment for a specified  period of time.  Although
the outcome of such  investigations  and inquiries  cannot be predicted,  in the
opinion of management there are no claims,  audits,  or  investigations  pending
against  E&S that are  likely to have a  material  adverse  effect on either the
Company's  business  or  its  consolidated  financial  position  or  results  of
operations.

International Business

         Evans & Sutherland's  international  business  accounted for 59% of the
Company's 1997 sales.  International business involves additional risks, such as
exposure to currency  fluctuations and changes in foreign economic and political
environments,  such as those currently  affecting  Asian markets.  International
transactions frequently involve increased financial and legal risks arising from
stringent  contractual  terms and conditions and widely differing legal systems,
customs, and mores in foreign countries. In addition,  international sales often
include sales to various foreign government armed forces,  with many of the same
inherent risks  associated with U.S.  government  sales  identified  above.  E&S
expects that  international  sales will continue to be a significant  portion of
the Company's overall business in the foreseeable future.

Commercial Airline Business

         The Company's commercial simulation (airline) business has strengthened
since  its  decision  in 1994 to pursue a new  strategy  of  supplying  complete
systems instead of just components. Characteristics of the commercial simulation
market include uncertainty of economic conditions,  dependence upon the strength
of  the  commercial   airline   industry,   air  pilot  training   requirements,
competition,  timely  performance by subcontractors on contracts in which E&S is
the prime contractor, and changes in technology.

New Businesses

         As E&S  develops  and  grows  its new  businesses,  there  are  certain
uncertainties and risks associated with each business unit. These risks include:
(a) developing strong partner relationships with board manufacturers, as well as
intense competitive pressures for the Desktop Graphics business;  (b) acceptance
of new  technology  and  increasing  market size and demand in a developing  new
market for the Digital  Theater  business;  (c) the  technical  feasibility  and
uncertain  market  acceptance in a developing  new market for the Digital Studio
business;  and (d) changes in technology and intense  competition  for the Board
Products   business.   Risks  also  include   technological   uncertainties  and
obsolescence, uncertainty of economic conditions, commitment of working capital,
market acceptance, and other risks inherent in new businesses.

<PAGE>

Private Finance Initiative

         The Private  Finance  Initiative  (PFI) is  designed  to  increase  the
involvement  of the  private  sector in the  provision  of  services  which have
traditionally  been  provided by the public  sector.  PFI  requires  the private
sector to use its own capital to invest in assets which then are used to provide
a long term service such as simulation  training to its public sector  customer.
The number of programs being developed as PFIs is increasing  worldwide.  E&S is
currently  involved in proposals to  international  military  customers where it
would be an equity partner of the PFI prime contractor and program manager.  PFI
programs,  however,  are subject to inherent risks,  including the commitment of
working  capital and fixed  assets,  long cycles in which to receive a return on
investment,  and  termination or default of contracts.  These risks also include
technological   uncertainties   and   obsolescence,   uncertainty   of  economic
conditions,   changes  in  U.S.  and  international   government   policies  and
requirements   that  may  reflect  rapidly   changing   military  and  political
developments, and the availability of funds.

Forward Looking Statements

         This annual report contains both historical  facts and  forward-looking
statements.  Any  forward-looking  statements  involve risks and  uncertainties,
including but not limited to risk of product demand, market acceptance, economic
conditions,   competitive   products  and  pricing,   difficulties   in  product
development,  commercialization,  technology,  and other risks  detailed in this
filing. Although the Company believes it has the product offerings and resources
for  continuing  success,  future  revenue and margin  trends cannot be reliably
predicted.  Factors  external  to the Company  can result in  volatility  of the
Company's common stock price.  Because of the foregoing  factors,  recent trends
are not  necessarily  reliable  indicators  of future  stock prices or financial
performance.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

               Report of Management

               Independent Auditors' Report

               Consolidated  Balance Sheets - December 31, 1997 and December 27,
               1996.

               Consolidated  Statements of Operations - Years ended December 31,
               1997, December 27, 1996, and December 29, 1995.

               Consolidated  Statements  of  Stockholders'  Equity - Years ended
               December 31, 1997, December 27, 1996, and December 29, 1995.

               Consolidated  Statements of Cash Flows - Years ended December 31,
               1997, December 27, 1996, and December 29, 1995.

               Notes to Consolidated Financial Statements - Years ended December
               31, 1997, December 27, 1996, and December 29, 1995.

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

               Schedule II - Valuation and Qualifying Accounts

         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.

<PAGE>

REPORT OF MANAGEMENT

         Responsibility  for the  integrity  and  objectivity  of the  financial
information  presented  in this  report  rests  with the  management  of Evans &
Sutherland.   The  accompanying  financial  statements  have  been  prepared  in
conformity with generally accepted accounting principles applied on a consistent
basis and, where  necessary,  include  estimates  based on management  judgment.
Management also prepared other information in this report and is responsible for
its accuracy and consistency with the financial statements.

         Evans & Sutherland has established and maintains an effective system of
internal  accounting  controls.   The  Company  believes  this  system  provides
reasonable   assurance  that   transactions  are  executed  in  accordance  with
management  authorization  in order to permit  the  financial  statements  to be
prepared with integrity and reliability and to safeguard,  verify,  and maintain
accountability  of assets.  In addition,  Evans & Sutherland's  business  ethics
policy requires  employees to maintain the highest level of ethical standards in
the conduct of the Company's business.

         Evans &  Sutherland's  financial  statements  have been audited by KPMG
Peat Marwick LLP, independent public accountants.  Management has made available
all the Company's  financial records and related data to allow KPMG Peat Marwick
LLP to express an informed professional opinion in their accompanying report.

         The  Audit  Committee  of the Board of  Directors  is  composed  of the
Chairman of the Board and all outside  directors  and meets  regularly  with the
independent  accountants,  as well as with  Evans &  Sutherland  management  and
internal auditing, to review accounting,  auditing, internal accounting control,
and financial reporting matters.

    James R. Oyler                                       John T. Lemley
    President and                                        Vice President and
    Chief Executive Officer                              Chief Financial Officer

REPORT OF INDEPENDENT ACCOUNTANTS

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

         We have  audited  the  consolidated  financial  statements  of  Evans &
Sutherland  Computer  Corporation and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated  financial  statements,
we  also  have  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 generally  accepted auditing
standards.  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, 1997 and
December 27, 1996, and the results of their  operations and their cash flows for
each  of the  years  in the  three-year  period  ended  December  31,  1997,  in
conformity with generally accepted accounting  principles.  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.


KPMG Peat Marwick LLP

February 11, 1998
Salt Lake City, Utah

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                     December 31, 1997 and December 27, 1996
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                       Assets                                                    1997       1996
                                       ------
                                                                                               --------   --------
<S>                                                                                           <C>        <C>
Current assets:
    Cash and cash equivalents                                                                 $  8,176   $ 16,521
    Marketable securities                                                                       48,928     46,454
    Accounts receivable, less allowance for doubtful
      receivables of $851 in 1997 and $563 in 1996                                              36,066     34,842
    Inventories (note 3)                                                                        26,885     20,202
    Costs and estimated earnings in excess of
      billings on uncompleted contracts (note 4)                                                51,799     34,166
    Deferred income taxes (note 9)                                                               4,224      4,841
    Prepaid expenses and deposits                                                                3,620      2,187
                                                                                               --------   --------

                  Total current assets                                                         179,698    159,213

Property, plant and equipment (note 5)                                                          44,368     42,671
Investment securities (note 2)                                                                   5,000      7,057
Deferred income taxes (note 9)                                                                   3,802          -
Other assets                                                                                     1,522      1,950
                                                                                               --------   --------

                                                                                              $234,390   $210,891
                                                                                               ========   ========
                        Liabilities and Stockholders' Equity
                        ------------------------------------

Current liabilities:
    Notes payable to banks (note 6)                                                           $    950   $  5,334
    Accounts payable                                                                            14,353      6,370
    Accrued expenses (note 7)                                                                   18,061     13,933
    Customer deposits                                                                            6,574      2,058
    Income taxes payable (note 9)                                                                4,462          -
    Billings in excess of costs and estimated
      earnings on uncompleted contracts (note 4)                                                 6,341      4,595
                                                                                               --------   --------

                  Total current liabilities                                                     50,741     32,290

Long-term debt (note 8)                                                                         18,015     18,015
Deferred income taxes (note 9)                                                                       -        114

Commitments and contingencies (notes 11 and 17)

Stockholders' equity (notes 10 and 15):
    Preferred stock, no par value;  authorized 10,000,000
      shares; no shares issued and outstanding                                                       -          -
    Common stock, $.20 par value;  authorized 30,000,000 shares; issued
      and outstanding 9,066,743 shares in 1997 and 9,056,871 shares in 1996                      1,813      1,811
    Additional paid-in capital                                                                   8,025      8,639
    Retained earnings                                                                          155,576    150,496
    Net unrealized loss on marketable and investment securities                                    (68)      (541)
    Cumulative translation adjustment                                                              288         67
                                                                                               --------   --------

