**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


________________


**FORM
      10-Q**


x
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 
 **For
        the quarterly period ended June 30, 2006**
 
 **OR**
 
 o
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 
 **For
        the transition period from ____________ to ____________.**
  **Commission
        file number: 000-50730**
  **VIEWSONIC
        CORPORATION**
 **(** *Exact
        name of Registrant as Specified in Its Charter* **)**
  **Delaware**
              **95-4120606***(State
                  or Other Jurisdiction of Incorporation or
                  Organization)*
              *(I.R.S.
                  Employer Identification No.)*
 
 **381
        Brea Canyon Road**
 **Walnut,
        California 91789**
 **(909)
        444-8800**
 *(Address,
        including Zip Code, of Registrant's Principal Executive
        Offices*
 *and
        Registrant's Telephone Number, including Area Code)*
 
 
 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 o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated file” in Rule 12b-2 of the Exchange Act (check
        one):
 Large
                    accelerated filer  o
                
                Accelerated
                    filer  o
                
                Non-accelerated
                    filer  x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes o No x
 
 The
        number of shares of the registrant's common stock outstanding was 354,136,736
        shares, the number of shares of Series B preferred stock outstanding was
        0
        shares, and the number of shares of Series C preferred stock outstanding
        was
        3,300,000 shares, each as of July 31, 2006.





1





**VIEWSONIC
      CORPORATION**


**FORM
      10-Q**


**TABLE
      OF CONTENTS**




**Page****PART
                  I: FINANCIAL INFORMATION**Item
                  1.
              
              Financial
                  Statements (Unaudited):
              3Condensed
                  Consolidated Balance Sheets as of June 30, 2006 and
                  December 31, 2005
              3Condensed
                  Consolidated Statements of Operations for the three
                  and six months ended June 30, 2006 and 2005
              4Condensed
                  Consolidated Statements of Cash Flows for the six
                  months ended June 30, 2006 and 2005
              5Notes
                  to Condensed Consolidated Financial
                  Statements
              6Item
                  2.
              
              Management’s
                  Discussion and Analysis of Financial Condition and
                  Results of Operations
              13Item
                  3.
              
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              19Item
                  4.
              
              Controls
                  and Procedures
              19**PART
                  II: OTHER INFORMATION**Item
                  1.
              
              Legal
                  Proceedings
              20Item
                  1A.
              
              Risk
                  Factors
              20Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              27Item
                  3.
              
              Defaults
                  Upon Senior Securities
              27Item
                  4.
              
              Submission
                  of Matters to a Vote of Securities
                  Holders
              27Item
                  5.
              
              Other
                  Information
              27Item
                  6.
              
              Exhibits
              28Signatures
              29




2
 *Table
          of Contents*


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**VIEWSONIC
      CORPORATION**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**JUNE
      30, 2006 AND DECEMBER 31, 2005**


**(In
      thousands, except for share data and par value)**


**(Unaudited)**





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            66,933
            
            $
            93,998Short-term
                investments
            
            
            7,643
            
            
            —Trade
                receivables, net
            
            
            165,900
            
            
            145,982Other
                receivables
            
            
            7,864
            
            
            7,013Inventories
            
            
            171,702
            
            
            155,389Deferred
                income taxes
            
            
            4,360
            
            
            3,194Prepaids
                and other current assets
            
            
            4,193
            
            
            2,931Income
                taxes receivable
            
            
            201
            
            
            761Total
                current
            
            
            428,796
            
            
            409,268Property,
                plant and equipment, net
            
            
            15,265
            
            
            12,929Long-term
                investments
            
            
            1,166
            
            
            2,676Goodwill
            
            
            1,347
            
            
            1,347Other
                assets, net
            
            
            2,149
            
            
            6,505Total
                assets
            
            $
            448,723
            
            $
            432,725**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Bank
                borrowings
            
            $
            9,278
            
            $
            4,852Accounts
                payable
            
            
            276,987
            
            
            266,867Accrued
                promotional expenses
            
            
            26,790
            
            
            22,663Accrued
                warranty expense
            
            
            24,080
            
            
            21,350Other
                accrued expenses
            
            
            25,502
            
            
            20,809Total
                current liabilities
            
            
            362,637
            
            
            336,541Subordinated
                notes payable — related party
            
            
            43,000
            
            
            43,000Convertible
                mandatorily redeemable preferred stock
            
            
            —
            
            
            14,952Stockholders’
                equity:Common
                stock, $.01 par value 600,000,000 shares authorized; 354,136,736
                and
                353,974,268 shares issued as of June 30, 2006 and December 31, 2005,
                respectively
            
            
            3,541
            
            
            3,540Additional
                paid-in capital
            
            
            93,887
            
            
            93,716Accumulated
                deficit
            
            
            (51,558
            )
            
            (55,611
            )Accumulated
                other comprehensive loss
            
            
            (2,784
            )
            
            (3,413
            )Total
                stockholders' equity
            
            
            43,086
            
            
            38,232Total
                liabilities and stockholders’ equity
            
            $
            448,723
            
            $
            432,725





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





3
 *Table
          of Contents*


**VIEWSONIC
      CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**JUNE
      30, 2006 AND 2005**


**(In
      thousands, except per share data)**


**(Unaudited)**




**Three Months Ended**
              **June 30,**
            
            **Six Months Ended**
              **June 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                sales
            
            $
            379,268
            
            $
            284,617
            
            $
            706,062
            
            $
            558,528Cost
                of sales
            
            
            349,070
            
            
            257,502
            
            
            645,648
            
            
            503,345Gross
                profit
            
            
            30,198
            
            
            27,115
            
            
            60,414
            
            
            55,183Selling,
                general and administrative expenses
            
            
            30,017
            
            
            27,812
            
            
            56,924
            
            
            55,124Income
                (loss) from operations
            
            
            181
            
            
            (697
            )
            
            3,490
            
            
            59Other
                income (expense):Interest
                income (expense), net
            
            
            156
            
            
            (523
            )
            
            313
            
            
            (1,047
            )Other,
                net
            
            
            285
            
            
            (1,677
            )
            
            1,621
            
            
            (2,628
            )Total
                other income (expense),net
            
            
            441
            
            
            (2,200
            )
            
            1,934
            
            
            (3,675
            )Income
                (loss) from continuing operations before income taxes
            
            
            622
            
            
            (2,897
            )
            
            5,424
            
            
            (3,616
            )Provision
                for income taxes
            
            
            97
            
            
            13,396
            
            
            1,323
            
            
            13,195Income
                (loss) from continuing operations
            
            
            525
            
            
            (16,293
            )
            
            4,101
            
            
            (16,811
            )Net
                gain on disposal of discontinued operations, net of tax
            
            
            —
            
            
            780
            
            
            —
            
            
            714Net
                income (loss)
            
            
            525
            
            
            (15,513
            )
            
            4,101
            
            
            (16,097
            )Preferred
                stock accretion
            
            
            —
            
            
            (375
            )
            
            (48
            )
            
            (735
            )Net
                income (loss) available to common stockholders
            
            $
            525
            
            $
            (15,888
            )
            $
            4,053
            
            $
            (16,832
            )Basic
                earnings (loss) per share:Continuing
                operations
            
            $
            0.00
            
            $
            (0.05
            )
            $
            0.01
            
            $
            (0.05
            )Discontinued
                operations
            
            $
            —
            
            $
            0.00
            
            $
            —
            
            $
            0.00Total
                basic earnings (loss) per share
            
            $
            0.00
            
            $
            (0.05
            )
            $
            0.01
            
            $
            (0.05
            )Diluted
                earnings (loss) per shareContinuing
                operations
            
            $
            0.00
            
            $
            (0.05
            )
            $
            0.01
            
            $
            (0.05
            )Discontinued
                operations
            
            $
            —
            
            $
            0.00
            
            $
            —
            
            $
            0.00Total
                diluted earnings (loss) per share
            
            $
            0.00
            
            $
            (0.05
            )
            $
            0.01
            
            $
            (0.05
            )Basic
                weighted average shares outstanding
            
            
            354,131
            
            
            353,969
            
            
            354,095
            
            
            353,965Diluted
                weighted average shares outstanding
            
            
            360,749
            
            
            353,969
            
            
            360,757
            
            
            353,965





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




4
 *Table
          of Contents*





**VIEWSONIC
      CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**JUNE
      30, 2006 AND 2005**


**(In
      thousands)**


**(Unaudited)**







**Six
                Months Ended June 30,****2006**
            
            **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:**
            
            
            
            (Revised)Income
                (loss) from continuing operations
            
            $
            4,101
            
            $
            (16,811
            )Adjustments
                to reconcile net income (loss) from continuing operations to net
                cash used
                in operating activities:Depreciation
                and amortization
            
            
            1,418
            
            
            1,513Loss
                on disposal of property, plant and equipment
            
            
            9
            
            
            10Provision
                for doubtful accounts
            
            
            376
            
            
            449Net
                loss (gain) on sale and impairment of long-term
                investments
            
            
            1,320
            
            
            (31
            )Deferred
                income taxes
            
            
            (21
            )
            
            8,631Stock-based
                compensation expense
            
            
            111
            
            
            1,429Changes
                in operating assets and liabilities:Trade
                receivables
            
            
            (19,764
            )
            
            15,817Other
                receivables
            
            
            (808
            )
            
            508Inventories
            
            
            (15,933
            )
            
            46,048Prepaids
                and other current assets
            
            
            (1,460
            )
            
            3,561Accounts
                payable
            
            
            9,310
            
            
            (72,336
            )Accrued
                promotional and other expenses
            
            
            9,268
            
            
            (5,184
            )Accrued
                warranty expense
            
            
            2,716
            
            
            2,075Income
                taxes payable/receivable
            
            
            280
            
            
            1,276Net
                cash used in operating activities
            
            
            (9,077
            )
            
            (13,045
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Proceeds
                from sale of property, plant and equipment
            
            
            14
            
            
            —Purchase
                of property, plant and equipment
            
            
            (669
            )
            
            (606
            )Proceeds
                on sale of long-term investments
            
            
            954
            
            
            221Sales
                of short-term investments
            
            
            7,544
            
            
            7,693Purchase
                of short-term investments
            
            
            (15,213
            )
            
            (14,520
            )Net
                cash used in investing activities
            
            
            (7,370
            )
            
            (7,212
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Net
                proceeds from bank borrowings
            
            
            4,213
            
            
            (3,525
            )Proceeds
                from issuance of common stock
            
            
            61
            
            
            9Redemption
                of preferred stock
            
            
            (15,000
            )
            
            —Net
                cash used in financing activities
            
            
            (10,726
            )
            
            (3,516
            )**CASH
                FLOW FROM DISCONTINUED OPERATIONS**Cash
                flow from operating activities
            
            
            —
            
            
            (1,041
            )Cash
                flow from investing activities
            
            
            —
            
            
            40Cash
                flow from financing activities
            
            
            —
            
            
            —Net
                cash used in discontinued operations
            
            
            —
            
            
            (1,001
            )Effect
                of exchange rate changes on cash and cash equivalents
            
            
            108
            
            
            6Net
                decrease in cash and cash equivalents
            
            
            (27,065
            )
            
            (24,768
            )Cash
                and cash equivalents at beginning of period
            
            
            93,998
            
            
            100,497Cash
                and cash equivalents at end of period
            
            $
            66,933
            
            $
            75,729


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




5
 *Table
          of Contents*


**VIEWSONIC
      CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**Note
      1 - Summary of Significant Accounting Policies**





***Basis
      of Presentation***




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with generally accepted accounting principles in the
      United States for interim condensed consolidated financial information and
      with
      the instructions for Form 10-Q and Article 10 of Regulation S-X.





In
      the
      opinion of management, the accompanying unaudited condensed consolidated
      financial statements for ViewSonic Corporation and its subsidiaries
      (collectively, the “Company”) contain all adjustments, which are normal and
      recurring, necessary to present fairly the Company’s financial position as of
      June 30, 2006 and the Company’s results of operations and cash flows for the
      three and six months ended June 30, 2006 and 2005. The consolidated
      condensed balance sheet as of December 31, 2005 is derived from the December
      31,
      2005 audited consolidated financial statements.





The
      results of operations for the three and six months ended June 30, 2006 are
      not
      necessarily indicative of the results to be expected for the full year. The
      information included in this Quarterly Report on Form 10-Q should be read
      in conjunction with the audited consolidated financial statements for the year
      ended December 31, 2005 and notes thereto included in the Company’s
      Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on
      April 3, 2006.





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with generally accepted accounting principles in the
      United States. The preparation of these financial statements requires management
      to make estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses, and related disclosure of contingent assets
      and liabilities. Management bases its estimates on historical experience and
      other factors believed to be reasonable under the circumstances which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions.





***Revenue
      Recognition, Warranty and Promotions***





Revenues
      are recognized when products are shipped and risk of loss is transferred,
      persuasive evidence of an arrangement exists, the price is fixed or readily
      determinable and collectibility is reasonably assured. The Company extends
      rights of return to its customers, which are accrued for based on estimated
      future returns determined by using estimates and historical experience.





The
      Company provides a variety of warranty programs worldwide, and each program
      is
      based on the specific products and geographic locations. Accruals are provided
      for such estimated future costs at the time the product is sold, and such
      amounts are based upon historical experience.





The
      Company offers promotions such as rebates, price protection and other incentives
      to customers in the normal course of business. Accruals for these promotions
      are
      provided for based on estimates and historical experience. The costs of these
      promotions are offset against sales.





The
      Company occasionally requests that its contract manufacturers ship finished
      goods directly to its customers. However, the Company's primary business
      practice is to have finished goods delivered from its contract manufacturers
      directly to the Company's regional warehouses, where they are stored for
      eventual shipment to its customers. For vendor drop shipment sales, the Company
      retains title to the shipment from the time it leaves the contract
      manufacturer's port of choice, until the time title passes to the
      customer.





***Promotional
      Pricing Incentives from Vendors***





The
      Company receives promotional pricing incentives from its product vendors. The
      amount of the pricing incentives is based on various market factors including
      the volatility of pricing of key product components, market dynamics and the
      quantity of the Company’s purchases from such vendors. The pricing incentives do
      not require the Company to commit to future component purchases from these
      vendors. The Company records the reimbursement from vendors for these
      promotional pricing incentives when the Company is released of the legal
      liability for the payment of the product purchases by the vendors. The benefit
      from pricing incentives related to products that have not been sold is deferred
      and recorded as a reduction of inventory cost. The benefit from pricing
      incentives related to products that have been sold is recorded as a reduction
      of
      the cost of sales.


