**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 September 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
                  filerx
  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 354,594,666
        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 October 31, 2006.
  
 
 
 **VIEWSONIC
        CORPORATION**
 **FORM
        10-Q**
 **TABLE
        OF CONTENTS**
  **Page****PART
                  I: FINANCIAL INFORMATION**Item
                  1.
              
              Financial
                  Statements (Unaudited):
              3Condensed
                  Consolidated Balance Sheets as of September 30,
                  2006 and December 31, 2005
              3Condensed
                  Consolidated Statements of Operations for the
                  three and nine months ended September 30, 2006 and
                  2005
              4Condensed
                  Consolidated Statements of Cash Flows for the
                  nine months ended September 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**
 **SEPTEMBER
        30, 2006 AND DECEMBER 31, 2005**
 **(In
        thousands, except for share data and par value)**
 **(Unaudited)**
 
 **September
                  30,**
                **2006**
              
              **December
                  31,**
                **2005****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              63,998
              
              $
              93,998Trade
                  receivables, net
              
              
              241,491
              
              
              145,982Other
                  receivables
              
              
              8,212
              
              
              7,013Inventories
              
              
              153,999
              
              
              155,389Deferred
                  income taxes
              
              
              3,977
              
              
              3,194Prepaids
                  and other current assets
              
              
              3,905
              
              
              2,931Income
                  taxes receivable
              
              
              83
              
              
              761Total
                  current
              
              
              475,665
              
              
              409,268Property,
                  plant and equipment, net
              
              
              14,689
              
              
              12,929Long-term
                  investments
              
              
              609
              
              
              2,676Goodwill
              
              
              1,347
              
              
              1,347Other
                  assets, net
              
              
              1,353
              
              
              6,505Total
                  assets
              
              $
              493,663
              
              $
              432,725**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Bank
                  borrowings
              
              $
              —
              
              $
              4,852Accounts
                  payable
              
              
              320,127
              
              
              266,867Accrued
                  promotional expenses
              
              
              22,847
              
              
              22,663Accrued
                  warranty expense
              
              
              24,877
              
              
              21,350Other
                  accrued expenses
              
              
              28,743
              
              
              20,809Total
                  current liabilities
              
              
              396,594
              
              
              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; 354,594,666
                  and
                  353,974,268 shares issued as of September 30, 2006 and December
                  31, 2005,
                  respectively
              
              
              3,546
              
              
              3,540Preferred
                  stock, $.001 par value 50,000,000 shares authorized; 3,300,000
                  and 0
                  shares issued as of September 30, 2006 and December 31, 2005,
                  respectively
              
              
              3
              
              
              —Additional
                  paid-in capital
              
              
              94,137
              
              
              93,716Accumulated
                  deficit
              
              
              (40,961
              )
              
              (55,611
              )Accumulated
                  other comprehensive loss
              
              
              (2,656
              )
              
              (3,413
              )Total
                  stockholders' equity
              
              
              54,069
              
              
              38,232Total
                  liabilities and stockholders’ equity
              
              $
              493,663
              
              $
              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**
 **SEPTEMBER
        30, 2006 AND 2005**
 **(In
        thousands, except per share data)**
 **(Unaudited)**
  **Three Months Ended**
                **September 30,**
              
              **Nine Months Ended**
                **September 30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Net
                  sales
              
              $
              426,445
              
              $
              316,678
              
              $
              1,132,507
              
              $
              875,208Cost
                  of sales
              
              
              383,992
              
              
              288,482
              
              
              1,029,640
              
              
              791,827Gross
                  profit
              
              
              42,453
              
              
              28,196
              
              
              102,867
              
              
              83,381Selling,
                  general and administrative expenses
              
              
              29,979
              
              
              25,154
              
              
              86,903
              
              
              80,278Income
                  from operations
              
              
              12,474
              
              
              3,042
              
              
              15,964
              
              
              3,103Other
                  income (expense):Interest
                  income (expense), net
              
              
              (366
              )
              
              125
              
              
              (53
              )
              