                  Total stockholders' equity                                                   165,634    160,472
                                                                                               --------   --------

                                                                                              $234,390   $210,891
                                                                                               ========   ========
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Operations
              Years ended December 31, 1997, December 27, 1996, and
                                December 29, 1995
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                      1997         1996         1995
                                                                                    ----------   ----------   ----------
<S>                                                                                <C>          <C>           <C>
Net sales (notes 12 and 13)                                                        $ 159,353    $ 130,564     $ 113,194
Cost of sales                                                                         84,139       65,935        62,768
                                                                                    ----------   ----------   ----------
          Gross profit
                                                                                      75,214       64,629        50,426
                                                                                    ----------   ----------   ----------
Expenses:
    Marketing, general and administrative                                             35,333       31,357        30,714
    Research and development                                                          25,492       21,753        19,406
    Write-off of acquired research and development                                         -            -           705
                                                                                    ----------   ----------   ----------
                                                                                      60,825       53,110        50,825
Gain from sale of business unit (note 18)                                                  -            -        23,506
                                                                                    ----------   ----------   ----------
          Operating earnings                                                          14,389       11,519        23,107

Other income (expense):
    Interest income                                                                    3,239        3,892         4,752
    Interest expense                                                                  (1,300)      (1,434)       (1,477)
    Loss on write down of investment securities                                       (9,575)           -             -
    Gain on sale of marketable and investment securities                                   -        1,868         7,126
    Other                                                                                 85          184            72
                                                                                    ----------   ----------   ----------

                                                                                      (7,551)       4,510        10,473
                                                                                    ----------   ----------   ----------

          Earnings before income taxes and extraordinary gain                          6,838       16,029        33,580
Income tax expense (note 9)                                                            1,758        5,677        13,096
                                                                                    ----------   ----------   ----------

          Earnings before extraordinary gain                                           5,080       10,352        20,484

Extraordinary gain from repurchase of convertible debentures,
   net of income taxes of $209 in 1995 (note 8)                                            -            -           327
                                                                                    ----------   ----------   ----------
          Net earnings                                                             $   5,080    $  10,352     $  20,811
                                                                                    ==========   ==========   ==========

Basic earnings per common share:
    Before extraordinary gain                                                      $     .56    $    1.16    $    2.37
    Extraordinary gain from repurchase of convertible debentures                          -            -           .04
                                                                                    ----------   ----------   ----------
                                                                                   $     .56    $    1.16    $    2.41
                                                                                    ==========   ==========   ==========
Diluted earnings per common share:
    Before extraordinary gain                                                      $     .53    $    1.12    $    2.33
    Extraordinary gain from repurchase of convertible debentures                          -            -           .04
                                                                                    ----------   ----------   ----------

                                                                                   $     .53    $    1.12    $    2.37
                                                                                    ==========   ==========   ==========
</TABLE>

           See accompanying notes to consolidated financial statements.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                    Consolidated Statements of Stockholders'
            Equity Years ended December 31, 1997, December 27, 1996,
                              and December 29, 1995
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                     1997       1996        1995
                                                                                    --------   --------    --------
<S>                                                                                <C>        <C>         <C>

Common stock:
    Beginning of year                                                              $  1,811   $  1,743    $  1,710
    Par value of shares issued for cash (183,007 shares in
      1997, 195,571 shares in 1996, and 181,734 shares in 1995)                          37         39          36
    Par value of shares issued to acquire Terabit (149,215
      shares in 1996)                                                                     -         30           -
    Par value of shares purchased and retired (173,135 shares
      in 1997, 3,235 shares in 1996, and 18,520 shares in 1995)                         (35)        (1)         (3)
                                                                                    --------   --------    --------

    End of year                                                                       1,813      1,811       1,743
                                                                                    --------   --------    --------
Additional paid-in capital:
    Beginning of year                                                                 8,639      5,112       2,850
    Proceeds in excess of par value of shares issued for cash                         3,104      2,746       2,504
    Compensation expense on employee stock purchase plan                                102         90          74
    Tax benefit from issuance of common stock to employees                              770        691           -
    Retirement of treasury stock                                                     (4,590)       (51)       (316)
    Terabit acquisition                                                                   -         51           -
                                                                                    --------   --------    --------

    End of year                                                                       8,025      8,639       5,112
                                                                                    --------   --------    --------
Retained earnings:
    Beginning of year                                                               150,496    140,062     119,251
    Terabit acquisition                                                                   -         82           -
    Net earnings                                                                      5,080     10,352      20,811
                                                                                    --------   --------    --------

    End of year                                                                     155,576    150,496     140,062
                                                                                    --------   --------    --------

Net unrealized (loss) gain on investment securities:
    Beginning of year                                                                  (541)     1,694       2,847
    Fair value adjustment of marketable securities                                      473     (2,235)     (1,153)
                                                                                    --------   --------    --------

    End of year                                                                         (68)      (541)      1,694
                                                                                    --------   --------    --------

Cumulative translation adjustment:
    Beginning of year                                                                    67       (120)        460
    Translation adjustment                                                              221        187        (580)
                                                                                    --------   --------    --------
    End of year                                                                         288         67        (120)
                                                                                    --------   --------    --------

          Total stockholders' equity                                               $165,634   $160,472    $148,491
                                                                                    ========   ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
              Years ended December 31, 1997, December 27, 1996, and
                                December 29, 1995
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                         1997        1996        1995
                                                                                       ---------   ---------   ---------
<S>                                                                                   <C>          <C>        <C>
Cash flows from operating activities:
   Net earnings                                                                       $   5,080    $ 10,352   $  20,811
   Adjustments to reconcile net earnings to net cash provided by (used
     in)  operating activities:
       Depreciation and amortization                                                     10,041       9,120       9,950
       Provision for losses on accounts receivable                                          370         335         158
       Provision for write down of inventory                                              1,009        (535)      7,988
       Provision for warranty expense                                                       726         673         470
       Deferred income taxes                                                             (3,299)      1,283         414
       Loss on write down of investment securities                                        9,575           -           -
       Gain on sale of marketable and investment securities                                   -      (1,868)     (7,126)
       Gain on repurchase of convertible debentures                                           -           -        (536)
       Gain on sale of business unit                                                          -           -     (23,506)
       Other, net                                                                           169          69         (93)
       Changes in assets and  liabilities  net of effects  of  purchase/sale  of
         businesses:
          Accounts receivable                                                            (2,935)     (7,406)     (6,117)
          Inventories                                                                    (8,641)     (3,093)     (7,695)
          Costs  and  estimated  earnings  in excess of  billings  on  uncompleted
            contracts, net                                                              (15,060)    (19,036)      8,530
          Prepaid expenses and deposits                                                  (1,430)       (745)       (423)
          Accounts payable and accrued expenses                                           9,232       3,790      (3,912)
          Customer deposits                                                               4,496      (3,489)     (3,472)
          Income taxes                                                                    4,958     (11,180)     12,169
                                                                                       ---------   ---------   ---------

                  Net cash provided by (used in) operating activities                    14,291     (21,730)      7,610
                                                                                       ---------   ---------   ---------

Cash flows from investing activities:
   Purchases of marketable securities                                                   (80,443)    (57,354)   (145,047)
   Proceeds from sale of marketable securities                                           77,858      97,262      85,147
   Purchase of investment securities                                                     (4,208)     (1,447)     (3,000)
   Proceeds from sale of investment securities                                                -       1,886       7,930
   Purchases of property, plant, and equipment                                          (10,804)    (10,521)     (5,846)
   Increase in other assets                                                                   -      (1,463)          -
   Proceeds from sale of business unit                                                        -           -      31,488
   Payment for acquisition, net of cash acquired                                              -           -         (93)
                                                                                       ---------   ---------   ---------

                  Net cash provided by (used in) investing activities                   (17,597)     28,363     (29,421)
                                                                                       ---------   ---------   ---------

Cash flows from financing activities:
   Net borrowings (payments) under notes payable to banks                                (3,827)      1,904       1,758
   Net proceeds from issuance of common stock                                             3,141       3,594       2,295
   Payments for repurchases of common stock                                              (4,625)          -           -
   Payments for repurchase of convertible debentures                                          -           -      (1,831)
                                                                                       ---------   ---------   ---------

                  Net cash provided by (used in) financing activities                    (5,311)      5,498       2,222
                                                                                       ---------   ---------   ---------

Effect of foreign exchange rate changes on cash                                             272        (633)       (601)
                                                                                       ---------   ---------   ---------