6
 *Table
          of Contents*


***Recent
      Accounting Pronouncements***





In
      July 2006, the Financial
      Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (FIN
      48), which prescribes a recognition threshold and measurement process for
      recording in the financial statements uncertain tax positions taken or expected
      to be taken in a tax return. Additionally, FIN 48 provides guidance on
      derecognition, classification, accounting in interim periods and disclosure
      requirements for uncertain tax positions. FIN 48 will be effective for the
      Company beginning January 1, 2007. The Company is in the process of determining
      the effect, if any, this statement will have on its financial
      statements.





In
      March
      2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
      156, *Accounting
      for Servicing of Financial Assets - An Amendment of FASB Statement No.
      140* (SFAS
      156), which requires an entity to recognize a servicing asset or servicing
      liability each time it undertakes an obligation to service a financial asset
      by
      entering into a servicing contract under certain situations at fair value,
      if
      practicable, and permits the subsequent measurement of servicing assets and
      servicing liabilities at fair value. SFAS 156 will be effective for the Company
      beginning January 1, 2007. The Company does not expect the adoption of this
      statement to have a material impact on its financial statements.





In
      February 2006, the FASB issued SFAS No. 155, *Accounting
      for Certain Hybrid Financial Instruments - An Amendment of FASB Statements
      No.
      133 and 140* (SFAS
      155), which allows companies to elect fair value measurement for financial
      instruments with embedded derivatives in their entirety in cases otherwise
      required to be bifurcated. SFAS 155 is effective for all financial instruments
      acquired or issued by the Company beginning January 1, 2007. The Company does
      not expect the adoption of this statement to have a material impact on its
      financial statements.





***Statements
      of Cash Flows***





As
      of
      December 31, 2005, the Company’s management determined that the cash flows
      associated with discontinued operations should not have been presented as a
      single line item in the Condensed Consolidated Statement of Cash Flows. As
      a
      result, the Company revised the presentation of cash flows for the six months
      ended June 30, 2005 to present separate disclosure of cash flows from
      discontinued operations from operating, investing, and financing
      activities.





***Reclassifications***





Interest
      expense and interest income have been shown net for the three and six months
      ended June 30, 2005 to conform to the three and six months ended June 30, 2006
      presentation.





**Note
      2 - Stock-Based Compensation**





On
      January 1, 2006, the Company adopted the provisions of  Statement
      of Financial Accounting Standards No. 123(R), *Share-Based
      Payment* (“SFAS
      123(R)”), which revises Statement of Financial Accounting Standards No. 123, *Accounting
      for Stock-Based* Compensation
      (“SFAS 123”), supersedes Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      25”) and amends Statement of Financial Accounting Standards No. 95, *Statement
      of Cash Flows* (“SFAS
      95”). Under SFAS 123(R), the fair value of stock-based awards to employees must
      be estimated at the date of grant using an option pricing model and recognized
      as expense over the requisite service period for those awards that are
      ultimately expected to vest. Prior to the adoption of SFAS 123(R), the Company
      accounted for its stock-based awards under the provisions of SFAS 123 beginning
      in the second quarter of 2005 using the minimum value method to determine the
      fair value of its stock options. Prior to the second quarter of 2005, the
      Company accounted for its stock-based awards under the recognition and
      measurement principles of APB 25 and the disclosure only provisions of SFAS
      123.
      Because the Company has historically granted at-the-money stock options with
      no
      intrinsic value on the date of grant, no compensation expense was recognized
      for
      stock options prior to the second quarter of 2005.





The
      Company adopted SFAS 123(R) using the prospective method. Under the prospective
      method, prior periods are not revised for comparative purposes. Non-public
      companies that previously applied SFAS 123 using the minimum value method would
      continue to account for unvested stock options outstanding at the date of
      adoption in the same manner as they had been accounted for prior to adoption.
      All awards granted, modified or settled after the date of adoption should be
      accounted for using the measurement, recognition and attribution provisions
      of
      SFAS 123(R).





***Stock
      Option Activity***





The
      Company has two employee stock plans: the 1999 Stock Plan (the “1999 Plan”) and
      the 2004 Equity Incentive Plan (the “2004 EIP”). Upon approval of the 2004 EIP,
      the 1999 Plan was terminated (except for all options previously granted and
      outstanding under such plan). The 2004 EIP provides for the granting of stock
      options to eligible employees and non-employee directors. Options granted under
      this plan are granted at an exercise price equal to the fair market value at
      the
      date of grant, vest over three or four years and expire ten years after their
      original date of grant. As the Company’s common stock is not publicly traded,
      the fair market value of the Company’s common stock is approved by the Company’s
      Board of Directors based on varying information, assumptions and factors
      including valuations that are performed by an independent appraiser. As of
      June
      30, 2006, there were 17.9 million shares available for future grants under
      the
      2004 EIP.


7
 *Table
          of Contents*




The
      table
      below summarizes the stock option activity under the Company’s 1999 Plan and
      2004 EIP:




**Number
                of Shares**
              **(in
                thousands)**
            
            **Weighted**
              **Average**
              **Exercise
                Price**
              **Per
                Share**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
              **(in
                years)**
            
            **Aggregate**
              **Intrinsic
                Value**
              **(in
                thousands)**Outstanding
                at December 31, 2005
            
            
            27,626
            
            $
            0.38Granted
            
            
            220
            
            $
            0.45Exercised
            
            
            (163
            )
            $
            0.38Canceled
            
            
            (2,739
            )
            $
            0.38Outstanding
                at June 30, 2006
            
            
            24,944
            
            $
            0.38
            
            
            5.71
            
            $
            1,695Exercisable
                at June 30, 2006
            
            
            21,112
            
            $
            0.38
            
            
            5.15
            
            $
            1,476





The
      aggregate intrinsic value in the table above represents the total pre-tax
      intrinsic value that would have been received by the option holders had all
      the
      vested option holders exercised their options based on the fair value as
      determined by the Company’s Board of Directors as of June 30, 2006. The total
      intrinsic value of options exercised during the six months ended June 30, 2006
      was $1,000. Total cash received from the exercise of employee stock options
      was
      $61,000 for the six months ended June 30, 2006.





The
      following table summarizes information for options outstanding as of June 30,
      2006:





**Range
                of Exercise Prices**
            
            **Number
                of**
              **Options**
              **Outstanding**
              **(in
                thousands)**
            
            **Weighted-**
              **Average**
              **Remaining
                Contractual Term**
              **(in
                years)**
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**
            
            **Options**
              **Exercisable**
              **(in
                thousands)**$0.38
            
            
            24,217
            
            
            5.59
            
            $
            0.38
            
            
            21,091$0.45
            
            
            727
            
            
            9.46
            
            $
            0.45
            
            
            21




***Valuation
      and Expense Recognition of Stock-Based Awards under SFAS
      123(R)***





For
      the
      three and six months ended June 30, 2006, stock-based compensation expense
      for
      employee stock options recognized was $64,000 and $111,000, respectively. No
      income tax benefit related to stock-based compensation expense was recognized
      for the three and six months ended June 30, 2006.





The
      Company used the Black-Scholes option-pricing model to estimate the fair value
      of employee stock options. The determination of fair value using the
      Black-Scholes option-pricing model is affected by the fair market value of
      the
      Company’s common stock as well as the use of certain highly subjective estimates
      and assumptions including expected stock price volatility, risk-free interest
      rate, expected dividends and projected employee stock option exercise
      behaviors.





All
      option awards were valued as a single award and amortized on a straight-line
      basis over the requisite service period. The fair value of each option grant
      was
      estimated on the date of grant using the Black-Scholes option-pricing model
      with
      the following assumptions for the three and six months ended June 30, 2006:




Expected
                volatility
            
            
            52%Risk-free
                interest rate
            
            
            5.0%Expected
                dividend yield
            
            
            0%Expected
                option life (in years)
            
            
            6.25Weighted
                average fair value of stock options granted (per share)
            
            $
            0.25





Upon
      adoption of SFAS 123(R), the Company changed its expected volatility calculation
      to use an average of the expected volatilities of similar entities whose shares
      are publicly traded. In determining similarity of entities, the Company
      considered various factors including the industry, life cycle, size and
      financial leverage of such entities. The Company believes this method provides
      a
      more accurate estimate of stock price volatility over the expected life of
      the
      stock option awards. Prior to the adoption of SFAS 123(R), the Company used
      the
      minimum value method to estimate the fair value of its stock options. Under
      the
      minimum value method, expected volatility is omitted and thus fair value
      calculated under this method is not comparable to one based on fair value.





8
 *Table
          of Contents*




The
      risk-free interest rate assumption is based on observed interest rates for
      the
      appropriate term of the Company’s stock options. The expected dividend yield
      assumption is based on the Company’s expectation of future dividend payouts. The
      Company has never declared or paid any cash dividends on its common stock and
      currently does not anticipate paying such cash dividends. The Company used
      the
      simplified method for its expected option life assumption as allowed by Staff
      Accounting Bulletin 107.





SFAS
      123(R) requires stock-based compensation expense to be recognized only for
      those
      stock options that are ultimately expected to vest. An estimate of forfeiture
      rate must be made and applied at the time of grant and revised in subsequent
      periods on a cumulative basis in the period of revision. The Company considered
      various factors including its actual historical experience of pre-vesting option
      forfeitures bifurcated by employee groups as the basis to arrive at an estimated
      average annual forfeiture rate of 4.7% for the three and six months ended June
      30, 2006.





As
      of
      June 30, 2006, there was $216,000 remaining in unrecognized compensation cost
      related to employee stock options, which is expected to be recognized over
      a
      weighted average period of 2.6 years. No compensation cost was capitalized
      as
      part of inventory during the three and six months ended June 30,
      2006.





***Pro
      forma Information under SFAS 123 for Periods Prior to Fiscal
      2006***





In
      the
      second quarter of 2005, the Company adopted the fair value based method of
      accounting for stock-based compensation in accordance with the expense
      recognition provisions of SFAS 123 using the modified prospective method.
      Stock-based compensation expense for the three and six months ended June 30,
      2005 was $272,000 and $272,000, respectively, and was estimated using the
      minimum value method as permitted under SFAS 123 to determine the fair value
      of
      stock options. There was no share-based compensation expense recognized during
      the three months ended March 31, 2005 as the Company accounted for its employee
      stock option plans under the recognition and measurement principles of APB
      25
      and the disclosure only provisions of SFAS 123. Because the Company has
      historically granted at-the-money stock options with no intrinsic value on
      the
      date of grant, no compensation expense was recognized for stock options prior
      to
      the second quarter of 2005.




On
        May 9,
        2005, the Company re-priced all outstanding stock options held by its employees,
        executive officers and members of the Board of Directors of record on March
        2,
        2005. As a result, the exercise price of the Company’s outstanding stock options
        subject to the re-pricing was lowered to $0.38 per share, the estimated fair
        value on that date, resulting in stock option expense of $1.1 million. The
        re-pricing was implemented in order to realign the cash and equity components
        of
        the Company’s compensation programs for employees, executive officers and
        directors.




**Note
      3 - Long-Term Investments**





The
      Company’s long-term investments include both publicly traded and privately held
      companies. None of the Company’s investments represent ownership of more than
      20% of the respective companies. For the Company’s publicly traded investments,
      the Company follows the provisions of Statement of Financial Accounting
      Standards No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* ,
      and
      accounts for such investments as available-for-sale. Unrealized holding gains
      or
      losses are recorded in other comprehensive income/loss, net of tax. The Company
      accounts for its privately held investments under the cost method. When events
      dictate, the Company performs an impairment analysis to determine whether the
      loss, if any, is other than temporary. During the three and six months ended
      June 30, 2006, the Company reduced its positions in certain long-term
      investments and recognized realized losses of $0.3 million and $0.3 million,
      respectively. Impairment on investments totaled $0.6 million and $1.0 million
      for the three and six months ended June 30, 2006, respectively.





**Note
      4 - Comprehensive Income**





Comprehensive
      income includes foreign currency translation gains and losses and unrealized
      gains and losses on marketable securities classified as available for
      sale. The following table sets forth the calculation of comprehensive
      income for the periods indicated (in thousands):


**Three
                        Months Ended**
                      **June
                        30,**
                    
                    **Six
                        Months Ended**
                      **June
                        30,****2006**
                    
                    **2005**
                    
                    **2006**
                    
                    **2005**Net
                        income (loss)
                    
                    $
                    525
                    
                    $
                    (15,513
                    )
                    $
                    4,101
                    
                    $
                    (16,097
                    )Foreign
                        currency translation
                    
                    
                    111
                    
                    
                    61
                    
                    
                    201
                    
                    
                    150Unrealized
                        holding (losses) gains on marketablesecurities,
                        less realized gains
                    
                    
                    (163
                    )
                    
                    209
                    
                    
                    428
                    
                    
                    784Net
                        change in other comprehensive (loss) income
                    
                    
                    (52
                    )
                    
                    270
                    
                    
                    629
                    
                    
                    934Total
                        comprehensive income (loss)
                    
                    $
                    473
                    
                    $
                    (15,243
                    )
                    $
                    4,730
                    
                    $
                    (15,163
                    )





**Note
      5 - Income Taxes**





The
      Company recorded a non-cash charge of $13.7 million to establish a valuation
      of
      allowance against its net deferred U.S. based income tax assets during the
      second quarter 2005. In addition, the Company has valuation allowances against
      its deferred income taxes in all foreign jurisdictions other than its foreign
      subsidiary in Taiwan. The valuation allowances have been calculated pursuant
      to
      Statement of Financial Accounting Standards No. 109, *Accounting
      for Income Taxes* (“SFAS
      109”), which requires an assessment of both positive and negative evidence when
      measuring the need for a valuation allowance. Such evidence includes the
      Company’s past and projected future performance, the market environment in which
      the Company operates, the utilization of past tax credits and the length of
      the
      carry-back and carry-forward periods of net operating losses. As of June 30,
      2006, the total valuation allowance was $15.5 million against domestic net
      deferred tax assets and $1.8 million against foreign net deferred tax assets.
      The Company intends to maintain a valuation allowance until sufficient positive
      evidence as contemplated by SFAS 109 exists in future periods.


9
 *Table
          of Contents*


**Note
      6 - Commitments and Contingencies**





***Litigation*** - The
      Company is involved in various legal matters in the normal course of its
      business. While the outcome of these proceedings and claims cannot be predicted
      with certainty, management believes that the ultimate outcome of such matters
      will not have a material adverse effect on the condensed consolidated financial
      statements.





Four
      of the
      Company’s stockholders filed a purported derivative action against James Chu,
      the Company’s Chairman and Chief Executive Officer, and the Company on April 17,
      2006 in the United States District Court for the Central District of California.
      The complaint alleges, among other things, that Mr. Chu has breached various
      fiduciary duties by personally investing in certain of the Company’s suppliers,
      thereafter directing our contracts to these suppliers and failing to
      disclose such actions. Plaintiffs are seeking actual and punitive damages,
      attorneys fees, costs, disgorgement of alleged profits made by Mr. Chu, a
      declaratory judgment against Mr. Chu for alleged breaches of various fiduciary
      duties and an injunction prohibiting the award of contracts to suppliers in
      which Mr. Chu or his relatives have a financial interest. The Company believes
      that the claims against Mr. Chu and the Company are not an appropriate
      derivative action and are in the process of defending against them on such
      grounds. The impact related to the outcome of this matter is undeterminable
      at
      this time.




On
        July
        27, 2006, the jury in the trial of *LG
        Philips LCD Co. Ltd., (“LPL”) v. Tatung Company, Tatung Company of America,
        Inc., Chungwa Picture Tubes Ltd., and ViewSonic Corporation,* pending
        in United States District Court, District of Delaware, (Case No. 05-292-JJF)
        delivered a verdict finding that each of the defendants, including the Company,
        had willfully infringed (through the doctrine of equivalents) a patent of
        LPL’s
        relating to electrostatic discharge. The jury awarded monetary damages of
        $52.5
        million against CPT only. Although there is no monetary award against the
        Company, the finding of willful infringement, if upheld, may subject the
        Company
        to certain other relief including an award of some portion of LPL’s attorneys
        fees as well as injunctive relief which may require the Company to, among
        other
        things, change its sourcing of certain LCD displays or key components. All
        of
        the defendants, including the Company, plan to file post-judgment motions
        challenging various aspects of the jury’s verdict. While the outcome of these
        proceedings cannot be predicted with certainty, the Company does not believe
        that the outcome will have a material adverse effect on its condensed
        consolidated financial statements.


***Imposition
      of Additional Duties and Taxes*** — ****** The
      European Union (the “EU”) issued notices stating that effective January 18,
      2006, LCD monitors with a digital video interface (“DVI”) connector, would incur
      a 14% import duty tax.  To date, this change in classification has been
      applied prospectively. The Company believes it is reasonably possible, but
      not probable that the tariff could be applied retroactively; however, the
      Company will continue to monitor this situation and work to change the Company’s
      business processes to minimize any negative impact resulting from this new
      tariff.





***Laws,
      Regulations and Directives*** —
The
      Company is subject to local laws and regulations in the various regions in
      which
      the Company operates, including the EU. There are two particular EU
      directives that may have a material impact on the Company’s business.  The
      first is the Restriction of Certain Hazardous Substances Directive (“RoHS”) that
      restricts the distribution of certain substances, including lead, within the
      EU
      and is effective July 1, 2006.  In addition to specifying the elimination
      and/or reduction in the level of specified hazardous materials from the
      manufacture of the Company’s products, the Company must take reasonable measures
      to ensure that it is not being supplied with products containing the restricted
      chemical substances. The Company is working with suppliers to ensure that
      products placed on the market from July 1, 2006 are RoHS compliant products.
      The
      second directive is the Waste Electrical and Electronic Equipment Directive
      (“WEEE”) that became effective on August 13, 2005, and requires manufacturers or
      importers to provide a process of recycling all of its manufactured products
      or
      imports into the EU. Certain EU countries adopted WEEE on August 13, 2005.
      The
      majority of EU countries into which the Company’s European region sells its
      products have adopted the legislation with the exception of France and the
      United Kingdom. Many of those countries that adopted WEEE in August 2005 have
      not published regulations nor issued legislation with respect to a manufacturer
      or importer’s obligations. The Company is currently unable to assess the impact
      of these directives on the Company’s operations until more information becomes
      available, but at this time, the Company does not believe that these regulations
      will have a material impact on the Company’s business.





***Income
      Tax Contingencies*** —
      The Company has recorded a $3.1 million liability related to certain tax
      positions.  The resolution of such income tax contingencies is not expected
      to have an adverse material effect on the Company’s condensed consolidated
      financial statements.





**Note
      7 - Business Segments**





In
      accordance with SFAS 131, *Disclosures
      about Segments of an Enterprise and Related Information* ,
      the
      Company has three reportable segments: Americas, Europe and Asia Pacific. The
      Company sells similar products in the local markets, including CRT displays,
      LCD
      displays, projectors, HDTV technology and the latest in mobile products
      including wireless monitors. The type and class of customers, primarily
      distributors and retailers, are also similar across the product lines. The
      Company’s management evaluates the performance of and allocates resources to its
      segments based on net sales and operating income. Assets are not segregated
      by
      segment for management reporting purposes.


10
 *Table
          of Contents*


The
      following table summarizes segment financial information for the three and
      six
      months ended June 30, 2006 and 2005 (in thousands):





**Three Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Net
                Sales:**Americas
            
            $
            187,444
            
            $
            134,375
            
            $
            340,385
            
            $
            255,015Europe
            
            
            70,415
            
            
            55,411
            
            
            143,679
            
            
            131,632Asia
                Pacific
            
            
            121,409
            
            
            94,831
            
            
            221,998
            
            
            171,881**Total**
            
            $
            379,268
            
            $
            284,617
            
            $
            706,062
            
            $
            558,528**Income
                (loss) from operations:**Americas
            
            $
            3,178
            
            $
            (1,957
            )
            $
            8,601
            
            $
            (8,628
            )Europe
            
            
            (1,949
            )
            
            (1,260
            )
            
            (7,267
            )
            
            3,157Asia
                Pacific
            
            
            (1,048
            )
            
            2,520
            
            
            2,156
            
            
            5,530**Total**
            
            $
            181
            
            $
            (697
            )
            $
            3,490
            
            $
            59




**Note
      8 - Warranty Liability**





The
      Company provides product warranty programs on a worldwide basis that vary in
      term from 12 to 36 months. The length of the warranty period and the
      specific warranty coverage are based on the type of product. The Company accrues
      for estimated warranty costs at the time the product is sold. Estimates are
      primarily based on historical experience and other available information. The
      historical data that determines the warranty accrual and the overall estimate
      of
      the warranty reserve includes the following key factors: net cost of repair
      (repair costs less reimbursements from suppliers), defect rates and total number
      of products under warranty.





The
      following table summarizes activity in the Company’s warranty liability for the
      six months ended June 30, 2006 and 2005 (in thousands):





**Six
                Months Ended June 30,**
            
            **Beginning****Accrued****Warranty****Liability**
            
            **Additions
                Charged to****Expense**
            
            **Payments**
              **for
                Units****Returned**
            
            **Adjustments**
            
            **Ending****Accrued****Warranty****Liability****2006**
            
            $
            21,350
            
            $
            10,520
            
            $
            (7,304
            )
            $
            (486
            )
            $
            24,080**2005**
            
            
            17,365
            
            
            5,741
            
            
            (6,083
            )
            
            2,416
            
            
            19,439





**Note
      9 - Earnings Per Share**





The
      Company presents both basic and diluted earnings (loss) per share (“EPS”)
      amounts. Basic EPS is calculated by dividing net income (loss) by the
      weighted-average number of common shares outstanding during the period. Diluted
      EPS amounts are based upon the weighted-average number of common and potential
      common shares, including warrants outstanding during the period.





Potential
      common shares are excluded from the computation in periods in which they have
      an
      anti-dilutive effect. The Company uses the treasury stock method to calculate
      the impact of outstanding stock options. Stock options for which the exercise
      price exceeds the average fair market value over the period have an
      anti-dilutive effect on EPS and, accordingly, are excluded from the calculation.
      On January 10, 2006, the Company redeemed all 7.5 million outstanding shares
      of
      Series B Preferred Stock and excluded such shares as it had an insignificant
      impact on the Company’s 2006 earnings per share calculations.





The
      basic
      and diluted EPS was calculated in accordance with EITF 03-06, *Participating
      Securities and the Two Class Method under SFAS No. 128* (“EITF
      03-06”) *.* The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted net income (loss) per share computations (in thousands, except
      per
      share data):


11
 *Table
          of Contents*




**Three Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,**2006
              
              2005
              
              2006
              
              2005Basic
                  EPS:Numerator:Income
                  (loss) from continuing operations (1)
              
              $
              525
              
              $
              (16,668
              )
              $
              4,053
              
              $
              (17,546
              )Income
                  from discontinued operations
              
              $
              —
              
              $
              780
              
              $
              —
              
              $
              714Denominator
                  - Weighted-average shares outstanding
              
              
              354,131
              
              
              353,969
              
              
              354,095
              
              
              353,965Basic
                  EPS:Continuing
                  operations
              
              $
              0.00
              
              $
              (0.05
              )
              $
              0.01
              
              $
              (0.05
              )Discontinued
                  operations
              
              $
              —
              
              $
              0.00
              
              $
              —
              
              $
              0.00Total
                  Basic EPS
              
              $
              0.00
              
              $
              (0.05
              )
              $
              0.01
              
              $
              (0.05
              )Diluted
                  EPS:Numerator:Income
                  (loss) from continuing operations (1)
              
              $
              525
              
              $
              (16,668
              )
              $
              4,053
              
              $
              (17,546
              )Income
                  from discontinued operations
              
              $
              —
              
              $
              780
              
              $
              —
              
              $
              714Denominator:Weighted-average
                  shares outstanding
              
              
              354,131
              
              
              353,969
              
              
              354,095
              
              
              353,965Stock
                  options(2)
              
              
              3,391
              
              
              —
              
              
              3,435
              
              
              —Interest
                  warrants(3)
              
              
              3,227
              
              
              —
              
              
              3,227
              
              
              —Total
                  shares
              
              
              360,749
              
              
              353,969
              
              
              360,757
              
              
              353,965Diluted
                  EPS:Continuing
                  operations
              
              $
              0.00
              
              $
              (0.05
              )
              $
              0.01
              
              $
              (0.05
              )Discontinued
                  operations
              
              $
              —
              
              $
              0.00
              
              $
              —
              
              $
              0.00Total
                  Diluted EPS
              
              $
              0.00
              
              $
              (0.05
              )
              $
              0.01
              
              $
              (0.05
              )





(1)
            In
                accordance with EITF 03-06, income (loss) from continuing operations
                includes the accretion for the mandatorily redeemable preferred stock.
                The
                EPS calculation allocated income from continuing operations between
                common
                stock and the convertible mandatorily redeemable preferred stock.





(2)
            For
                the three and six months ended June 30, 2005, all stock options were
                excluded from the diluted earnings per common share calculation because
                they were anti-dilutive due to the Company’s net
                loss.





(3)
            For
                the three and six months ended June 30, 2006, common
                stock issuable upon the exercise of outstanding warrants of 7.5 million
                and 7.5 million, respectively, were excluded from the diluted earnings
                per
                share calculation because they were anti-dilutive.For
                the three and six months ended June 30, 2005, common
                stock issuable upon the exercise of outstanding warrants of 10.8
                million
                and 10.8 million, respectively, were excluded from the diluted earnings
                per share calculation because they were
                anti-dilutive.





**Note
      10 - Convertible Mandatorily Redeemable Preferred Stock and Warrants for Series
      C Preferred Stock**





On
      January 10, 2002, the Company entered into a Series B Preferred Stock
      Exchange and Warrant Purchase Agreement (the "Exchange Agreement") with Intel
      Capital Corporation, a Cayman Islands company (“Intel”). Under the Exchange
      Agreement, Intel paid an additional $5.0 million, bringing the total cash paid
      to $15.0 million. The exchange was made for the 3.7 million shares of
      Series A Preferred Stock originally issued to Intel and related warrants.
      As consideration for the exchange, the Company issued Intel 7.5 million shares
      of Series B convertible mandatorily redeemable convertible preferred stock,
      par value of $.001 per share (the "Series B Stock"). Each share of
      Series B Stock was convertible into one share of common stock or redeemable
      for cash for $2.00 per share on January 10, 2006. In connection with such
      issuance, the Company granted to the investor 3.3 million Interest Warrants
      and
      7.5 million Valuation Warrants to purchase Series C Preferred Stock (par
      value of $.001 per share). The Interest Warrants vested on January 10,
      2006, have an exercise price of $.01 per share and were exercised on July 7,
      2006. The Valuation Warrants were immediately vested, have an exercise price
      of
      $2.00 per share and expired on July 10, 2006.





On
      January 10, 2006, the Company redeemed its outstanding Series B Stock for $15.0
      million, representing the full redemption price for such Series B Stock. As
      of
      June 30, 2006, a total of 18.0 million shares of Series C Preferred Stock
      were authorized, and no shares were issued or outstanding.


12
 *Table
          of Contents*





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





*The
      following discussion contains forward-looking statements within the meaning
      of
      Section 27A of the Securities Act of 1933 and Section 21E of the Securities
      Exchange Act of 1934, which are subject to the "safe harbor" created by those
      sections. These forward-looking statements include but are not limited to:
      statements related to industry trends and future growth in the markets for
      visual display technology products; our product development efforts; the timing
      of our introduction of new products; industry and consumer acceptance of our
      products; and future profitability. These forward-looking statements involve
      risks and uncertainties that could cause our actual results to differ materially
      from those in the forward-looking statements. We undertake no obligation to
      publicly release any revisions to the forward-looking statements or reflect
      events or circumstances after the date of this document. The “Risk Factors”
section, among other things, should be considered in evaluating our prospects
      and future financial performance.*





*In
      this report, all references to “ViewSonic,” ”we,” “us,” or “our” mean ViewSonic
      Corporation and our subsidiaries.*





***Our
      Company***





ViewSonic
      Corporation is a leading global provider of visual display technology products.
      We develop, market and support a broad range of display technology products,
      including liquid crystal display (“LCD”) monitors, cathode ray tube (“CRT”)
      monitors, projectors, LCD TVs and the latest in mobile products including
      wireless monitors. Our ViewSonic branded products are sold through distributors,
      retailers and other resellers to businesses including Fortune 1000 companies,
      small and medium sized businesses and consumer electronics markets. We sell
      our
      products globally and our sales are managed geographically in three regional
      segments: the Americas, Europe and Asia Pacific.