Net change in cash and cash equivalents                                                  (8,345)     11,498     (20,190)
Cash and cash equivalents at beginning of year                                           16,521       5,023      25,213
                                                                                       ---------   ---------   ---------

Cash and cash equivalents at end of year                                              $   8,176    $ 16,521    $  5,023
                                                                                       =========   =========   =========

Supplemental Disclosures of Cash Flow Information Cash paid during the year for:
   Interest                                                                           $   1,351    $  1,385    $  1,500
   Income taxes                                                                           1,915      14,736       1,134
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
               December 31, 1997, December 27, 1996, and December
                                    29, 1995
               (In thousands, except share and per share amounts)


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Description of Business

       Evans & Sutherland  Computer  Corporation  (E&S or the Company) is in the
       business of  developing,  marketing,  and  supporting  visual  simulation
       computer systems. The Company's current products are of four basic types:
       (a) visual  systems  which create and display  computer  images of stored
       digital models of various  real-world  environments  that allow real-time
       interaction within databases that replicate specific  geographic areas or
       imaginary worlds; (b) graphics accelerators which are used as a component
       in   high-performance,   interactive   graphics   display   systems   for
       workstations;  (c) software systems and development  tools which are used
       with  multi-platform  interactive  graphics  systems to produce 3D (three
       dimensional) graphics software and hardware solutions to a broad customer
       base;  and (d)  training  systems  for flight  management  which are used
       within the commercial aviation training market for pilot training.

       The Company  changed its fiscal year end from the last Friday in December
       to a  calendar  year end in 1997.  The  fiscal  year  ends for the  years
       included in the accompanying  consolidated  financial  statements are the
       periods  ended  December  31, 1997,  December 27, 1996,  and December 29,
       1995.  Unless  otherwise  specified,  all references to a year are to the
       fiscal year ended in the year stated.

       Principles of Consolidation

       The consolidated financial statements include the accounts of the Company
       and its wholly-owned subsidiaries.  All significant intercompany accounts
       and transactions have been eliminated in consolidation.

       Revenue Recognition

       Net sales  include  revenue from system and software  products,  software
       license rights,  and service  contracts.  Product  revenues are generally
       recognized  when the product is shipped and the Company has no additional
       performance obligations.

       Revenue    from    long-term    contracts    is   recorded    using   the
       percentage-of-completion   method,   determined  by  the  units-delivered
       method, or when there is significant nonrecurring engineering,  the ratio
       of costs incurred to management's estimate of total anticipated costs. If
       estimated  total  costs on any  contract  indicate  a loss,  the  Company
       provides  currently  for the  total  anticipated  loss  on the  contract.
       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.

       Revenue from software  license rights is recognized  when the product has
       been delivered,  provided that the Company has no additional  performance
       obligations.  Revenues from service contracts are recognized ratably over
       the related contract period.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Cash and Cash Equivalents

       The Company considers all highly liquid financial  instruments  purchased
       with an original  maturity  to the Company of three  months or less to be
       cash equivalents.  Cash equivalents  consist of debt securities of $6,920
       and $11,902 at December 31, 1997 and December 27, 1996, respectively.

       Inventories

       Raw  materials  and  supplies  inventories  are  stated  at the  lower of
       weighted average cost or market.  Work-in-process  and finished goods are
       stated on the basis of accumulated manufacturing costs, but not in excess
       of market (net realizable value).

       Property, Plant, and Equipment

       Property,  plant,  and  equipment  are stated at cost.  Depreciation  and
       amortization are computed using the  straight-line  and  double-declining
       balance  methods  based on the  estimated  useful  lives  of the  related
       assets.

       Other Assets

       Other assets include  deferred bond offering costs,  goodwill and certain
       other  intangible  assets and are being  amortized  on the  straight-line
       basis over the estimated useful lives of the respective assets.

       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  deferrable  costs  have  not been
       material during the periods presented.

       Marketable and Investment Securities

       The Company  classifies  its  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  separate
       component of stockholders' equity until realized. A decline in the market
       value  below  cost that is deemed  other  than  temporary  is  charged to
       results of operations  resulting in the establishment of a new cost basis
       for the security.  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.
       Nonmarketable  investment securities are recorded at the lower of cost or
       net realizable value.

       Warranty Reserve

       The Company  provides a warranty  reserve for  estimated  future costs of
       servicing products under warranty  agreements  extending for periods from
       90 days to one year.  Anticipated  costs for product  warranty  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.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Stock-Based Compensation

       Effective  January 1, 1996, the Company  adopted the footnote  disclosure
       provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
       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 (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB
       25). The Company has elected to continue to apply the  provisions  of APB
       25 and provide pro forma footnote disclosures required by SFAS No. 123.

       Income Taxes

       The Company uses 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  carryforwards.  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.

       Foreign Currency Translation

       The local foreign  currency is the functional  currency for the Company's
       foreign  subsidiaries.  Assets and liabilities of foreign  operations are
       translated  to U.S.  dollars  at the  current  exchange  rates  as of the
       applicable  balance sheet date.  Revenues and expenses are  translated at
       the average  exchange  rates  prevailing  during the period.  Adjustments
       resulting  from  translation  are  reported  as a separate  component  of
       stockholders'  equity.  Certain  transactions of the foreign subsidiaries
       are  denominated  in  currencies  other  than  the  functional  currency,
       including  transactions  with the parent company.  Transaction  gains and
       losses are included in other income (expense) for the period in which the
       transaction occurs.

       Earnings Per Common Share

       In February 1997, the Financial  Accounting Standards Board (FASB) issued
       Statement of Financial  Accounting  Standards No. 128, Earnings per Share
       (SFAS 128).  SFAS 128 became  effective  for  financial  statements  with
       interim and annual periods  ending after December 15, 1997.  Accordingly,
       the Company has adopted SFAS 128. SFAS 128 establishes a different method
       of computing earnings per common share than was previously required under
       the  provisions of Accounting  Principles  Board Opinion No. 15. SFAS 128
       requires the presentation of basic and diluted earnings per common share.
       Basic  earnings per common share is the amount of earnings for the period
       available to each share of common stock outstanding  during the reporting
       period.  Diluted  earnings per common share is the amount of earnings 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.  Prior periods have been restated
       for presentation in accordance with SFAS 128.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Earnings Per Common Share (continued)

     In  calculating  earnings per common share,  the earnings were the same for
     both the basic and diluted calculation.  A reconciliation between the basic
     and diluted  weighted  average number of common shares for 1997,  1996, and
     1995, is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                              1997        1996        1995
                                                                            ---------   ---------   ---------
           <S>                                                               <C>         <C>         <C>

           Basic  weighted   average  number  of  common  shares
              outstanding during the year                                      9,060       8,944       8,639
           Weighted  average  number  of  common  stock  options
              outstanding during the year                                        442         278         146
                                                                            =========   =========   =========
           Diluted  weighted  average  number of  common  shares
              outstanding during the year                                      9,502       9,222       8,785
                                                                            =========   =========   =========
</TABLE>

       Estimates

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions  that affect the reported  amounts of assets and  liabilities
       and  disclosure of contingent  assets and  liabilities at the date of the
       financial  statements  and the reported  amounts of revenues and expenses
       during the  reporting  period.  Actual  results  could  differ from those
       estimates.

       Concentration of Credit Risk

       Financial   instruments   that   potentially   subject   the  Company  to
       concentrations  of credit  risk are  primarily  cash,  cash  equivalents,
       marketable securities,  and accounts receivable. The Company's marketable
       securities portfolio consists of investment-grade  securities diversified
       among security types, industries,  and issuers. The Company's investments
       are  managed  by  recognized  financial   institutions  that  follow  the
       Company's  investment  policy.  The Company's policy limits the amount of
       credit exposure in any one issue, and the Company believes no significant
       concentration of credit risk exists with respect to these investments.

       In the normal course of business,  the Company provides  unsecured credit
       terms to its customers.  Accordingly, the Company performs ongoing credit
       evaluations of its customers and maintains allowances for possible losses
       which,  when  realized,  have  been  within  the  range  of  management's
       expectations.