***Recent
      Trends in Our Business***





During
      the second quarter of 2006, the display industry continued to experience an
      oversupply of display panels and declining average selling prices (“ASPs”). This
      was primarily due to increased LCD panel production capacities and slower than
      expected demand. Despite increasing pricing and margin pressures in the second
      quarter of 2006, we were able to mitigate the impact of this downward trend
      primarily as a result of our implementation of key initiatives to improve our
      supply chain and logistics efficiency, simplify our business processes to
      maximize operating efficiencies, grow sales in regional markets and expand
      core
      product offerings. We also continued to benefit from our initiative to source
      LCD panels directly from manufacturers. We believe this sourcing initiative
      has
      brought us closer to the supply base so that we can keep abreast of recent
      market trends and supply cycles and has allowed us to consolidate our LCD panel
      purchasing power. By means of this key component sourcing initiative, we hope
      to
      be less vulnerable to the instability that is inherent in the LCD monitor
      industry. Given the recent oversupply of LCD panels in the industry, we
      strategically secured favorable pricing terms on our inventories purchased
      during the second quarter of 2006. Although this resulted in a slight build
      up
      of inventory, we expect to be well positioned in the marketplace as we continue
      to cycle through our remaining, older and higher cost inventory. LCD panel
      pricing appears to be stabilizing for some LCD sizes and we may experience
      spot
      shortages.





We
      sold
      2.0 million display products in the second quarter of 2006 compared to 1.4
      million display products in the second quarter of 2005. The display industry
      continues to experience a shift from older technologies, such as CRT, to newer
      technologies, such as LCD, as well as a broadening of applications from PC
      monitors to TVs and other digital media applications. Unit sales of LCD displays
      and LCD TVs grew 108% and 69%, respectively, in the second quarter of 2006
      compared to the second quarter of 2005, while sales of CRT monitors declined
      40%
      to 0.3 million units in the second quarter of 2006 from 0.5 million units in
      the
      second quarter of 2005.





Our
      net
      sales increased $94.7 million, or 33%, to $379.3 million in the second quarter
      of 2006 from $284.6 million in the second quarter of 2005 despite a 5% decline
      in average selling prices. We expect the excess capacity situation and ASP
      declines to continue in the short run until anticipated market demand growth
      is
      realized and consumes the increased supply. Income from operations increased
      $0.9 million to $0.2 million in the second quarter of 2006 from a $0.7 million
      loss in the second quarter of 2005. The increase was mainly the result of
      increased leverage in our selling, general and administrative expenses which
      were 9.8% of net sales in the second quarter of 2005 compared to 7.9% of net
      sales in the second quarter of 2006.


13
 *Table
          of Contents*


**RESULTS
      OF OPERATIONS**





The
      following table sets forth our Condensed Consolidated Statements of Operations
      expressed as a percentage of net sales for the periods indicated:





**Three Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                sales
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of sales
            
            
            92.0
            
            
            90.5
            
            
            91.4
            
            
            90.1Gross
                profit
            
            
            8.0
            
            
            9.5
            
            
            8.6
            
            
            9.9Selling,
                general and administrative expenses
            
            
            7.9
            
            
            9.8
            
            
            8.1
            
            
            9.9Income
                (loss) from operations
            
            
            0.1
            
            
            (0.3
            )
            
            0.5
            
            
            0.0Other
                income (expense):Interest
                income (expense), net
            
            
            0.0
            
            
            (0.2
            )
            
            0.1
            
            
            (0.2
            )Other
                income (expense) net
            
            
            0.1
            
            
            (0.6
            )
            
            0.2
            
            
            (0.5
            )Total
                other income (expense), net
            
            
            0.1
            
            
            (0.8
            )
            
            0.3
            
            
            (0.7
            )Income
                (loss) from continuing operations before income taxes
            
            
            0.2
            
            
            (1.1
            )
            
            0.8
            
            
            (0.7
            )Provision
                for income taxes
            
            
            0.1
            
            
            4.7
            
            
            0.2
            
            
            2.4Income
                (loss) from continuing operations
            
            
            0.1
            
            
            (5.8
            )
            
            0.6
            
            
            (3.1
            )Net
                gain on disposal of discontinued operations, net of tax
            
            
            —
            
            
            0.3
            
            
            —
            
            
            0.1Net
                income (loss)
            
            
            0.1
            
            
            (5.5
            )
            
            0.6
            
            
            (3.0
            )Preferred
                stock accretion
            
            
            —
            
            
            (0.1
            )
            
            (0.0
            )
            
            (0.1
            )Net
                income (loss) available to common stockholders
            
            
            0.1
            %
            
            (5.6
            )%
            
            0.6
            %
            
            (3.1
            )%




The
      following table compares net sales and income (loss) from operations by segment
      for the periods indicated (in thousands):





**Three
                Months Ended June 30,**
            
            **Six
                Months Ended June 30,****Increase/(Decrease)**
            
            
            
            **Increase/(Decrease)****2006**
            
            **2005**
            
            $
            
            %
            
            **2006**
            
            **2005**
            
            $
            
            %**Net
                sales:**Americas
            
            $
            187,444
            
            $
            134,375
            
            $
            53,069
            
            
            39.5
            %
            $
            340,385
            
            $
            255,015
            
            $
            85,370
            
            
            33.5
            %Europe
            
            
            70,415
            
            
            55,411
            
            
            15,004
            
            
            27.1
            %
            
            143,679
            
            
            131,632
            
            
            12,047
            
            
            9.2
            %Asia
                Pacific
            
            
            121,409
            
            
            94,831
            
            
            26,578
            
            
            28.0
            %
            
            221,998
            
            
            171,881
            
            
            50,117
            
            
            29.2
            %**Total**
            
            $
            379,268
            
            $
            284,617
            
            $
            94,651
            
            
            33.3
            %
            $
            706,062
            
            $
            558,528
            
            $
            147,534
            
            
            26.4
            %**Income
                (loss) from operations:**Americas
            
            $
            3,178
            
            $
            (1,957
            )
            $
            5,135
            
            
            262.4
            %
            $
            8,601
            
            $
            (8,628
            )
            $
            17,229
            
            
            199.7
            %Europe
            
            
            (1,949
            )
            
            (1,260
            )
            
            (689
            )
            
            (54.7
            %)
            
            (7,267
            )
            
            3,157
            
            
            (10,424
            )
            
            (330.2
            %)Asia
                Pacific
            
            
            (1,048
            )
            
            2,520
            
            
            (3,568
            )
            
            (141.6
            %)
            
            2,156
            
            
            5,530
            
            
            (3,374
            )
            
            (61.0
            %)**Total**
            
            $
            181
            
            $
            (697
            )
            $
            878
            
            
            126.0
            %
            $
            3,490
            
            $
            59
            
            $
            3,431
            
            
            5815.3
            %




***Net
      Sales***





Our
      consolidated net sales increased $94.7 million, or 33.3%, to $379.3 million
      for
      the second quarter of 2006 from $284.6 million for the second quarter of
      2005. Net sales increased $147.5 million, or 26.4%, to $706.1 million for first
      six months of 2006 from $558.5 million for the first six months of 2005.
      The increase was primarily due to increased LCD and LCD TV unit sales of 107.5%
      and 69.0%, respectively, for the second quarter of 2006 compared to the second
      quarter of 2005, and 79.7% and 96.4%, respectively, for the first six months
      of
      2006 compared to the first six months of 2005. In addition, sales of our LCD
      TVs
      experienced relatively higher ASPs for the second quarter and first six months
      of 2006 compared to the second quarter and first six months of 2005. These
      increases were partially offset by lower CRT unit sales of 35.0% and 35.7%
      for
      the second quarter of 2006 compared to the second quarter of 2005 and for the
      first six months of 2006 compared to the first six months of 2005, respectively.
      In addition, we continued to experience declines in ASPs within the LCD and
      CRT
      product categories for the second quarter and first six months of 2006 compared
      to the second quarter and first six months of 2005. The decline in the ASPs
      reflects the effects of competition, our pricing initiatives to compensate
      for
      the industry’s oversupply of LCD products **** and
      reduced costs associated with advances in visual display technology.


14
 *Table
          of Contents*


We
      sold
      2.0 million visual display products in the second quarter of 2006 compared
      to 1.4 million visual display products in the second quarter of 2005 and
      3.5 million visual display products in the first six months of 2006
      compared to 2.7 million visual display products in the first six months of
      2005. The increase in units sold was mainly due to strong unit sales across
      all
      of our segments driven by our strategic marketing efforts and continued
      expansion in China and other Asian markets. Of the visual display product units
      sold in the second quarter of 2006, LCDs accounted for 74.9%, CRTs accounted
      for
      14.8% and other products accounted for 10.3% as compared to 50.8%, 32.0%, and
      17.2%, respectively, in the second quarter of 2005. Of the visual display
      product units sold in the first six months of 2006, LCDs accounted for 72.7%,
      CRTs accounted for 15.8% and other products accounted for 11.5% as compared
      to
      51.8%, 31.3%, and 16.9%, respectively, in the first six months of
      2005.





***Americas*** - In our
      Americas region, net sales increased $53.1 million, or 39.5%, to $187.4 million
      for the second quarter of 2006 from $134.4 million for the second quarter
      of 2005. Net sales increased $85.4 million, or 33.5%, to $340.4 million for
      the
      first six months of 2006 from $255.0 million for the first six months of
      2005. The increase was primarily due to growth in LCD unit sales of 147.6%
      and
      113.1% in the second quarter and first six months of 2006 compared to the second
      quarter and first six months of 2005, respectively, and an increase in LCD
      TV
      unit sales with higher ASPs in the second quarter and first six months of 2006
      compared to the second quarter and first six months of 2005. These increases
      were partially offset by lower ASPs for our LCD and CRT products.





***Europe*** *-* In our
      Europe region, net sales increased $15.0 million, or 27.1%, to $70.4 million
      for
      the second quarter of 2006 from $55.4 million for the second quarter of
      2005. Net sales increased $12.0 million or 9.2% to $143.7 million for the first
      six months of 2006 from $131.6 million for the first six months of 2005.
      The increase was primarily due to growth in our LCD unit sales and LCD TV unit
      sales with higher ASPs, partially offset by a decrease in CRT unit sales and
      lower ASPs for our LCD and CRT products. Our Europe region experienced increased
      sales in most countries particularly in Russia, Ukraine, Sweden, Greece, Spain
      and the Middle East for the second quarter of 2006 compared to the second
      quarter of 2005. Foreign currency translation also had a positive impact on
      our
      net sales due to the 8.3% stronger Euro exchange rate relative to the U.S.
      dollar during the first six months of 2006.





***Asia
      Pacific*** *-* In our
      Asia Pacific region, net sales increased $26.6 million, or 28.0%, to $121.4
      million for the second quarter of 2006 from $94.8 million for the second
      quarter of 2005. Net sales increased $50.1 million or 29.2% to $222.0 million
      for the first six months of 2006 from $171.9 million for the first six
      months of 2005. The increase was primarily due to increased sales of our LCD
      and
      LCD TV products as a result of our continued growth in the China market and
      expanded sales efforts in Taiwan, Australia, New Zealand and Southeast Asia,
      partially offset by the declining CRT market.





***Cost
      of Sales***





Cost
      of
      sales increased $91.6 million, or 35.6%, to $349.1 million for the second
      quarter of 2006 from $257.5 million for the second quarter of 2005. As a
      percentage of net sales, cost of sales increased to 92.0% for the second quarter
      of 2006 from 90.5% for the second quarter of 2005. For the first six months
      of
      2006, cost of sales increased $142.3 million, or 28.3%, to $645.6 million from
      $503.3 million for the first six months of 2005. Cost of sales as a percentage
      of net sales increased to 91.4% for the first six months of 2006 from 90.1%
      for
      the first six months of 2005. The increase in cost of sales as a percentage
      of
      net sales was primarily due to the ASP of our products declining at a faster
      rate than our cost of sales. As in the second quarter of 2006, we had lower
      margins primarily in our European region due to oversupply in the Russian market
      resulting in inventory write-downs of $1.5 million for the second quarter of
      2006 compared to $0.3 million for the second quarter of 2005 and $3.7 million
      for the first six months of 2006 compared to $1.4 million for the first six
      months of 2005. As a percentage of net sales, product costs increased to 88.2%
      for the second quarter of 2006 from 86.2% for the second quarter of 2005. For
      the first six months of 2006, product costs as a percentage of net sales
      increased to 87.3% from 85.1% for the first six months of 2005. Gross margin
      declined to 8.0% for the second quarter of 2006 from 9.5% for the second quarter
      of 2005. For the first six months of 2006, gross margin declined to 8.6% from
      9.9% for the first six months of 2005. The margin decrease in the second quarter
      of 2006 was primarily due to higher product costs as a percentage of net sales
      and promotional allowances offered to our customers, partially offset by our
      sourcing of LCD components directly from manufacturers resulting in better
      pricing and $9.1 million of promotional pricing incentives received from our
      vendors in the second quarter of 2006 compared to $0.1 million in the second
      quarter of 2005 as well as reductions in freight expenses as a percentage of
      net
      sales. The decrease in the first six months of 2006 was primarily due to
      increased product costs as a percentage of net sales, partially offset by our
      sourcing of LCD components directly from manufacturers resulting in better
      pricing and $17.4 million of promotional pricing incentives received from our
      vendors in first six months of 2006 compared to $5.4 million in the fist six
      months of 2005 as well as increased efficiencies and reductions in freight
      and
      warranty expenses as a percentage of net sales.





***Selling,
      General, and Administrative Expenses***





Selling,
      general and administrative expenses increased $2.2 million, or 7.9%, to
      $30.0 million for the second quarter of 2006 from $27.8 million for
      the second quarter of 2005. Selling, general and administrative expenses as
      a
      percentage of net sales for the second quarter of 2006 decreased to 7.9%
      compared to 9.8% for the second quarter of 2005. For the first six months of
      2006, selling, general and administrative expenses increased $1.8 million,
      or
      3.3%, to $56.9 million from $55.1 million for the first six months of 2005.
      Selling, general and administrative expenses as a percentage of net sales for
      the first six months of 2006 decreased to 8.1% compared to 9.9% for the first
      six months of 2005. The increase in expenses for the second quarter of 2006
      was
      primarily due to an increase in account development funds expense of $1.3
      million due to the increase in sales, higher incentive compensation of $2.0
      million as a result of the increase in sales and profits and other costs of
      $0.8
      million, partially offset by lower legal fees of $0.5 million related to patent
      infringement lawsuits and a decrease in stock-based compensation of $1.4
      million. For the first six months of 2006, the increase in expenses was
      primarily due to an increase in account development funds expense of $2.8
      million due to the increase in sales, higher incentive compensation of $2.4
      million as a result of the increase in sales and profits and other costs of
      $0.2
      million, partially offset by lower legal fees of $1.6 million related to patent
      infringement lawsuits, a decrease in stock-based compensation of $1.3 million
      and lower personnel-related costs of $0.7 million due to lower headcount. We
      continued to benefit from increasing leverage in our selling, general and
      administrative expenses as a percentage of net sales as a result of strategic
      initiatives undertaken to maximize operating efficiencies and enhance our
      competitiveness. Some of these initiatives resulted in lower personnel-related
      expenses due to lower headcount and lower product development costs as we moved
      into second generation products.


15
 *Table
          of Contents*


***Income
      from Operations***





Income
      from operations increased $0.9 million to $0.2 million for the second
      quarter of 2006 from a loss of $0.7 million for the second quarter of 2005.
      For the first six months of 2006, income from operations increased $3.4 million
      to $3.5 million from $0.1 million for the first six months of 2005.





***Americas*** - In our
      Americas region, income from operations increased $5.1 million, or 262.4%,
      to $3.2 million for the second quarter of 2006 from a loss of
      $2.0 million for the second quarter of 2005. For the first six months of
      2006, income from operations increased $17.2 million, or 199.7%, to $8.6 million
      from a loss of $8.6 million for the first six months of 2005. The increase
      was
      primarily due to a 39.5% and 33.5% increase in net sales for the second quarter
      and first six months of 2006, respectively, effective inventory management
      resulting in a decrease in inventory revaluation and write-downs, sourcing
      of
      LCD panels from manufacturers which resulted in additional benefits and
      increased leverage in expenses for general, administrative, and sales
      operations. The majority of the benefits related to the sourcing of the LCD
      panels from manufacturers remained in the Americas during the first half of
      2006. We do not expect these panel sourcing benefits to remain in the Americas
      in the second half of 2006 as the sourcing of LCD panels will move to China
      during the second half of 2006.





***Europe*** - In our
      Europe region, loss from operations increased $0.7 million, or 54.7%,
      to a $1.9 million loss for the second quarter of 2006 from a $1.3 million
      loss for the second quarter of 2005. For the first six months of 2006, income
      from operations decreased $10.4 million, or 330.2%, to a $7.3 million loss
      from
      $3.2 million of income for the first six months of 2005. Despite solid growth
      in
      sales, gross profit margins declined in the second quarter and first six months
      of 2006 due to higher inventory write-down expense, compared to the first six
      months of 2005, resulting from an oversupply of LCD monitors in Russia during
      the first quarter of 2006. Selling, general and administrative expenses
      increased slightly in the second quarter and first six months of 2006 due to
      the
      increase in headcount in 2006, a stronger Euro exchange rate relative to the
      U.S. dollar and higher advertising and marketing expenses in order to promote
      sales in a very competitive environment.





***Asia
      Pacific*** - In our
      Asia Pacific region, loss from operations increased $3.6 million, or
      141.6%, to a loss of $1.0 million for the second quarter of 2006 from
      $2.5 million of income for the second quarter of 2005. For the first six
      months of 2006, income from operations decreased $3.4 million, or 61.0%, to
      $2.2
      million of income from $5.5 million of income for the first six months of 2005.
      The decreases in the second quarter and the first six months of 2006 were
      primarily the result of aggressive pricing strategies to promote LCD monitors
      which resulted in lower gross margins on products sold despite the increase
      in
      net sales in the China, Taiwan, Australia, New Zealand, and Southeast Asia
      markets. In addition, selling, general and administrative expenses were higher
      as a percent of net sales.





***Other
      Income (Expense) - Net***





Other
      income (expense), net increased to $0.4 million of other income for the second
      quarter of 2006 from $2.2 million in expense for the second quarter of 2005.
      For
      the first six months of 2006, other income (expense), net increased to $1.9
      million of other income from $3.7 million in expense for the first six months
      of
      2005. The increase was mainly due to favorable foreign currency translation
      and
      higher interest income during the second quarter and first six months of 2006
      compared to the second quarter and first six months of 2005. The increase was
      partially offset by $0.9 million and $1.3 million of realized losses on the
      sale
      of certain investments and impairment write-downs of investments during the
      second quarter and first six months of 2006, respectively.





***Provision
      for Income Taxes***





The
      provision for income taxes decreased $13.3 million in the second quarter of
      2006
      to $0.1 million from $13.4 million in the second quarter of 2005. For the first
      six months of 2006, the provision for income taxes decreased $11.9 million
      to
      $1.3 million from $13.2 million for the first six months of 2005. The effective
      tax rate on pre-tax income (i.e., provision) decreased to 16% for the
      second quarter of 2006 from an effective tax rate of 462% on loss from
      continuing operations for the second quarter of 2005. For the first six months
      of 2006, the effective tax rate on net income decreased to 24% from an effective
      tax rate of 365% on losses from continuing operations for the first six months
      of 2005. The decrease was primarily due to the recording of a non-cash charge
      of
      $13.7 million to establish a valuation allowance against net deferred income
      tax
      assets during the second quarter of 2005. For the first six months of 2006,
      we
      did not provide for federal income taxes on pre-tax income of $9.2 million
      for
      our Americas region due to the full valuation allowance against its net deferred
      tax assets. However, this benefit was offset by our European region, where
      we
      did not provide tax benefits on operating losses of $5.8 million for the first
      six months of 2006 due to the full valuation allowance in Europe.


16
 *Table
          of Contents*


**LIQUIDITY
      AND CAPITAL RESOURCES**




**Six
                  Months Ended June 30,****2006**
              
              **2005****(in
                  thousands)**Net
                  cash used in operating activities
              
              $
              (9,077
              )
              $
              (13,045
              )Net
                  cash used in investing activities
              
              
              (7,370
              )
              
              (7,212
              )Net
                  cash used in financing activities
              
              
              (10,726
              )
              
              (3,516
              )Net
                  cash used in discontinued operations
              
              
              —
              
              
              (1,001
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              108
              
              
              6Net
                  decrease in cash and cash equivalents
              
              $
              (27,065
              )
              $
              (24,768
              )





As
      of
      June 30, 2006, we had cash and cash equivalents of $66.9 million. Our cash
      balances are held in numerous locations throughout the world. Most of the
      amounts held outside the United States can be repatriated to the United States,
      but under current law would be subject to U.S. federal income taxes, less
      applicable foreign tax credits. In certain countries, foreign exchange
      limitations limit the amount of cash that can be repatriated. We have accounted
      for the U.S. federal tax liability on these amounts for financial statement
      purposes except for foreign earnings that are considered indefinitely reinvested
      outside the United States. Repatriation could result in additional U.S. federal
      income tax payments in future years. Where local restrictions prevent an
      efficient inter-company transfer of funds, our intent is that cash balances
      would remain in the foreign country and we would meet U.S. liquidity needs
      through ongoing cash flows from operations, external borrowings, or both. We
      utilize various tax planning and financing strategies in an effort to ensure
      that our worldwide cash is available in the locations in which it is needed.
      We
      have available various credit lines in the Americas, Europe and Asia Pacific
      to
      meet expected and unexpected cash flow needs.





***Operating
      Activities***





Cash
      flow
      used in operating activities was $9.1 million during the first six months of
      2006 compared to cash flow used in operating activities of $13.0 million during
      the first six months of 2005. The reduced cash outlay during the first six
      months of 2006 compared to the first six months of 2005 was primarily due to
      the
      increase in income from continuing operations and less cash outlay for accrued
      promotional and other expenses. This reduced cash outlay was partially offset
      by
      more cash outlay for prepaid assets, other current assets and increased working
      capital requirements primarily related to our strategic purchases of inventory
      with favorable pricing terms during the first six months of 2006 compared to
      the
      first six months of 2005.




Trade
      receivables increased $19.8 million during the first six months of 2006 due
      to
      increased sales. Day sales outstanding decreased from 45 days at December 31,
      2005 to 40 days at June 30, 2006. Payment terms vary by geographic location
      and
      in some cases, a cash discount option is offered in addition to the standard
      payment terms. We have not materially changed our payment terms or delinquency
      policies between 2005 and 2006.





Inventories
      increased $15.9 million during the first six months of 2006. The increase in
      inventories primarily resulted from our ability to secure favorable pricing
      terms on our inventories due to the oversupply of display panels in the
      industry. As a result, we expect to be well positioned in the marketplace as
      we
      continue to cycle through our existing, older and higher cost inventory. This
      increase was slightly offset by the selling of European inventories, which
      were
      overstocked due to oversupply in Russia. Our inventory turns have remained
      relatively stable at four turns during the first six months of 2006 and
      2005.





Accounts
      payable increased $9.3 million during the first six months of 2006 primarily
      due
      to the timing of payments to our suppliers.





***Investing
      Activities***





Cash
      used
      in investing activities was $7.4 million and $7.2 million during the first
      six
      months of 2006 and 2005, respectively. The $7.4 million of cash used for the
      first six months of 2006 was primarily due to the purchase of short-term
      investments, partially offset by proceeds from the sale of short-term
      investments. The $7.2 million of cash used during the first six months of 2005
      was primarily due to purchases of short-term investments, partially offset
      by
      proceeds from the sale of short-term investments.


17
 *Table
          of Contents*


***Financing
      Activities***





Cash
      used
      in financing activities was $10.7 million during the first six months of 2006
      and $3.5 million during the first six months of 2005. During the first six
      months of 2006, we redeemed all outstanding shares of series B convertible
      mandatorily redeemable preferred stock for $15.0 million and had net borrowings
      of $4.2 million. During the first six months of 2005, we repaid bank loans
      of
      $3.5 million.





***Credit
      Facilities***





In
      the
      United States, we have a $60.0 million credit line that expires in March 2008.
      Advances bear interest at the prime rate plus 0.50% (8.75% at June 30, 2006)
      with interest payable monthly. As of June 30, 2006 and December 31, 2005, there
      was no outstanding balance on the line-of-credit. All advances under the
      agreement are collateralized by substantially all of the assets of ViewSonic
      Americas. Under the agreement we are subject to various restrictive covenants,
      which, among other things, limit dividends (not to exceed $250,000 per year
      without the consent of the financial institution), capital expenditures and
      executive compensation and require us to maintain a minimum earnings before
      interest, taxes, depreciation and amortization amount. We are not required
      to
      comply with the restrictive covenants when borrowing capacity exceeds $15.0
      million.





In
      Europe, we have a $20.0 million line-of-credit facility with a financial
      institution. This line-of-credit is secured by trade receivables and
      inventory of ViewSonic Europe Limited. Advances bear interest at Libor plus
      2.00%. Borrowings against this facility were $9.3 million and $0 as of June
      30,
      2006, and December 31, 2005, respectively.





Certain
      of our other international subsidiaries also have line-of-credit facilities
      with
      various financial institutions that are secured by certain of their assets.
      These credit facilities allow cash advances, letters of credit and bank
      guarantees. As of June 30, 2006 and December 31, 2005, there were
      outstanding cash advances of $0 and $4.9 million, respectively. As of
      June 30, 2006, the aggregate borrowing limit was $23.8
      million.





***Off-Balance
      Sheet Arrangements***





As
      of
      June 30, 2006 and 2005, we did not have any off-balance sheet arrangements
      or
      relationships with unconsolidated entities or financial partnerships, such
      as
      entities often referred to as structured finance or variable interest entities,
      which are typically established for the purpose of facilitating off-balance
      sheet arrangements or other contractually narrow or limited purposes.





***Seasonality***





The
      market for our products historically has experienced seasonal shifts in demand
      due to changes in buying patterns by our customers. Buying patterns vary
      geographically, and the impact on our operating results in a given period may
      vary depending on our actual or anticipated level of activity in the relevant
      region. We generally experience a decline in net sales from the first quarter
      to
      the second quarter of each year and we tend to experience the highest net sales
      in the fourth quarter of the year due to a strong buying season in the fourth
      quarter by large wholesale distribution partners and retailers due to the
      holiday season in the Americas. Our seasonality is moderated through slightly
      different seasonal variations in the three regions.





***Operating
      Capital and Capital Expenditure Requirements***





We
      believe that our existing cash balances, credit facilities and anticipated
      cash
      flows from operations will be sufficient to meet our operating, acquisition
      and
      capital requirements for at least the next 12 months. However, there is no
      assurance that we will not need to raise additional equity or debt financing
      within this period. We also may require additional capital for other purposes
      not presently contemplated. If we are unable to obtain sufficient capital, we
      could be required to curtail capital equipment purchases or research and
      development expenditures, which could harm our business. Factors that could
      affect our cash used or generated from operations and, as a result, our need
      to
      seek additional borrowings or capital include:





·
            Decreased
                demand and market acceptance for our
                products;


·
            Inability
                to successfully develop our next generation
                products;


·
            An
                adverse change in payment terms with our customers or our
                suppliers;


·
            Competitive
                pressures and oversupply in the marketplace resulting in lower than
                expected ASPs; and


·
            New
                product announcements or product introductions by our
                competitors.




***Critical
      Accounting Policies and Estimates***





Our
      critical accounting policies reflecting our estimates and judgments are
      described in Part II, Item 7, *Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations* ,
      in our
      Annual Report on Form 10-K for the year ended December 31, 2005, filed
      with the Securities and Exchange Commission on April 3, 2006. We have not
      changed those policies since such date other than described
      below.