       Reclassifications

       Certain   reclassifications   have   been  made  in  the  1996  and  1995
       consolidated financial statements to conform with classifications adopted
       in 1997.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(2)    MARKETABLE AND INVESTMENT SECURITIES

       The amortized cost,  gross  unrealized  holding gains,  gross  unrealized
       holding losses,  and fair value for securities by major security type and
       class of security at 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
                                                                                    Gross       Gross
                                                                                 unrealized   unrealized
                                                                     Amortized     holding     holding      Fair
                                                                        cost        gains       losses     value
                                                                     ---------   ----------  ----------   --------
         <S>                                                        <C>         <C>         <C>          <C>
         Year ended 1997:
             U.S. government securities:
                Maturing in one year or less                        $   3,179   $       -   $        3   $   3,176
                Maturing between one and three years                    1,509           7            -       1,516
             State and municipal securities:
                Maturing in one year or less                           14,714          17           10      14,721
                Maturing between one and three years                    9,389          42           14       9,417
             Corporate debt securities:
               Maturing in one year or less                             2,501           1            -       2,502
               Maturing between one and three years                    16,045           -          149      15,896
             Marketable securities                                      1,700           -            -       1,700
                                                                     ---------   ----------  ----------   --------

                                                                    $  49,037   $      67   $      176   $  48,928
                                                                     =========   ==========  ==========   ========
         Year ended 1996:
             U.S. government securities:
                Maturing in one year or less                        $   2,081   $       3   $        -   $   2,084
                Maturing between one and three years                   16,253           5           80      16,178
             State and municipal securities:
                Maturing in one year or less                            2,005          10            -       2,015
                Maturing between one and three years                   16,058          47            1      16,104
             Corporate debt securities - Maturing between one
               and three years                                          4,004           -            -       4,004
             Marketable securities                                      6,051          18            -       6,069
                                                                     ---------   ----------   ---------   --------

                                                                    $  46,452   $      83   $       81   $  46,454
                                                                     =========   ==========  ==========   ========
</TABLE>


       Long-term investment securities are summarized as follows:
<TABLE>
<CAPTION>
                                                                                    Gross       Gross
                                                                                 unrealized  unrealized
                                                                                   holding     holding     Market
                                                                        Cost        gains       losses     value
                                                                     ---------   ----------  ----------   --------
         <S>                                                        <C>         <C>         <C>           <C>
         Year ended 1997:
             Marketable securities:
                Iwerks Entertainment, Inc.                          $     500   $       -   $       -     $    500
                                                                     =========   ==========  ==========   ========

         Year ended 1996:
             Marketable securities:
                Iwerks Entertainment, Inc.                          $   2,000   $       -   $     868     $  1,132
                                                                     =========   ==========  ==========   ========
</TABLE>

       The Company has investments in nonmarketable securities of four companies
       in 1997 and three  companies in 1996.  These  investments are recorded at
       cost,  adjusted for declines in fair value that are considered other than
       temporary,  and total $4,500 and $5,925 at December 31, 1997 and December
       27,  1996,  respectively.   Each  of  the  investments  in  nonmarketable
       securities  represent  less than 20  percent  of the  outstanding  voting
       shares of the respective companies.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (3)   INVENTORIES

       Inventories are summarized as follows:
                                                           1997        1996
                                                        ---------   ---------

         Raw materials and supplies                    $  13,674   $   8,117
         Work-in-process                                  10,040      11,211
         Finished goods                                    3,171         874
                                                        ---------   ---------
                                                       $  26,885   $  20,202
                                                        =========   =========


(4)    LONG-TERM CONTRACTS

       Comparative   information  with  respect  to  uncompleted  contracts  are
summarized as follows:

                                                             1997        1996
                                                         ---------   ---------

         Accumulated costs and estimated
            earnings on uncompleted contracts           $ 217,354   $ 160,069
         Less billings                                    171,896     130,498
                                                         ---------   ---------

                                                        $  45,458   $  29,571
                                                         =========   =========
         Costs and estimated earnings in excess of
            billings on uncompleted contracts           $  51,799   $  34,166
         Billings in excess of costs and estimated
            earnings on uncompleted contracts              (6,341)     (4,595)
                                                         =========   =========
                                                        $  45,458   $  29,571
                                                         =========   =========


(5)    PROPERTY, PLANT, AND EQUIPMENT

       The cost and estimated useful lives of property, plant, and equipment are
summarized as follows:

                                            Estimated
                                          useful lives       1997        1996
                                          ------------    ---------   ---------

         Land                                 -          $   1,436   $   1,436
         Buildings and improvements        40 years         38,152      35,970
         Machinery and equipment          3 to 8 years      79,372      74,005
         Office furniture and equipment    8 years           2,178       2,052
         Construction-in-process              -              2,030       1,895
                                                          ---------   ---------
                                                           123,168     115,358
         Less accumulated depreciation and
            amortization                                   (78,800)    (72,687)
                                                          ---------   ---------

                                                         $  44,368   $  42,671
                                                          =========   =========

       All buildings and  improvements  owned by the Company are  constructed on
       land leased from an unrelated third party.  Such leases extend for a term
       of 40 years  from 1986,  with  options to extend two of the leases for an
       additional  40 years and the  remaining  four leases for an additional 10
       years.  At the  end of the  lease  term,  including  any  extension,  the
       buildings and improvements revert to the lessor.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (6)   NOTES PAYABLE TO BANKS

       The following is a summary of notes payable to banks:
                                                              1997        1996
                                                           --------    --------

          Balance at end of year                           $    950    $  5,334
          Weighted average interest rate at end of year         8.0%        7.5%
          Maximum balance outstanding during the year      $  3,441    $  5,553
          Average balance outstanding during the year      $  1,845    $  4,833
          Weighted average interest rate during the year        7.6%        7.6%

       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.

       The  Company  has  unsecured  revolving  line of credit  agreements  with
       foreign   banks   totaling   $11,107  at  December  31,  1997,  of  which
       approximately  $10,271 was unused and  available.  The Company also has a
       $5,000 unsecured line for letters of credit with a U.S. bank.  Letters of
       credit  totaling  $4,691 were  outstanding  at  December  31, 1997 and no
       amounts were outstanding at December 31, 1996.


(7)    ACCRUED EXPENSES

       Accrued expenses consist of the following:
                                                             1997        1996
                                                           --------    --------

           Pension plan obligation (note 14)              $  5,305    $  3,781
           Compensation and benefits                         7,497       5,671
           Other                                             5,259       4,481
                                                           --------    --------

                                                          $ 18,061    $ 13,933
                                                           ========    ========


(8)    LONG-TERM DEBT

       Long-term  debt is  comprised  of six  percent  convertible  subordinated
       debentures  due  in  2012.  The  six  percent  convertible   subordinated
       debentures are convertible at the bondholders option at any time prior to
       maturity,  subject to  adjustment.  The  debentures are redeemable at the
       Company's  option,  in whole  or in  part,  at par.  The  debentures  are
       subordinated to all existing and future superior indebtedness.

       During 1995, the Company repurchased $2,360 of convertible  debentures on
       the open market.  These purchases  resulted in an  extraordinary  gain of
       approximately  $536. This extraordinary gain is shown net of income taxes
       in the accompanying consolidated statements of operations.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (9)   INCOME TAXES

       Components  of income tax  expense  (benefit)  attributable  to  earnings
       before income taxes and extraordinary gain:
                                                              Share
                                                               and
                                                              stock
                                                             option
                                     Current     Deferred    benefit     Total
                                    ---------   ---------    -------   --------
         1997:
             Federal               $   5,327    $ (4,476)   $    663   $  1,514
             State                       858        (721)        107        244
                                   ---------    ---------    -------   --------
                                   $   6,185    $ (5,197)   $    770   $  1,758
                                   =========    =========    =======   ========

         1996:
             Federal               $   3,130    $  1,200    $    595   $  4,925
             State                       474         182          96        752
                                   ---------    --------     -------   --------

                                   $   3,604    $  1,382    $    691   $  5,677
                                   =========    ========     =======   ========

         1995:
             Federal               $  11,085    $   202     $      -   $ 11,287
             State                     1,654         31            -      1,685
             Foreign                     124          -            -        124
                                   ---------    -------     --------   --------

                                   $  12,863   $    233     $      -   $ 13,096
                                   =========   =========    ========   ========

       The actual tax expense differs from the expected tax expense (benefit) as
       computed by applying the U.S.  federal  statutory  tax rate of 34 percent
       for 1997 and 1996 and 35 percent for 1995 as a result of the following:
<TABLE>
<CAPTION>

                                                                                     1997       1996        1995
                                                                                   --------   --------    --------
         <S>                                                                      <C>        <C>         <C>
         Tax at U.S. federal statutory rate                                       $ 2,325    $ 5,450     $11,753
         Losses (gains) of foreign subsidiaries                                      (115)      (165)        217
         Earnings of foreign sales corporation                                       (228)      (368)       (344)
         State taxes (net of federal income tax benefit)                              161        496       1,075
         Research and development and foreign tax credits                               -          -        (124)
         Foreign taxes                                                                  -          -         124
         Other, net                                                                  (385)       264         395
                                                                                  ========   ========    ========
                                                                                  $ 1,758    $ 5,677     $13,096
                                                                                  ========   ========    ========
</TABLE>


<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (9)   INCOME TAXES (continued)

       The tax effects of temporary  differences  that give rise to  significant
       portions of the  deferred  tax assets and  deferred  tax  liabilities  at
       December 31, 1997 and December 27, 1996, are presented below:
<TABLE>
<CAPTION>

                                                                       Domestic                  Foreign
                                                                  -------------------      -------------------
                                                                    1997       1996          1997        1996
                                                                  --------   --------      --------    -------
         <S>                                                     <C>        <C>           <C>         <C>
         Deferred tax assets:
             Warranty, vacation, and other accruals              $  1,740   $  1,839      $      -    $      -
             Inventory reserves and other inventory-related
               temporary basis differences                            944      2,067             -           -
             Pension accrual                                        1,626        992             -           -
             Long-term contract related temporary differences         496        461             -           -
             Net operating loss carryforwards                         111        147           721       2,276
             Unrealized loss on marketable equity securities           41        325             -           -
             Write-down of investment securities                    3,591          -             -           -
             Other                                                    342        324             -           -
                                                                  --------   --------      --------    -------


                   Total gross deferred tax assets                  8,891      6,155           721       2,276

                   Less valuation allowance                           153        189           721       2,276
                                                                  --------   --------      --------   --------

                   Total deferred tax assets                        8,738      5,966             -           -
                                                                  --------   --------      --------    -------

         Deferred tax liabilities:
             Plant and equipment, principally
               due to differences in
               depreciation and capitalized interest             $   (652)      (993)            -           -
             Other                                                    (60)      (246)            -           -
                                                                  --------   --------      --------    -------

                   Total gross deferred tax liabilities              (712)    (1,239)            -           -
                                                                  --------   --------      --------    -------

                   Net deferred tax asset                        $  8,026   $  4,727      $      -    $      -
                                                                  ========   ========      ========    =======

                                                                    1997       1996
                                                                  --------   --------

         Net current deferred tax asset                          $  4,224   $  4,841
         Net non-current deferred tax asset (liability)             3,802       (114)
                                                                  --------   --------

                   Net deferred tax asset                        $  8,026   $  4,727
                                                                  ========   ========
</TABLE>

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (9)   INCOME TAXES (continued)

       Certain reclasses have been made during 1997 between  beginning  deferred
       tax assets and  liabilities and the current tax payable  accounts.  These
       reclass entries were made to adjust the beginning  deferred tax assets to
       the tax return amounts.

       Management  believes the existing net  deductible  temporary  differences
       will  reverse  during the  periods  in which the  Company  generates  net
       taxable  income.  The Company has a strong taxable  earnings  history.  A
       valuation allowance is provided when it is more likely than not that some
       portion of the deferred  tax asset may not be  realized.  The Company has
       established a valuation  allowance  primarily for net operating  loss and
       tax  credit   carryforwards  from  an  acquired  subsidiary  and  foreign
       subsidiaries as a result of the uncertainty of realization. The Company's
       beginning  valuation  allowance  changed  during  1997 for  domestic  and
       foreign  purposes  by $36 and  $1,555,  respectively.  The  change in the
       foreign  valuation  allowance is primarily  attributable to adjusting the
       gross asset to its expected value when it may be utilized.


(10)   STOCK OPTION, PURCHASE, AND BONUS PLANS

       Stock  Option Plans - Under two fixed option  plans,  the Company  grants
       options to officers  and  employees  to acquire  shares of the  Company's
       common stock at a purchase price generally equal to the fair market value
       on the date of grant.  Options  generally vest ratably over three to four
       years and expire ten years from date of grant. The Company grants options
       to its directors  under its Director  Plan.  Option grants are limited to
       10,000 shares per director in each fiscal year.  Options  generally  vest
       ratably  over four  years and  expire  ten years  from the date of grant.
       Shareholders  authorized  an  additional  450,000,  150,000,  and 350,000
       shares to be  granted  under  the  plans  during  1997,  1996,  and 1995,
       respectively. In addition, 180,000 authorized shares from the stock bonus
       plan were  transferred to the stock option plan during 1995 and the stock
       bonus plan was  eliminated.  At December  31,  1997,  options to purchase
       268,000  shares of common stock were  authorized  and reserved for future
       grant. A summary of activity follows (shares in thousands):

<TABLE>
<CAPTION>
                                                          1997                    1996                   1995
                                                 ---------------------   --------------------   ---------------------
                                                             Weighted-              Weighted-               Weighted-
                                                  Number      average     Number     average     Number      average
                                                    of        exercise      of       exercise      of        exercise
                                                  shares       price      shares      price      shares       price
                                                 --------   ----------   --------   ---------   --------    ---------
        <S>                                      <C>       <C>           <C>       <C>          <C>        <C>
        Options  outstanding  at  beginning
           of year                                 1,309   $   18.14         842   $  14.45         815    $  13.22
        Options granted                              570       24.55         724      21.32         291       16.93
        Options exercised                           (159)      16.21        (169)     13.44        (139)      13.71
        Options canceled                             (80)      21.78         (88)     18.20        (125)      13.00
                                                 --------                --------                --------

        Options outstanding at end of year         1,640   $   20.38       1,309   $  18.14         842    $  14.45
                                                 ========                ========               ========

        Options exercisable at end of year           597   $   16.40         271   $  14.67         312    $  13.78
                                                 ========                ========               ========

        Weighted-average   fair   value  of
           options granted during the year                 $    8.81               $   7.15                $   5.65
</TABLE>

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (10)  STOCK OPTION, PURCHASE, AND BONUS PLANS (continued)

       The  following  table  summarizes  information  about fixed stock options
       outstanding at December 31, 1997 (options in thousands):
<TABLE>
<CAPTION>

                                           Options outstanding                          Options exercisable
                            --------------------------------------------------    --------------------------------
                                 Number        Weighted-average
                                  out-            remaining     Weighted-average       Number       Weighted-average
              Range of        standing at        contractual       exercise        exercisable at      exercise
              exercise        December 31,           life           price           December 31,        price
               prices             1997                                                  1997
           --------------   ---------------    --------------   --------------    ---------------   --------------
       <S>                  <C>                <C>              <C>               <C>               <C>
       $    12.22 - 15.25               348         7.06             $12.96                  297           $12.63
            15.39 - 20.75               174         6.06              19.08                  129            18.66
            20.88 - 20.88               375         8.10              20.88                  116            20.88
            21.00 - 22.38               348         8.87              22.12                   39            21.75
            22.50 - 32.88               395         9.30              25.48                   16            22.76
                            ---------------                                       ---------------

            12.22 - 32.88             1,640         8.12              20.38                  597            16.40
                            ===============                                       ===============
</TABLE>

       The  Company  accounts  for  these  plans  under APB 25,  under  which no
       compensation  cost has been recognized.  Had compensation  cost for these
       plans  been  determined  consistent  with SFAS  123,  the  Company's  net
       earnings  and  earnings  per common  share would have been changed to the
       following pro forma amounts  (earnings per common share amounts have been
       restated in 1996 and 1995 to reflect the Company's adoption of SFAS 128):

<TABLE>
<CAPTION>

                                                                                 1997       1996        1995
                                                                                -------     ------     -------
        <S>                                                                   <C>         <C>        <C>
        Net earnings                                           As reported    $   5,080   $  10,352  $  20,811
                                                               Pro forma          2,545       8,570     20,319

        Basic earnings per common share                        As reported         0.56        1.16      2.41
                                                               Pro forma           0.28        0.96      2.35

        Diluted earnings per common share                      As reported         0.53        1.12      2.37
                                                               Pro forma           0.27        0.93      2.31

</TABLE>

       Pro forma net  earnings  reflects  only  options  granted  subsequent  to
       December 29, 1994.  Therefore,  the effect that calculating  compensation
       cost for stock-based compensation under SFAS 123 has on the pro forma net
       earnings  as shown  above may not be  representative  of the  effects  on
       reported net earnings for future years.

       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  in  1997,   1996,   and  1995,
       respectively:  risk-free interest rates of 5.7 percent,  6.1 percent, and
       5.7 percent,  expected  average lives of 2.6 years for 1997 and 2.3 years
       for both 1996 and 1995;  and expected  volatility  of 47 percent for 1997
       and 49 percent for both 1996 and 1995.

       Stock  Purchase  Plan - The Company has an employee  stock  purchase plan
       whereby  qualified  employees are allowed to purchase  limited amounts of
       the Company's common stock at 85 percent of the market value of the stock
       at the time of the sale. A total of 500,000 shares are  authorized  under
       the plan.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (11)  LEASES

       The Company leases certain of its buildings and related  improvements  to
       third parties under noncancelable  operating leases. Cost and accumulated
       depreciation  of the leased  buildings and  improvements  at December 31,
       1997  were  $8,133  and  $2,616,  respectively.  Rental  income  for  all
       operating  leases for 1997,  1996,  and 1995 was $1,144,  $770, and $431,
       respectively.