18
 *Table
          of Contents*


During
      the second quarter of 2005, we adopted the fair value based employee
      stock-based compensation expense recognition provisions of Statement of
      Financial Accounting Standards (“SFAS”) No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”), using the modified prospective method. We previously had applied the
      intrinsic value based expense recognition provisions set forth in Accounting
      Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      25”). Had we adopted SFAS 123 in the first quarter of 2005, our net loss would
      have increased by $19,000.





On
      January 1, 2006, we adopted Statement of Financial Accounting Standards No.
      123(R), *Share-Based
      Payment* (“SFAS
      123(R)”), which requires all share-based payments to employees, including grants
      of employee stock options, to be expensed and recognized over the requisite
      service period based on the grant date fair value of those awards. Among other
      differences, SFAS 123(R) includes an estimate of volatility. SFAS 123 does
      not
      require the use of volatility for privately held companies in estimating the
      fair value of stock options and, accordingly, we used the minimum value method
      afforded by SFAS 123. We adopted SFAS 123(R) using the prospective method and,
      accordingly, have not restated the consolidated financial statements for prior
      periods to reflect the impact of SFAS 123(R). Stock-based compensation expense
      recognized during the second quarter and first six months of 2006 applies to
      unvested stock options granted prior to December 31, 2005 based on the grant
      date minimum value estimated in accordance with the original provisions of
      SFAS
      123. In addition, stock-based compensation expense recognized during the second
      quarter and first six months of 2006 has been reduced by estimated forfeitures.
      SFAS 123(R) requires forfeitures to be estimated at the time of grant and
      revised, if necessary, in subsequent periods if actual forfeitures differ from
      those estimates. The adoption of the prospective method under SFAS 123(R) did
      not have a material impact on our consolidated financial position, results
      of
      operations, cash flows or earnings per share. For the second quarter and first
      six months of 2006, stock-based compensation expense was $64,000 and $111,000,
      respectively. As of June 30, 2006, unrecognized compensation cost related to
      employee stock options was $216,000, which is expected to be recognized over
      a
      weighted-average period of 2.6 years.





On
      May 9,
      2005, we re-priced all outstanding stock options held by our employees,
      executive officers and members of the Board of Directors of record on March
      2,
      2005. As a result, the exercise price of our outstanding stock options subject
      to the re-pricing was lowered to $0.38 per share, the estimated fair value
      on
      that date, resulting in stock option expense of $1.1 million. The re-pricing
      was
      implemented in order to realign the cash and equity components of our
      compensation programs for employees, executive officers and
      directors.





**ITEM
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





Our
      financial market risk arises from fluctuations in foreign currencies. A majority
      of our net sales, expense and capital purchasing activities are transacted
      in
      U.S. Dollars. However, we do enter into these transactions in other currencies,
      primarily the Euro, U.K. Pound, the Chinese Yuan and the New Taiwan Dollar,
      among others.  Our net sales and purchasing transactions denominated in
      currencies other than the U.S. Dollar are subject to exchange rate fluctuations
      and could potentially negatively impact our financial results.





We
      have
      significant European net sales denominated in the Euro. During the first six
      months of 2006, the Euro-to-U.S. Dollar foreign currency exchange rate
      strengthened against the U.S. Dollar increasing 8.3% compared to the year-end
      rate of 2005. During the first six months of 2005, the Euro-to-U.S. Dollar
      decreased by 11.0% as compared to the 2004 year-end rate. For the second quarter
      of 2006, the strengthening of the Euro positively impacted our net sales and
      income from operations by $1.9 million and $1.3 million, respectively, compared
      to the second quarter of 2005 assuming all other factors remained constant.
      For
      the first six months of 2006, the strengthening of the Euro increased our net
      sales and income from operations by $2.4 million and $1.7 million, respectively,
      compared to the first six months of 2005 assuming all other factors remained
      constant. We cannot determine the ultimate impact of future changes to these
      and
      other currency exchange rates on our 2006 net sales, income from operations,
      net
      income, equity, and comprehensive income.





We
      have a
      portfolio of investments that includes marketable securities classified as
      available-for-sale long-term investments. To the extent that these investments
      continue to have strategic value, we typically do not attempt to reduce or
      eliminate our market exposure. For those securities that are no longer
      considered strategic, management will evaluate market and economic factors
      in
      its decision on the timing of disposal. Our investments are generally in
      companies in the high-technology industry.





**ITEM
                4.**
            **CONTROLS
                AND PROCEDURES**




*Evaluation
      of Disclosure Controls and Procedures*




We
      maintain “disclosure controls and procedures,” as such term is defined in Rule
      13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange
      Act. Our management, including our Chief Executive Officer and Chief Financial
      Officer, does not expect that our disclosure controls and procedures or our
      internal controls will prevent all error and all fraud. A control system, no
      matter how well conceived and operated, can provide only reasonable, not
      absolute, assurance that the objectives of the control system are met. Further,
      the design of a control system must reflect the fact that there are resource
      constraints, and the benefits of controls must be considered relative to their
      costs. These inherent limitations include the realities that judgments in
      decision-making can be faulty, and that breakdowns can occur because of a simple
      error or mistake. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people, or by management
      override of the control. The design of any system of controls also is based
      in
      part upon certain assumptions about the likelihood of future events, and there
      can be no assurance that any design will succeed in achieving its stated goals
      under all potential future conditions; over time, controls may become inadequate
      because of changes in conditions, or the degree of compliance with the policies
      or procedures may deteriorate.


19
 *Table
          of Contents*


Based
      on
      their evaluation as of June 30, 2006, our Chief Executive Officer and Chief
      Financial Officer have concluded that our disclosure controls and procedures
      (as
      defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were
      sufficiently effective to ensure that the information required to be disclosed
      by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized
      and reported within the time periods specified in Securities and Exchange
      Commission rules and forms. ****





*Changes
      in Internal Control*





There
      were no changes in our internal control over financial reporting during the
      three months ended June 30, 2006 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II - OTHER INFORMATION**




**ITEM
                1.**
            **LEGAL
                PROCEEDINGS**




Four
      of
      our stockholders filed a purported derivative action against James Chu, our
      Chairman and Chief Executive Officer, and ViewSonic on April 17, 2006 in the
      United States District Court for the Central District of California. The
      complaint alleges, among other things, that Mr. Chu has breached various
      fiduciary duties by personally investing in certain of our suppliers, thereafter
      directing our contracts to these suppliers and failing to disclose such
      actions. Plaintiffs are seeking actual and punitive damages, attorneys fees,
      costs, disgorgement of alleged profits made by Mr. Chu, a declaratory judgment
      against Mr. Chu for alleged breaches of various fiduciary duties and an
      injunction prohibiting the award of contracts to suppliers in which Mr. Chu
      or
      his relatives have a financial interest. We believe that the claims against
      Mr.
      Chu and ViewSonic are not an appropriate derivative action and are in the
      process of defending against them on such grounds. The impact related to the
      outcome of this matter is undeterminable at this time.





On
      July
      27, 2006, the jury in the trial of *LG
      Philips LCD Co. Ltd., (“LPL”) v. Tatung Company, Tatung Company of America,
      Inc., Chungwa Picture Tubes Ltd., and ViewSonic Corporation,* pending
      in United States District Court, District of Delaware, (Case No. 05-292-JJF)
      delivered a verdict finding that each of the defendants, including ViewSonic,
      had willfully infringed (through the doctrine of equivalents) a patent of LPL’s
      relating to electrostatic discharge. The jury awarded monetary damages of $52.5
      million against CPT only. Although there is no monetary award against ViewSonic,
      the finding of willful infringement, if upheld, may subject us to certain other
      relief including an award of some portion of LPL’s attorneys fees as well as
      injunctive relief which may require us to, among other things, change our
      sourcing of certain LCD displays or key components. All of the defendants,
      including ViewSonic, plan to file post-judgment motions challenging various
      aspects of the jury’s verdict. While
      the
      outcome of these proceedings cannot be predicted with certainty, management
      does
      not believe that the outcome will have a material adverse effect on our
      condensed consolidated financial statements.





In
      addition, in the ordinary course of business, we are involved in lawsuits,
      claims, investigations, proceedings, and threats of litigation consisting of
      intellectual property, commercial, employment and other matters. In accordance
      with SFAS No. 5, *Accounting
      for Contingencies,* we make
      a provision for a liability when it is both probable that a liability has been
      incurred and the amount of the loss can be reasonably estimated. These
      provisions are reviewed at least quarterly and adjusted to reflect the impacts
      of negotiations, settlements, rulings, advice of legal counsel and other
      information and events pertaining to a particular case. Litigation is inherently
      unpredictable. However, we believe that we have valid defenses with respect
      to
      the legal matters pending against us, as well as adequate provisions for any
      probable and estimable losses. While the outcome of these proceedings and claims
      cannot be predicted with certainty, management does not believe that the outcome
      of any pending legal matters will have a material adverse effect on our
      condensed consolidated financial statements.





**ITEM
                1A.**
            **RISK
                FACTORS**




**Factors
      that May Affect Our Business and Financial Results**





*The
      risks described below are not exhaustive of the risks that might affect our
      business. Other risks, including those we currently deem immaterial, may also
      impact our business. Any of the following risks could materially and adversely
      affect our business operations, results of operations and financial
      condition.*


20
 *Table
          of Contents*


*Our
      revenue and profitability can fluctuate from period to period and are often
      difficult to predict for particular periods due to factors beyond our
      control.*





Our
      results of operations for any quarter or year are not necessarily indicative
      of
      results to be expected in future periods. Our operating results have
      historically been, and are expected to continue to be, subject to quarterly
      and
      yearly fluctuations as a result of a number of factors, including:





·
            The
                introduction and market acceptance of new technologies, products
                and
                services;


·
            Variations
                in product costs and the mix of products
                sold;


·
            The
                size and timing of customer orders, which, in turn, will often depend
                upon
                the success of our customers, business or specific products or
                services;


·
            Adverse
                changes in the conditions in the markets for display
                products;


·
            The
                size and timing of capital expenditures by our
                customers;


·
            Inventory
                practices of our customers;


·
            Conditions
                in the broader markets for information technology and
                communications;


·
            Adverse
                changes in the credit quality of our customers and
                suppliers;


·
            Adverse
                changes in the supply of components such as LCD panels, including
                oversupply and undersupply;


·
            The
                impact of acquired businesses and
                technologies;


·
            Changes
                in the pricing policies of, or the introduction of, new products
                by us or
                our competitors; and


·
            Changes
                in the terms of our contracts with our customers or
                suppliers.





These
      trends and factors could harm our business, operating results and financial
      condition.





*Our
      industry is highly competitive and such price competition may substantially
      reduce our revenues and profits.*





Competitive
      factors in the display industry include product features, product quality,
      breadth and reliability, price and performance characteristics, end user
      support, marketing and channel capability as well as corporate reputation and
      brand strength. We believe that we compete favorably with respect to all of
      these factors in the monitor market. However, we are a new entrant to the home
      entertainment market, and, therefore, we are just beginning to establish our
      competitive position. Many of our competitors in our markets have significantly
      greater financial, technical, manufacturing and marketing resources than we
      have. We believe that competition will have the effect of continually reducing
      the ASP of our products over time. We expect price competition to increase
      in
      future periods and such price competition may substantially reduce our revenues
      and products in such periods. Our competition includes established consumer
      electronic companies, personal computer manufacturers and Asian manufacturers
      interested in building a brand presence for their goods, including Acer Inc.,
      BenQ Corporation, LG Philips LCD Ltd., NEC Display Solutions, and Samsung
      Electronics.





We
      believe that over time, this competition will have the effect of reducing the
      ASP of our products. Some of our competitors have substantially longer operating
      histories, greater assets, and name recognition, as well as greater financial,
      marketing, technical and other resources, than we do. These advantages may
      allow
      our competitors to, among other things: undertake more extensive marketing
      initiatives, implement and sustain more aggressive pricing, obtain more
      favorable pricing, obtain more favorable allocations from suppliers or cross
      subsidize their display operations from their other operations. Consequently,
      there is no assurance that our products will remain competitive relative to
      those of our competitors. To the extent we are unable to effectively compete
      against our competitors for any of these reasons or otherwise, our business,
      financial conditions and results of operations would be materially adversely
      affected.





*Changes
      in the way we do business and volatility in our industry could require us to
      raise additional capital.*





Although
      we believe that our existing cash balances, credit facilities and anticipated
      cash flows from operations will be sufficient to meet our operating, acquisition
      and capital requirements for at least the next 12 months, we may be required
      to
      raise additional capital through either equity or debt financing. Factors that
      could adversely affect our cash used or generated from operations and, as a
      result, our need to seek additional borrowings or capital include:





·
            Differences
                between payment terms for the purchase of key component and the sale
                of
                finished products;


·
            Early-pay
                or pre-pay arrangements to secure lower pricing and capacity of key
                components or finished products;


·
            Decreased
                demand and market acceptance for our
                products;


·
            Inability
                to successfully develop our next-generation products;


·
            Competitive
                pressures resulting in lower than expected average selling prices;


·
            An
                adverse change in payment terms with our customers or our suppliers;
                or


·
            New
                product announcements or product introductions by our
                competitors.





We
      also
      may require additional capital for other purposes not presently contemplated.
      If
      we are unable to obtain sufficient capital, we could be required to curtail
      capital equipment purchases or research and development expenditures, which
      could harm our business. If we should require capital in excess of our current
      availability and if we were unable to raise additional capital, our business
      could be harmed.


21
 *Table
          of Contents*


*The
      ASP of our products typically decreases rapidly over the life of the product,
      which negatively affects our gross margin.*





The
      market in which we compete is subject to technological advances with yearly
      new
      product releases and price competition. As a result, the price at which we
      can
      sell our products typically declines over the life of the product. The decline
      in LCD monitors’ ASP is primarily due to increased production capacity and
      aggressive pricing by the competition. Over the recent years, the decline in
      ASP
      for LCD monitors has been faster than the decline in our product-sourcing costs
      and this has resulted in decreased margins.