       The Company occupies real property and uses certain equipment under lease
       arrangements  which are  accounted  for  primarily as  operating  leases.
       Rental  expenses for all operating  leases for 1997,  1996, and 1995 were
       $1,718, $1,506, and $1,770, respectively.

       At December 31, 1997,  the future  minimum  rental income and  commitment
       under operating leases that have initial or remaining noncancelable lease
       terms in excess of one year are as follows:

                                                                       Rental
                                                            Rental     commit-
                                                            income      ment
                                                           --------   ---------
           Fiscal year(s):
               1998                                        $    915   $  1,264
               1999                                             755      1,151
               2000                                             725      1,014
               2001                                             682        867
               2002                                             647        772
               Thereafter                                     2,347      9,343
                                                           --------   ---------

                                                           $  6,071   $ 14,411
                                                           ========   =========


<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (12)  INDUSTRY SEGMENT AND FOREIGN OPERATIONS

       The Company operates in a single industry segment,  the visual simulation
       and computer graphics marketplace.  A summary of operations by geographic
       area follows:
<TABLE>
<CAPTION>

                                                                              1997        1996        1995
                                                                           ---------    ---------   ----------
           <S>                                                            <C>          <C>         <C>
           Net sales:
               U.S. operations                                            $ 138,910    $ 121,759   $ 110,004
               European operations                                           35,943       16,625       4,618
               Eliminations                                                 (15,500)      (7,820)     (1,428)
                                                                           ---------    ---------   ---------

                  Total net sales                                         $ 159,353    $ 130,564   $ 113,194
                                                                           =========    =========   =========

           Operating earnings (loss):
               U.S. operations                                            $   7,433    $   9,943   $  25,866
               European operations                                            7,702        1,730      (2,953)
               Eliminations                                                    (746)        (154)        194
                                                                           ---------    ---------   ---------
                  Total operating earnings                                $  14,389    $  11,519   $  23,107
                                                                           =========    =========   =========


           Identifiable assets:
               U.S. operations                                            $ 138,888    $ 120,466   $  94,233
               European operations                                           23,741       14,547       3,483
               Eliminations                                                    (877)        (159)          -
                                                                           ---------    ---------   ---------

                  Total identifiable assets                                 161,752      134,854      97,716
               Corporate assets                                              72,638       76,037     113,286
                                                                           ---------    ---------   ---------

                     Total assets                                         $ 234,390    $ 210,891   $ 211,002
                                                                           =========    =========   =========
</TABLE>

       Transfers between  geographic areas are accounted for at market price and
       intercompany  profit is eliminated in consolidation.  Operating  earnings
       (loss) are total sales less operating  expenses.  Identifiable assets are
       those assets of the Company that are  identified  with the  operations in
       each geographic area.  Corporate assets are principally cash,  marketable
       securities, and long-term investments.


 (13)  SALES TO FOREIGN AND MAJOR CUSTOMERS

       Sales to foreign customers are summarized as follows:
                                                   1997       1996        1995
                                                --------   --------    --------

          Sales to foreign end-users:
             Europe (excluding Great Britain)   $ 47,168   $ 26,621    $ 16,801
             Pacific Rim                          27,789     44,262      13,888
             Great Britain                        12,008     13,913      11,612
             Other                                 7,677      3,572       2,202
                                                --------   --------    --------

                Total                           $ 94,642   $ 88,368    $ 44,503
                                                ========   ========    ========

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (13)  SALES TO FOREIGN AND MAJOR CUSTOMERS (continued)

       Customers comprising 10 percent or greater of the Company's net sales are
summarized as follows:

                                                   1997       1996        1995
                                                --------   --------    --------

          Thomson Training & Simulation Ltd.        12%        12%          4%
          Hughes Training Incorporated               9%        11%         10%
          Rikei Corporation                          5%        11%          8%
          Loral Corporation                          -          5%         30%

       The  Company's  products  are  sold  to  agencies  of the  United  States
       Government  through prime  contractors  or  subcontractors  thereof.  The
       percentage of net sales to total sales attributed to the U.S.  Government
       either directly or through prime contractors or subcontractors  for 1997,
       1996, and 1995 was 29 percent, 20 percent, and 48 percent,  respectively,
       of which 22 percent,  30 percent,  and 34 percent of those sales are also
       included as sales to the customers above, respectively.

       The  outstanding  accounts  receivable from agencies of the United States
       Government either directly or through prime contractors or subcontractors
       was $9,478 or 26% of gross receivables at December 31, 1997 and $9,091 or
       26% of gross  receivables  at December 27, 1996.  The amount  included in
       costs  and  estimated  earnings  in  excess of  billings  on  uncompleted
       contracts  from  agencies  of the the  United  States  Government  either
       directly or through prime  contractors or  subcontractors  was $21,371 or
       41% of costs and estimated  earnings in excess of billings on uncompleted
       contracts at December 31, 1997 and $12,766 or 37% of costs and  estimated
       earnings in excess of billings on  uncompleted  contracts at December 27,
       1996.  The  outstanding  accounts  receivable  from another  customer was
       $5,464 or 15% of gross  accounts  receivable  at  December  31,  1997 and
       $5,306 or 15% of gross accounts receivable at December 27, 1996.


(14)   EMPLOYEE BENEFIT PLANS

       Pension  Plan  (Plan) - The Company has a defined  benefit  pension  plan
       covering  substantially  all  employees  who  have  attained  age 21 with
       service in excess of one year. Benefits at normal retirement age (65) are
       based upon the  employee's  years of service and the  employee's  highest
       compensation   for  any  consecutive  five  of  the  last  ten  years  of
       employment.  The Company's  funding policy is to contribute  annually the
       maximum amount that can be deducted for federal income tax purposes.

       Supplemental  Executive  Retirement Plan (SERP) - Effective July 1, 1995,
       the Company  introduced a non-qualified SERP which will be phased in over
       three years. The SERP, which is unfunded,  provides  eligible  executives
       defined pension  benefits,  outside the Company's  pension plan, based on
       average earnings, years of service, and age at retirement.

       Net annual Plan and SERP expense is summarized as follows:
<TABLE>
<CAPTION>

                                                             1997                 1996                 1995
                                                       ------------------   ------------------   ------------------
                                                         Plan     SERP        Plan      SERP       Plan      SERP
                                                       -------   --------   -------    -------   -------    -------
         <S>                                          <C>       <C>        <C>        <C>       <C>        <C>
         Benefits for services  rendered during the
            year                                      $ 2,025   $   327    $ 1,989    $   265   $ 1,594    $    91
         Interest on projected benefit obligation       2,008       252      1,776         98     1,763         44
         Actual return on plan assets                  (4,848)        -     (3,546)         -    (4,978)         -
         Net amortization and deferral                  1,707       221        875         86     2,419         36
                                                       -------   --------   -------    -------   -------    -------

                                                      $   892   $   800    $ 1,094    $   449   $   798    $   171
                                                       =======   ========   =======    =======   =======    =======
</TABLE>

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (14)  EMPLOYEE BENEFIT PLANS (continued)

       The following  assumptions  were used in accounting for the Plan and SERP
at the end of each year:
<TABLE>
<CAPTION>
                                                                                 1997       1996       1995
                                                                                -------    --------   --------
         <S>                                                                     <C>        <C>        <C>
         Discount rates used in determining benefit obligations                  7.00%      7.50%      7.00%
         Rates of increase in compensation levels                                4.50       4.50       4.50
         Expected long-term rate of return on plan assets                        9.00       9.00       9.00
</TABLE>


       The following  summarizes the funded status and amounts recognized in the
       Company's consolidated financial statements:

<TABLE>
<CAPTION>
                                                        1997                   1996                   1995
                                                 -------------------    -------------------   --------------------
                                                   Plan       SERP        Plan       SERP       Plan        Plan
                                                 --------   --------    --------   --------   --------    --------
         <S>                                    <C>        <C>         <C>        <C>        <C>         <C>
         Actuarial present value of benefit
           obligations:
             Vested benefits                    $(21,321)  $ (2,315)   $(15,033)  $ (1,176)  $(16,183)   $      -
             Nonvested benefits                  (1,064)        (73)      (610)       (580)     (732)        (900)
                                                 --------   --------    --------   --------   --------    --------

         Accumulated benefit obligation          (22,385)    (2,388)    (15,643)    (1,756)   (16,915)       (900)
         Effect  of   projected   future
            salary increases                     (13,827)    (2,875)    (10,135)    (1,598)   (12,548)       (503)
                                                 --------   --------    --------   --------   --------    --------

         Projected benefit obligation            (36,212)    (5,263)    (25,778)    (3,354)   (29,463)     (1,403)

         Plan assets at fair value                36,767          -      32,912          -     29,174           -
                                                 --------   --------    --------   --------   --------    --------
         Projected  benefit   obligation
            below  (in  excess  of) plan assets     555      (5,263)     7,134      (3,354)     (289)      (1,403)
         Unrecognized net (gain) loss            (3,954)      2,895     (9,116)      1,726    (1,657)         138
         Unrecognized prior service cost            165         948       (440)      1,008      (512)       1,094
         Unrecognized   net   transition
            obligation                              317           -        397           -       476            -
                                                --------   --------    --------   --------   --------     --------

         Accrued pension plan obligation         (2,917)     (1,420)    (2,025)       (620)   (1,982)        (171)

         Additional minimum liability                 -        (968)         -      (1,136)        -            -
                                                --------   --------    --------   --------   --------    ---------

                   Total liability              $(2,917)   $ (2,388)   $(2,025)   $ (1,756)  $(1,982)    $   (171)
                                                ========   ========    ========   ========   ========    =========
</TABLE>

       The additional  minimum  liability is offset by an equal intangible asset
       recorded in other assets in the consolidated financial statements.