In
      order
      to sell products that have a declining ASP and still maintain our gross margins,
      we need to continually reduce our product costs and manage our inventory. To
      manage product-sourcing costs, we must collaborate with our contract
      manufacturers to engineer the most cost-effective design for our products.
      In
      addition, we must carefully manage the price paid for components used in our
      products. We must also successfully manage our freight and inventory holding
      costs to reduce overall product costs. We also need to continually introduce
      new
      products with more attractive sales prices and gross margins in order to
      maintain our overall gross margins. If we are unable to manage the cost of
      older
      products or successfully introduce new products with higher gross margins,
      our
      net sales will decrease and our gross margins will decline.





We
      seek
      to mitigate the risk of declining ASPs by obtaining promotional pricing
      incentives from several product vendors. A vendor’s willingness to give us a
      pricing incentive and the amount of the pricing incentive are based on how
      competitive the market is, the volatility of the price on our key product
      components, and the quantity of historical purchases of these components from
      vendors. The pricing incentives do not require us to commit to future component
      purchases from vendors. We record the reimbursement from our vendors for these
      promotional pricing incentives when we are released of the legal liability
      for the payment of the product purchases by the vendors. If we are unable to
      obtain the promotional pricing incentives or if these incentives are
      unexpectedly discontinued, our gross margins will decline and our business
      could
      be harmed.





*Our
      implementation of strategic initiatives may strain our operations and increase
      our operating expense or harm our net earnings.*





We
      have
      been implementing strategic initiatives designed to focus our resources on
      our
      core products, to improve supply chain and logistics efficiency, to simplify
      our
      business processes to maximize operating efficiencies in all aspects of our
      business, to grow sales in regional markets and to expand core
      product **** offerings,
      among others. The undertaking of these initiatives may strain our existing
      management, information systems, employee workforce, operational capability
      and
      financial controls. The difficulties associated with implementing these
      initiatives, procedures and controls may place a significant burden on our
      management, operational and financial resources. If we fail to successfully
      implement these initiatives or encounter unexpected difficulties during the
      implementation, our business could be harmed.





*If
      we
      do not succeed in executing our growth strategies within our markets, our
      revenues may not increase.*





Our
      strategies include further expansion of our business in markets in which we
      currently operate, including Brazil, China, India, Russia, Eastern and Western
      Europe. In many of these markets, we face barriers in the form of long-standing
      relationships between our potential customers and their local suppliers, as
      well
      as protective regulations. In addition, pursuing international growth
      opportunities may require us to make significant investments long before we
      realize returns on the investments, if any. Increased investments may result
      in
      expenses growing at a faster rate than revenues. Our overseas investments could
      be adversely affected by:





·
            Reversals
                or delays in the opening of foreign markets to new
                participants;


·
            Exchange
                controls;


·
            Restrictions
                on foreign investment or the repatriation of profits or invested
                capital;


·
            Nationalization
                of local industry;


·
            Changes
                in export or import restrictions;


·
            Changes
                in the tax system or rate of taxation in the countries where we do
                business; and


·
            Economic,
                social, and political risks.





In
      addition, difficulties in foreign financial markets, economies and foreign
      financial institutions, particularly in emerging markets, could adversely affect
      demand from customers in the affected countries. Because of these factors,
      we
      may not succeed in expanding our business in international markets. This could
      hurt our business growth prospects and results of operations.





*Our
      operating expenses are relatively fixed and we may have limited ability to
      reduce expenses quickly in response to any revenue
      shortfalls.*


22
 *Table
          of Contents*


As
      a
      percentage of net sales, selling, general and administrative expenses represent
      7.9% and 9.8% for the three months ended June 30, 2006 and 2005, respectively,
      and 8.1% and 9.9% for the six months ended June 30, 2006 and 2005, respectively.
      We expect sales, general and administrative expenses to remain relatively fixed
      or decrease as a percentage of net sales as we continue to improve efficiencies
      in all aspects of our business. Additionally, because we typically recognize
      a
      substantial portion of our revenues in the last month of each quarter, we may
      not be able to adjust our operating expenses in a timely manner in response
      to
      any revenue shortfalls. If we are unable to reduce operating expenses quickly
      in
      response to any revenue shortfalls, it would negatively impact our financial
      results.





*We
      order components, materials and tooling in advance of anticipated customer
      demand. Therefore, we have limited ability to reduce our inventory purchase
      commitments quickly in response to any revenue shortfalls.*




Substantially
      all of our sales are made on the basis of purchase orders rather than long-term
      agreements. As a result, we may commit to purchase products without having
      received advance purchase commitments from customers. Any inability to sell
      products to which we have devoted significant resources could harm our business.
      Additionally, because we typically need sufficient lead-time in purchasing
      our
      products, we may not be able to reduce our inventory purchase commitments in
      a
      timely manner in response to any revenue shortfalls. We could be subject to
      excess or obsolete inventories and under-utilized tooling and be required to
      take corresponding inventory write-downs or tooling write-offs if growth slows
      or if we incorrectly forecast product demand. A reduction in demand could
      negatively impact our gross margins and financial results.





*We
      are subject to risks associated with our international operations, which may
      harm our business.*





We
      generated a majority of our total net sales to customers outside of the United
      States and other Americas in the first six months of 2006. Sales to these
      customers outside of the United States and other Americas subject us to a number
      of risks associated with conducting business outside of the United States and
      other Americas, including the following:





·
            International
                economic and political conditions;


·
            Unexpected
                changes in, or impositions of, legislative or regulatory requirements;


·
            Increases
                or decreases in the U.S. dollar as compared to other
                currencies;


·
            Inadequate
                local infrastructure;


·
            Delays
                resulting from difficulty in obtaining export licenses for certain
                technology, tariffs, quotas and other trade barriers and restrictions;


·
            Transportation
                delays;


·
            Longer
                payment cycles;


·
            Tax
                laws (including U.S. taxes on foreign
                operations);


·
            Foreign
                currency exchange rates;


·
            Imposition
                of additional taxes and penalties;
                and


·
            The
                burdens of complying with a variety of foreign
                laws.





Any
      one
      of the foregoing factors could cause our business, operating results and
      financial condition to suffer.




*If
      we
      do not effectively manage our sales channel inventory and product mix, we may
      incur costs associated with excess inventory or lose sales from having too
      few
      products or the wrong mix of products.*





If
      we are
      unable to properly monitor, control and manage our sales channel inventory
      and
      maintain an appropriate level and mix of products with our customers and within
      our sales channels, we may incur increased and unexpected costs associated
      with
      our inventory. We generally allow wholesale distributors and retailers to return
      a limited amount of our products in exchange for other products. Under our
      price
      protection policy, subject to certain conditions, if we reduce the list price
      of
      a product, we issue a credit in an amount equal to the reduction for each of
      the
      products held in inventory by our wholesale distributors and retailers. If
      our
      wholesale distributors and retailers are unable to sell their inventory in
      a
      timely manner, we may under our policy lower the price of the products, or
      these
      parties may exchange the products for newer products. If we improperly forecast
      demand for our products we could end up with too many products and be unable
      to
      sell the excess inventory in a timely manner, if at all, or, alternatively
      we
      could end up with too few products and not be able to satisfy demand. If these
      events occur, we could incur increased expenses associated with writing off
      excessive or obsolete inventory or lose sales and therefore suffer declining
      gross margins.





*Intellectual
      property litigation and infringement claims could cause us to incur significant
      expenses or prevent us from selling our products.*





Many
      of
      our products are designed to include software or other intellectual property
      licenses from third parties. Competitors’ protected technology may be
      unavailable to us or be made available to us only on unfavorable terms and
      conditions. While it may be necessary in the future to seek or renew licenses
      relating to various aspects of our products, we believe that, based upon past
      experience and standard industry practice, these licenses generally can be
      obtained on commercially reasonable terms. There can be no assurances, however,
      that we will be able to obtain, on commercially reasonable terms or at all,
      from
      third parties the licenses that we will need. Due to the existence of a large
      number of patents in our field and the rapid rate of issuance of new patents,
      it
      is not practical to determine in advance whether a product or any of its
      components infringe the patent rights of others.


23
 *Table
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We
      routinely receive claims regarding patent and other intellectual property
      matters. Pursuant to our agreements with our suppliers and manufacturers, we
      generally seek indemnification in connection with such claims. Whether or not
      these claims have merit, they may require significant resources to defend.
      To
      date, none of these claims has had a material impact on our business. We are
      currently involved in several such proceedings, none of which we believe are
      material to our business. If an infringement claim is successful and we are
      unable to obtain the license for the infringed technology or substitute similar
      non-infringing technology, our business could be harmed. In addition, if an
      infringement claim is successful or costly to defend and we are unable to obtain
      indemnification from our suppliers, our business could be harmed.





*Our
      failure to anticipate changes in the supply or pricing of product components
      or
      customer demand may result in excess or obsolete inventory that could adversely
      affect our gross margins.*





Inventory
      purchases are based upon future demand forecasts. These forecasts are based
      upon
      assumptions about future demand that might prove to be inaccurate. If there
      were
      to be a sudden and significant decrease in demand for our products, or if there
      were a higher incidence of inventory obsolescence because of rapidly changing
      prices of product components, rapidly changing technology and customer
      requirements or an increase in the supply of products in the marketplace, we
      could be required to write-down our inventory and our gross margins could be
      adversely affected.





*If
      we
      fail to maintain and/or expand our sales channels, our revenue may
      decline.*





To
      maintain and grow our market share, net sales and brand, we must maintain and
      expand our sales channels. We currently sell our products through distributors,
      retailers, VARs, system integrators, commercial or enterprise resellers, direct
      marketing/e-retailers, and ViewSonic online stores. These entities purchase
      our
      products directly from us or through our distributors. We have no minimum
      purchase commitments or long-term contracts with any of these third parties.
      Our
      agreements are generally non-exclusive and generally may be terminated by either
      party for any reason or no reason with 30 days notice.





Retailers
      have limited shelf space and promotional budgets, and competition is intense
      for
      these resources. A competitor with more extensive product lines and stronger
      brand identity may have greater bargaining power with these retailers. The
      competition for retail shelf space may increase, which would require us to
      increase our marketing expenditures to maintain current levels of retail shelf
      space.





We
      must
      also continuously monitor and evaluate emerging sales channels. If we fail
      to
      establish a presence in an important developing sales channel, our business
      could be harmed. If we are unable to establish relationships in emerging sales
      channels, our sales could decline and we would lose market share.





*We
      rely on a limited number of wholesale distribution and national retail customers
      for most of our sales, and changes in price or purchasing patterns and failure
      to maintain or establish new distributor relationships in existing and new
      sales
      channels could lower our revenue or gross margins.*





We
      sell
      our products through wholesale distributors such as Ingram Micro, Inc., Tech
      Data Corporation and Synnex Corporation and national retailers such as CompUSA,
      Inc. We expect that a majority of our net sales will continue to come from
      sales
      to a small number of wholesale distributors and national retailers for the
      foreseeable future. We have no minimum purchase commitments or long-term
      contracts with any of these customers. The wholesale distributors and retailers
      could decide at any time to discontinue, decrease or delay their purchases
      of
      our products. We must also monitor and evaluate new sales channels in existing
      markets and in new markets. If we fail to establish a presence in an important
      developing sales channel or market, our business could be harmed.





In
      addition, the prices that wholesale distributors and retailers pay for our
      products are subject to negotiation and could change frequently. If any of
      our
      major wholesale distributors or retailers change their purchasing patterns
      or
      refuse to pay the prices that we set for our products, our net sales and
      operating results could be negatively impacted. If our wholesale distributors
      and retailers increase the size of their product orders without sufficient
      lead-time for us to process the order, our ability to fulfill product demands
      would be compromised. In addition, because our accounts receivable are
      concentrated within a small group of wholesale distributors and retailers,
      the
      failure of any of them to pay on a timely basis, or at all, would reduce our
      cash flow.





*We
      depend on third-party component suppliers and contract manufacturers for the
      manufacture of our products. If these third parties experience any delay,
      disruption or quality control problems in their operations, we could lose market
      share and revenues, and our reputation may be harmed.*





All
      of
      our products are manufactured, assembled, tested and packaged by contract
      manufacturers. We rely on several, component suppliers and contract
      manufacturers to procure components and, in some cases, subcontract engineering
      work. Some of our products are manufactured by a single contract manufacturer.
      Our component suppliers and contract manufacturers are primarily located in
      mainland China, Taiwan, and Thailand and may be subject to disruption by
      earthquakes, typhoons and other natural disasters, epidemics, pandemics, as
      well
      as political, social or economic instability. We do not have any long-term
      contracts with any of these third party component suppliers and contract
      manufacturers. Product pricing is generally negotiated on an order-by-order
      basis. All of our contracts with our component suppliers and contract
      manufacturers, including those contracts containing provisions that may be
      materially favorable to us, are generally terminable for any reason and by
      either party with 90 day’s notice. If our component suppliers and contract
      manufacturers encounter financial or other business difficulties, if their
      strategic objectives change, or if they perceive us to no longer be an
      attractive customer, they may no longer assist us in our product development
      efforts, and our business could be harmed.


24
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          of Contents*


The
      loss
      of the services of any of our primary contract manufacturers or a change in
      material terms could cause a significant disruption in operations and delays
      in
      product shipments and adverse impact on cash flow. Qualifying a new contract
      manufacturer and commencing volume production is expensive and time
      consuming.





Our
      reliance on third party component suppliers and contract manufacturers also
      exposes us to the following risks over which we have limited
      control:





·
            Inability
                to procure key required components for our finished products to meet
                our
                customer’s demand;


·
            Unexpected
                increases in manufacturing and repair
                costs;


·
            Unexpected
                reductions in payment terms;


·
            Interruptions
                in shipments if one of our manufacturers is unable to complete
                production;


·
            Inability
                to control the quality of finished
                products;


·
            Inability
                to control delivery schedules;


·
            Inability
                to obtain favorable pricing;


·
            Unpredictability
                of manufacturing yields; and


·
            Potential
                lack of adequate capacity to manufacture all or a part of the products
                we
                require.