       Deferred  Savings  Plan - The Company has a deferred  savings  plan which
       qualifies  under Section  401(k) of the Internal  Revenue Code.  The plan
       covers all employees of the Company who have at least one year of service
       and who are age 18 or older. The Company makes matching  contributions of
       50 percent of each employee's  contribution  not to exceed six percent of
       the employee's compensation. The Company's contributions to this plan for
       1997, 1996, and 1995 were $957, $948 and $836, respectively.

       Life  Insurance  - The Company  purchases  company-owned  life  insurance
       policies insuring the lives of certain employees. The policies accumulate
       asset values to meet future liabilities including the payment of employee
       benefits such as supplemental  retirement benefits.  At December 31, 1997
       and  December  27, 1996,  the  investment  in the policies was $1,104 and
       $643, respectively, and net life insurance expense was $135, $91, and $57
       for 1997, 1996, and 1995, respectively.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (15)  PREFERRED STOCK

       The Company has both Class A and Class B Preferred  Stock with  5,000,000
       shares authorized for each class. The Company has reserved 300,000 shares
       of the Class A Preferred Stock as Series A Junior Preferred Stock under a
       shareholder  rights plan.  This preferred  stock entitles  holders to 100
       votes per  share and to  receive  the  greater  of $2.00 per share or 100
       times  the  common  dividend  declared.  Upon  voluntary  or  involuntary
       liquidation,  dissolution,  or winding up of the Company,  holders of the
       preferred  stock would be entitled to be paid,  to the extent  assets are
       available for distribution,  an amount of $100 per share plus any accrued
       and unpaid dividends before payment is made to common stockholders.

       In connection with this preferred  stock,  the Company issued one warrant
       to each common  stockholder  that would be  exercisable  contingent  upon
       certain  conditions  and would allow the holder to purchase  1/100th of a
       preferred  share  per  warrant.  The  warrants  attached  to  the  shares
       outstanding  on November 30, 1988 and to all new shares issued after that
       date; the warrants outstanding at December 31, 1997 and December 27, 1996
       are equal to the shares of common  stock  outstanding  of  9,066,743  and
       9,056,871,  respectively. At December 31, 1997 and December 27, 1996, the
       warrants were not  exercisable and no shares of preferred stock have been
       issued.


(16)   DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

       The  carrying  amount of cash and cash  equivalents,  receivables,  notes
       payable to bank, accounts payable, and accrued expenses approximates fair
       value  because of their short  maturity.  The fair value of the Company's
       long-term debt  instruments  ($15,673 at December 31, 1997 and $15,498 at
       December 27, 1996) is based on quoted market prices.


(17)   COMMITMENTS AND CONTINGENCIES

       In the normal  course of business,  the Company 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,   the  Company   believes  the  ultimate
       disposition  of these matters will not have a material  adverse effect on
       the Company's consolidated financial condition,  liquidity, or results of
       operations.

       In  September  1995,  the Company  reached a  settlement  agreement  with
       Thomson Training & Simulation (Thomson). Under the agreement, the Company
       received  $3,750 from lost revenues for breach of a working  agreement by
       Thomson.  The settled  agreement allows the Company and Thomson to pursue
       opportunities  in the civil pilot  market on a  nonexclusive  basis.  The
       amount paid to the Company  under this  settlement is classified as sales
       in the Company's consolidated statements of operations.


(18)   BUSINESSES SOLD, ACQUIRED, AND SPIN-OFF

       On  December  27,  1996,  the Company  contributed  all of the issued and
       outstanding  capital  stock of Portable  Graphics,  Inc., a  wholly-owned
       subsidiary,  and paid $100 cash in exchange for 1,570,667  Class A Shares
       of Total  Graphics  Solution N.V. (TGS) pursuant to Section 351(a) of the
       Internal Revenue Code of 1986, whereby the Company immediately thereafter
       had  control  of the  TGS  Class A  Shares.  Based  upon  an  independent
       valuation  of TGS,  the Company has  recorded  its  investment  in TGS at
       $1,250. In addition,  the Company paid TGS $250 in exchange for a warrant
       to purchase an additional  832,355 Class A Shares at a price of $1.40 per
       share.  The warrant  expires on the  earlier of December  27, 2001 or the
       effective date of an underwritten public offering of the capital stock of
       TGS. The cost of the warrant has been recorded in  investment  securities
       in the consolidated financial statements.

<PAGE>

            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 (18)  BUSINESSES SOLD, ACQUIRED, AND SPIN-OFF (continued)

       On March 20,  1996,  the  Company  acquired  Terabit  Computer  Specialty
       Company,  Inc.  (Terabit).   Terabit,  established  in  1979,  developed,
       marketed and supported  simulated cockpit  instruments and other airborne
       electronics  displays  used  in  training  simulators  for  military  and
       commercial  aircraft.  To effect the  acquisition,  149,215 shares of the
       Company's common stock were issued in exchange for all of the outstanding
       common stock of Terabit.  The  acquisition  was  accounted  for using the
       pooling of interests method. However, due to immateriality, the Company's
       financial  information  has not been restated to include the accounts and
       operations of Terabit prior to January 1, 1996.

       On April 12, 1995,  the Company sold its CDRS business unit to Parametric
       Technology Corporation (PTC), a Massachusetts  Corporation.  The proceeds
       from the sale net of direct expenses of $1,591 was approximately  $31,488
       resulting in a gain of $23,506 summarized as follows:

              Proceeds                                              $   31,488
              Assets and liabilities sold:
                  Accounts receivable                 $     (961)
                  Inventory                                 (466)
                  Net property, plant, and equipment      (1,228)
                  Liabilities                                387        (2,268)
                                                      -----------
              Provision for expenses                                    (2,414)
              Write-off of inventory                                    (3,300)
                                                                    -----------

                                                                    $   23,506
                                                                    ===========

       On October 3, 1995, the Company  acquired all of the  outstanding  common
       stock of Xionix Simulation, Inc. (Xionix) for $1,080. Xionix manufactures
       low-cost flight-system  trainers. This business combination was accounted
       for under the purchase  method of accounting.  Accordingly,  the purchase
       price was allocated to assets and  liabilities  based on their  estimated
       fair  values as of the date of  acquisition.  Operations  of  Xionix  are
       included in the accompanying  consolidated  financial statements from the
       date of  acquisition,  and are not material in relation to the  Company's
       consolidated  financial  statements;  pro forma financial information has
       therefore not been  presented.  The Company  allocated $705 of the Xionix
       purchase  price to  in-process  research  and  development  which  has no
       alternative future use and this amount was written off during 1995.


(19)   RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1997, the FASB issued Statement of Financial  Accounting  Standards
     No.  130.,  Reporting  Comprehensive  Income  and  Statement  of  Financial
     Accounting  Standards No. 131,  Disclosures about Segments of an Enterprise
     and Related Information.  These statements, which are effective for periods
     beginning  after  December  15,  1997  expand  or modify  disclosures  and,
     accordingly,  will  have no  impact  on the  Company's  reported  financial
     position, results of operation, or cash flows.

<PAGE>

ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


                                     "None"

<PAGE>

                                    FORM 10-K

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         Information  regarding  directors  of the  Company is  incorporated  by
reference from "Election of Directors" in the Proxy Statement to be delivered to
shareholders  in connection  with the 1998 Annual Meeting of  Shareholders to be
held on May 21, 1998.

         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" in the Proxy  Statement to be delivered to shareholders in connection with
the 1998 Annual Meeting of Shareholders to be held on May 21, 1998.