*We
      rely upon third parties for technology that is critical to our products, and
      if
      we are unable to continue to license this technology and future technology,
      our
      ability to offer competitive products could be harmed and our costs of
      production could increase.*





We
      rely
      on third parties to obtain non-exclusive software license rights to technologies
      that are incorporated into and necessary for the operation and functionality
      of
      our products. Because the intellectual property we license is available from
      third parties, barriers to entry for our competitors may be lower than if we
      owned exclusive rights to the technology we license and use. On the other hand,
      if a competitor enters into an exclusive arrangement with any of our third-party
      technology providers, our ability to develop and sell products containing that
      technology could be severely limited. Our licenses often require royalty
      payments or other consideration to third parties. Our success will depend in
      part on our continued ability to have access to these technologies on
      commercially reasonable terms. If we are unable to license the necessary
      technology, we may be forced to acquire or develop alternative technology of
      lower quality or performance standards. This could limit and delay our ability
      to offer competitive products and increase our costs of production. As a result,
      our gross margins, market share, and operating results could be
      harmed.





*If
      we
      are unable to provide our third-party component suppliers and contract
      manufacturers with an accurate forecast of our component and material
      requirements, we may experience delays in the manufacturing of our products
      and
      the costs of our products may increase.*





We
      provide our third-party component suppliers and contract manufacturers with
      a
      rolling forecast of demand which they use to determine their material and
      component requirements. Lead times for ordering materials and components vary
      significantly and depend on various factors, such as the specific supplier,
      contract terms and demand and supply for a component at a given time. Some
      of
      our components have long lead times. If our forecasts are less than our actual
      requirements, our contract manufacturers may be unable to manufacture enough
      products in a timely manner. If our forecasts are too high, our component
      suppliers and contract manufacturers may be unable to use the components they
      have purchased. The cost of the components used in our products tends to drop
      rapidly as volumes increase and the technologies mature. Therefore, if our
      contract manufacturers are unable to promptly use components purchased on our
      behalf, our cost of producing products may be higher than that of our
      competitors, due to an over-supply of higher-priced components. Moreover, if
      they are unable to use certain components, we may need to reimburse them for
      any
      losses they incur.




*If
      we
      fail to continue to introduce new products that achieve broad market acceptance
      on a timely basis, or fail to market or sell our products in a way that receives
      broad acceptance in the market place, we will not be able to compete effectively
      and we will be unable to increase or maintain net sales and gross margin and
      our
      financial results could be negatively impacted.*





We
      operate in a highly competitive, quickly changing environment. We are dependent
      upon sufficient demand and broad market acceptance for display products, which
      are branded separately from the computing devices (primarily desktop PCs and
      laptops) to which they are attached. Our future success depends on our ability
      to develop and introduce new products and product enhancements that achieve
      broad market acceptance in the business and home markets. Our future success
      will depend in large part upon our ability to:


25
 *Table
          of Contents*


·
            Identify
                demand trends in the business and home display markets and quickly
                develop, manufacture and sell products that satisfy these
                demands;


·
            Manage
                our cost structure to enable us to bring new products to market at
                competitive prices;


·
            Respond
                effectively to new product announcements from our competitors by
                designing, competitive products, either internally or through the
                use of
                third parties;


·
            Provide
                compatibility and interoperability of our products with products
                offered
                by other vendors and new technologies as they
                emerge;


·
            Manage
                our product offerings either as stand-alone, in combination with
                other
                products or services, or in some other manner;
                and


·
            Respond
                effectively to unexpected shifts in market demand towards display
                and PC
                products sold together under the same brand or away from stand-alone
                displays.





*In
      investigating and/or litigating a stockholder derivative action, we may incur
      substantial costs*





We
      and
      James Chu, our Chairman and Chief Executive Officer, are named as defendants
      in
      a purported derivative action brought by certain of our stockholders. The
      complaint alleges, among other things, that Mr. Chu has breached various
      fiduciary duties by personally investing in certain of our suppliers, thereafter
      directing contracts to these suppliers and failing to disclose such actions.
      In
      connection with investigating and/or litigating this action, we may incur
      substantial costs.





*We
      depend on our officers, and if we are not able to retain them, our business
      will
      suffer.*





We
      are
      highly dependent on James Chu, our Chairman of the Board and Chief Executive
      Officer and majority stockholder, and other officers. Due to the specialized
      knowledge each of our officers possesses with respect to our business and our
      operations, the loss of service of any of our officers could adversely affect
      our business. We do not carry key man life insurance on our
      officers.





Each
      of
      our officers may terminate their employment without notice and without cause
      or
      good reason. We currently are not aware that any officer is planning to leave
      or
      retire.





*Impairment
      of our investment portfolio could harm our net earnings.*





We
      have
      an investment portfolio that includes a variety of investments. In most cases,
      we do not attempt to reduce or eliminate our market exposure on these
      investments. We could incur losses related to the impairment of these
      investments, which could result in charges to net earnings. Some of our
      investments are in public and privately held companies that are still in the
      start-up or development stage, which have inherent risks because the
      technologies or products they have under development are typically in the early
      stages and may never become successful. Furthermore, the values of our
      investments in publicly traded companies are subject to significant market
      price
      volatility. We often couple our investments in technology companies with a
      strategic commercial relationship. Our commercial agreements with these
      companies may not be sufficient to allow us to obtain and integrate such
      products and services into our offerings or otherwise benefit from the
      relationship, and third parties, including competitors, may subsequently acquire
      these companies. Economic weakness could further impact our investment
      portfolio. Our investments in privately held companies were valued at $0.1
      million and $0.1 million as of June 30, 2006 and December 31, 2005,
      respectively. For the six months ended June 30, 2006 and 2005, we recorded
      impairments on our investments of $1.0 million and $0.0 million,
      respectively.





*We
      may fail to comply with the Restriction of Certain Hazardous Substances
      Directive, or RoHS, and Waste Electrical and Electronic Equipment Directive,
      or
      WEEE, which could harm our business.*




We
      are
      subject to local laws and regulations in various regions in which we operate,
      including the European Union, or the EU. There are two particular EU directives,
      RoHS and WEEE that may have a material impact on our business. RoHS restricts
      the distribution of certain substances, including lead, within the EU and is
      effective July 1, 2006. RoHS requires us to eliminate and/or reduce the level
      of
      specified hazardous materials from our products and requires us to maintain
      and
      publish a detailed list of all chemical substances in our products. WEEE
      requires us to take back and recycle all products we manufacture or import
      into
      the EU at our own expense and became effective in January 2006. If we fail
      to
      comply with the EU directives our business may be harmed. For
      example,





·
            We
                may be unable to procure appropriate RoHS compliant material in sufficient
                quantity and quality and/or be unable to incorporate it into our
                product
                procurement processes without compromising quality and/or harming
                our cost
                structure;


·
            We
                may not be able to sell non-compliant product into the EU or to any
                customer whose end product will be sold into the EU, which may result
                in
                reduced sales; or


·
            We
                may face excess and obsolete inventory risk related to non-compliant
                inventory that we may continue to hold in 2006 for which there is
                reduced
                demand and we may need to write
                down.


26
 *Table
          of Contents*


*If
      disruptions in our transportation network occur or our shipping costs
      substantially increase, our operating expense could increase and our financial
      results could be negatively impacted.*





We
      are
      highly dependent upon the transportation systems we use to ship our products,
      including surface, ocean and airfreight. Our attempt to closely match our
      inventory levels to our product demand intensifies the need for our
      transportation systems to function effectively and without delay. The
      transportation network is subject to disruption from a variety of causes,
      including labor disputes or port strikes, acts of war or terrorism and natural
      disasters. If our delivery times increase unexpectedly for these or any other
      reasons, our ability to deliver products on time could result in delayed or
      lost
      revenue. In addition, if the recent increases in fuel prices were to continue,
      our transportation costs would likely increase. A prolonged transportation
      disruption or a significant increase in the cost of freight could severely
      disrupt our business and harm our operating results.





*We
      may be subject to product liability claims that could result in significant
      direct or indirect costs to us.*





There
      is
      a risk that defects may occur in our products and services. The occurrence
      of
      these defects could make us liable for damages caused by these defects,
      including consequential damages. To date, none of these claims has had a
      material impact on our business. Negative publicity concerning these problems
      could also make it more difficult to convince customers to buy our products
      and
      services. Both could hurt our business, operating results, and financial
      condition.





*Expensing
      employee stock options may materially and adversely affect our reported
      operating results and could adversely affect our competitive position as
      well.*





Since
      inception, we have used stock options as a fundamental component of our
      compensation packages. We believe that these incentives directly motivate our
      employees and, through the use of vesting, encourage our employees to remain
      with us. During the second quarter of 2005, we elected to adopt the fair value
      based employee stock-based compensation expense recognition provisions of SFAS
      No. 123, *Accounting
      for Stock-Based Compensation* ,
      or SFAS
      123, in connection with an option re-pricing program, using the modified
      prospective method. We previously applied the intrinsic value based expense
      recognition provisions set forth in Accounting Principles Board Opinion No.
      25, *Accounting
      for Stock Issued to Employees* .
      In
      December 2004, the Financial Accounting Standards Board, issued SFAS No. 123(R), *Share-Based
      Payment* ,
      or SFAS
      123(R), which requires the measurement and recognition of compensation expense
      for all stock-based compensation payments. In April 2005, the SEC delayed the
      effective date of SFAS 123(R), which is now effective for annual periods that
      begin after June 15, 2005. We adopted SFAS 123(R) effective as of January 1,
      2006 using the prospective method.  SFAS 123(R) requires that we record
      compensation expense for stock options using the fair value of those awards.
       Expensing these incentives in future periods may materially and adversely
      affect our reported operating results as the stock-based compensation expense
      is
      charged directly against our reported earnings.





To
      the
      extent that SFAS 123(R) results in additional expenses when granting stock
      options we may elect to incur increased cash compensation costs instead. In
      addition, actions that we may take to reduce stock-based compensation expense
      that might be more severe than any actions our competitors may implement, could
      make it difficult to attract, retain and motivate employees, which could
      adversely affect our competitive position, as well as our business and operating
      results.





**ITEM
                2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**




Not
      applicable.




**ITEM
                3.**
            **DEFAULTS
                UPON SENIOR
                SECURITIES**





Not
      applicable.





**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITIES
                HOLDERS**





Not
      applicable.





**ITEM
                5.**
            **OTHER
                INFORMATION**





See
      Item
      9B of our Annual Report for the year ended December 31, 2005 on Form 10-K filed
      with the SEC on April 3, 2006, which is incorporated by reference herein in
      its
      entirety.


27
 *Table
          of Contents*


**ITEM
                6.**
            **EXHIBITS**





**Exhibit
                No.**
            **Description
                of Exhibits**





10.18
                (1)
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic Netherlands,
                dated January 10, 2006.





10.19
                (2)
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic Europe
                Limited,
                dated January 10, 2006.





10.20(3)
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic SARL,
                dated
                January 10, 2006.





31.1
            Certification
                of Chief Executive Officer as required by Rule 13a-14(a) of the Securities
                Exchange Act of 1934, as amended.





31.2
            Certification
                of Chief Financial Officer as required by Rule 13a-14(a) of the Securities
                Exchange Act of 1934, as amended.





32.1*
            Certification
                of Chief Executive Officer and Chief Financial Officer as required
                by Rule
                13a-14(b) of the Securities Exchange Act of 1934, as
                amended.




(1)
            Incorporated
                by reference to Exhibit 10.18 to ViewSonic Corporation’s Annual Report on
                Form 10-K, (000-50730) filed with the Securities and Exchange Commission
                on April 3, 2006.


(2)
            Incorporated
                by reference to Exhibit 10.19 to ViewSonic Corporation’s Annual Report on
                Form 10-K, (000-50730) filed with the Securities and Exchange Commission
                on April 3, 2006.


(3)
            Incorporated
                by reference to Exhibit 10.20 to ViewSonic Corporation’s Annual Report on
                Form 10-K, (000-50730) filed with the Securities and Exchange Commission
                on April 3, 2006.





*
            The
                certification attached as Exhibit 32.1 accompanies this Quarterly
                Report
                on Form 10-Q, is not deemed filed with the Securities and Exchange
                Commission and is not to be incorporated by reference into any filing
                of
                ViewSonic Corporation under the Securities Act of 1933, as amended,
                or the
                Securities Exchange Act of 1934, as amended, whether made before
                or after
                the date of this Form 10-Q, irrespective of any general incorporation
                language contained in such filing.




28
 *Table
          of Contents*




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized, on August 10, 2006.




**ViewSonic
                Corporation**By:
            /s/
                James A. MorlanJames
                A. MorlanChief
                Financial Officer(Principal
                Financial and Accounting
                Officer)


29
 *Table
          of Contents*


**EXHIBIT
      INDEX**




**Exhibit
                No.**
            **Description
                of Exhibits**




10.18
                (1)
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic Netherlands,
                dated January 10, 2006.





10.19
                (2)
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic Europe
                Limited,
                dated January 10, 2006.





10.20(3)
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic SARL,
                dated
                January 10, 2006.





31.1
            Certification
                of Chief Executive Officer as required by Rule 13a-14(a) of the Securities
                Exchange Act of 1934, as amended.




31.2
            Certification
                of Chief Financial Officer as required by Rule 13a-14(a) of the Securities
                Exchange Act of 1934, as amended.





32.1*
            Certification
                of Chief Executive Officer and Chief Financial Officer as required
                by Rule
                13a-14(b) of the Securities Exchange Act of 1934, as
                amended.




(1)
            Incorporated
                by reference to Exhibit 10.18 to ViewSonic Corporation’s Annual Report on
                Form 10-K, (000-50730) filed with the Securities and Exchange Commission
                on April 3, 2006.


(2)
            Incorporated
                by reference to Exhibit 10.19 to ViewSonic Corporation’s Annual Report on
                Form 10-K, (000-50730) filed with the Securities and Exchange Commission
                on April 3, 2006.


(3)
            Incorporated
                by reference to Exhibit 10.20 to ViewSonic Corporation’s Annual Report on
                Form 10-K, (000-50730) filed with the Securities and Exchange Commission
                on April 3, 2006.





*
            The
                certification attached as Exhibit 32.1 accompanies this Quarterly
                Report
                on Form 10-Q, is not deemed filed with the Securities and Exchange
                Commission and is not to be incorporated by reference into any filing
                of
                ViewSonic Corporation under the Securities Act of 1933, as amended,
                or the
                Securities Exchange Act of 1934, as amended, whether made before
                or after
                the date of this Form 10-Q, irrespective of any general incorporation
                language contained in such filing.






30