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

ITEM 11. EXECUTIVE COMPENSATION

         Information  regarding  this item is  incorporated  by  reference  from
"Executive  Compensation" in the Proxy Statement to be delivered to shareholders
in connection with the 1998 Annual Meeting of Shareholders to be held on May 21,
1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                AND MANAGEMENT

         Information  regarding  this item is  incorporated  by  reference  from
"Security  Ownership of Certain  Beneficial  Owners and Management" in the Proxy
Statement to be delivered to  shareholders  in  connection  with the 1998 Annual
Meeting of Shareholders to be held on May 21, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information  regarding  this item is  incorporated  by  reference  from
"Executive   Compensation  -  Summary  Compensation   Table",   "Report  of  the
Compensation  and  Stock  Options  Committee  of the  Board of  Directors",  and
"Termination  of Employment  and Change of Control  Arrangements",  in the Proxy
Statement to be delivered to  shareholders  in  connection  with the 1998 Annual
Meeting of Shareholders to be held on May 21, 1998.

<PAGE>

                                    FORM 10-K

                                     PART IV

ITEM 14.        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 included in this report:

1.       Financial Statements - Included in Part II, Item 8 of this report:

         Report of Management

         Report of Independent Auditors

         Consolidated Balance Sheets - December 31, 1997 and December 27, 1996.

         Consolidated  Statements of Operations - Years ended December 31, 1997,
         December 27, 1996, and December 29, 1995.

         Consolidated  Statements of Stockholders' Equity - Years ended December
         31, 1997, December 27, 1996, and December 29, 1995.

         Consolidated  Statements of Cash Flows - Years ended December 31, 1997,
         December 27, 1996, and December 29, 1995.

         Notes to Consolidated  Financial  Statements - Years ended December 31,
         1997, December 27, 1996, and December 29, 1995.

2. Financial Statement Schedules - included in Part IV of this report:

         Schedule II - Valuation and Qualifying Accounts

         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.

3.       Exhibits

         3.1      Articles of Incorporation, as amended, filed as Exhibit 3.1 to
                  the  Company's  Annual Report on Form 10-K 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 the  Company's  Annual  Report on Form 10-K for the  fiscal
                  year ended December 30, 1988, and incorporated  herein by this
                  reference.

         3.2      By-laws,  as amended,  filed as Exhibit  3.2 to the  Company's
                  Annual Report on Form 10-K for the fiscal year ended  December
                  25, 1987, and incorporated herein by this reference.

         10.1     1985 Stock Option Plan,  filed as Exhibit 1 to the  Company's
                  Post-effective  Amendment No. 1 to Registration  Statement  on
                  Form  S-8,  SEC File No.  2-76027,  and  incorporated  herein
                  by this reference.

<PAGE>

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                AND REPORTS ON FORM 8-K (Continued)

3.       Exhibits (Continued)

         10.2     1989 Stock Option Plan for  Non-employee  Directors,  filed as
                  Exhibit 10.5 to the  Company's  Annual Report on Form 10-K for
                  the fiscal year ended  December  29,  1989,  and  incorporated
                  herein by this reference.

         10.3     The Company's  1991 Employee  Stock  Purchase  Plan,  filed as
                  Exhibit 4.1 to the  Company's  Registration  Statement on Form
                  S-8, SEC File No. 33-39632,  and  incorporated  herein by this
                  reference.

         10.4     Employment  Agreement  dated  November 17,  1994,  between the
                  Company and Mr. Gary E. Meredith, filed as Exhibit 10.9 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  December 26, 1994, and incorporated herein by this reference.

         10.5     Employment  Agreement  dated  November 29,  1994,  between the
                  Company and Mr. James R. Oyler,  filed as Exhibit 10.10 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  December 26, 1994, and incorporated herein by this reference.

         10.6     The Company's 1995 Long-Term  Incentive  Equity Plan, filed as
                  Exhibit 10.11 to the Company's  Annual Report on Form 10-K for
                  the fiscal year ended  December  29,  1995,  and  incorporated
                  herein by this reference.

         10.7     Asset  Purchase  Agreement  dated  March 1, 1995,  between the
                  Company  and  Parametric  Technology  Corporation  as to  E&S'
                  divestiture  of its Design  Software  group  (CDRS),  filed as
                  Exhibit 10.12 to the Company's  Annual Report on Form 10-K for
                  the fiscal year ended  December  29,  1995,  and  incorporated
                  herein by this reference.

         10.8     The Company's  Executive  Savings Plan, filed as Exhibit 10.14
                  to the  Company's  Annual  Report on Form 10-K for the  fiscal
                  year ended December 29, 1995, and incorporated  herein by this
                  reference.

         10.9     The Company's  Supplemental  Executive Retirement Plan (SERP),
                  filed as Exhibit 10.15 to the Company's  Annual Report on Form
                  10-K  for  the  fiscal  year  ended  December  29,  1995,  and
                  incorporated herein by this reference.

         23.1     Consent of Independent Accountants.

         24.1     Powers of Attorney for Messrs.  Stewart Carrell,  Gerald
                  Casilli,  Henry N. Christiansen,  Peter O. Crisp, John T.
                  Lemley, Gary E. Meredith, James R. Oyler, Ivan E. Sutherland,
                  and John E. Warnock.

         27       Financial Data Schedule (filed as part of electronic filing
                  only).

          No  reports on Form 8-K were  filed  during the fourth  quarter of the
          year ended December 31, 1997.

TRADEMARKS USED IN THIS FORM 10-K

         Digistar, E&S, EaSIEST, ESIG, FuseBox,  Harmony,  iNTegrator,  Liberty,
Melody, MindSet, Real Image Technology,  REALimage, Rhythm, StarRider, Symphony,
and Universal 3D Architecture 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.


<PAGE>


                                                                    Schedule II



            EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES

                        Valuation and Qualifying Accounts

     Years ended December 31, 1997, December 27, 1996, and December 29, 1995

                             (Dollars in thousands)


<TABLE>
<CAPTION>

Allowance for doubtful receivables
----------------------------------
                                                                                         Receivables
                                                                          Additions        charged
                                                        Balance at       charged to      (recovered)      Balance
                                                        beginning of       cost and         against        at end
                                                           year           expenses        allowance        of year
                                                       --------------   --------------   -------------    ----------
<S>                                                   <C>              <C>              <C>              <C>


Year ended December 31, 1997                          $          563   $          370   $          82    $       851
                                                       ==============   ==============   =============    ==========

Year ended December 27, 1996                          $          172   $          335   $         (56)   $       563
                                                       ==============   ==============   =============    ==========

Year ended December 29, 1995                          $          144   $          158   $         130    $       172
                                                       ==============   ==============   =============    ==========


Deferred tax asset valuation allowance
--------------------------------------
                                                         Balance at                         Charges       Balance
                                                        beginning of    Additions and       against       at end
                                                            year         adjustments       allowance      of year
                                                       --------------   --------------   -------------    ----------

Year ended December 31, 1997              Domestic    $          189   $            -   $          36    $       153
                                                       ==============   ==============   =============    ==========

                                          Foreign     $        2,276   $            -   $       1,555    $       721
                                                       ==============   ==============   =============    ==========


Year ended December 27, 1996              Domestic    $          520   $            -   $         331    $       189
                                                       ==============   ==============   =============    ==========

                                          Foreign     $        2,276   $            -   $           -    $     2,276
                                                       ==============   ==============   =============    ==========


Year ended December 29, 1995              Domestic    $          520   $            -   $           -    $       520
                                                       ==============   ==============   =============    ==========

                                          Foreign     $        2,276   $            -   $           -    $     2,276
                                                       ==============   ==============   =============    ==========

</TABLE>

<PAGE>


                                   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 31, 1998                       By:            /S/
                                            -------------------------
                                            JAMES R. OYLER, PRESIDENT

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


        /S/             *       Chairman of the                  March 31, 1998
----------------------
STEWART CARRELL                 Board of Directors


        /S/                     Director and President           March 31, 1998
----------------------
JAMES R. OYLER                  (Chief Executive Officer)


        /S/                     Vice President and Chief         March 31, 1998
----------------------
JOHN T. LEMLEY                  Financial Officer
                                (Principal Financial Officer)

        /S/                     Vice President and               March 31, 1998
----------------------
MARK C. MCBRIDE                 Corporate Controller
                                (Principal Accounting Officer)

        /S/             *       Director                         March 31, 1998
----------------------
GERALD S. CASILLI


        /S/             *       Director                         March 31, 1998
----------------------
PETER O. CRISP


        /S/             *       Director                         March 31, 1998
----------------------
HENRY N. CHRISTIANSEN


        /S/             *       Director                         March 31, 1998
----------------------
IVAN E. SUTHERLAND


        /S/             *       Director                         March 31, 1998
----------------------
JOHN E. WARNOCK



By:        /S/           *                                       March 31, 1998
   -------------------
      JOHN T. LEMLEY
      Attorney-in-Fact