              54Other,
                  net
              
              
              (651
              )
              
              (130
              )
              
              970
              
              
              (3,736
              )Total
                  other income (expense), net
              
              
              (1,017
              )
              
              (5
              )
              
              917
              
              
              (3,682
              )Income
                  (loss) from continuing operations before income taxes
              
              
              11,457
              
              
              3,037
              
              
              16,881
              
              
              (579
              )Provision
                  for income taxes
              
              
              860
              
              
              1,021
              
              
              2,183
              
              
              14,217Income
                  (loss) from continuing operations
              
              
              10,597
              
              
              2,016
              
              
              14,698
              
              
              (14,796
              )Net
                  (loss) gain on disposal of discontinued operations, net of
                  tax
              
              
              —
              
              
              (115
              )
              
              —
              
              
              599Net
                  income (loss)
              
              
              10,597
              
              
              1,901
              
              
              14,698
              
              
              (14,197
              )Preferred
                  stock accretion
              
              
              —
              
              
              (389
              )
              
              (48
              )
              
              (1,124
              )Net
                  income (loss) available to common stockholders
              
              $
              10,597
              
              $
              1,512
              
              $
              14,650
              
              $
              (15,321
              )Basic
                  earnings (loss) per share:Continuing
                  operations
              
              $
              0.03
              
              $
              —
              
              $
              0.04
              
              $
              (0.04
              )Discontinued
                  operations
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Total
                  basic earnings (loss) per share
              
              $
              0.03
              
              $
              —
              
              $
              0.04
              
              $
              (0.04
              )Diluted
                  earnings (loss) per shareContinuing
                  operations
              
              $
              0.03
              
              $
              —
              
              $
              0.04
              
              $
              (0.04
              )Discontinued
                  operations
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Total
                  diluted earnings (loss) per share
              
              $
              0.03
              
              $
              —
              
              $
              0.04
              
              $
              (0.04
              )Basic
                  weighted average shares outstanding
              
              
              354,326
              
              
              353,970
              
              
              354,173
              
              
              353,967Diluted
                  weighted average shares outstanding
              
              
              357,604
              
              
              357,183
              
              
              359,706
              
              
              353,967
 
 *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**
 **SEPTEMBER
        30, 2006 AND 2005**
 **(In
        thousands)**
 **(Unaudited)**
  **Nine
                  Months Ended September 30,****2006**
              
              **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Income
                  (loss) from continuing operations
              
              $
              14,698
              
              $
              (14,796
              )Adjustments
                  to reconcile net income (loss) from continuing operations to net
                  cash used
                  in operating activities:Depreciation
                  and amortization
              
              
              2,157
              
              
              2,240Loss
                  on disposal of property, plant and equipment
              
              
              4
              
              
              1Provision
                  for doubtful accounts
              
              
              384
              
              
              475Net
                  loss on sale and impairment of long-term investments
              
              
              1,934
              
              
              21Deferred
                  income taxes
              
              
              134
              
              
              12,696Stock-based
                  compensation expense
              
              
              161
              
              
              1,523Changes
                  in operating assets and liabilities:Trade
                  receivables
              
              
              (95,598
              )
              
              9,085Other
                  receivables
              
              
              (1,166
              )
              
              (1,546
              )Inventories
              
              
              1,670
              
              
              20,387Prepaids
                  and other current assets
              
              
              (375
              )
              
              (140
              )Accounts
                  payable
              
              
              52,886
              
              
              (14,822
              )Accrued
                  promotional and other expenses
              
              
              8,225
              
              
              (8,037
              )Accrued
                  warranty expense
              
              
              3,523
              
              
              4,029Income
                  taxes payable/receivable
              
              
              675
              
              
              1,985Net
                  cash (used in) provided by operating activities
              
              
              (10,688
              )
              
              13,101**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Proceeds
                  from sale of property, plant and equipment
              
              
              21
              
              
              —Purchase
                  of property, plant and equipment
              
              
              (931
              )
              
              (559
              )Proceeds
                  from sale of long-term investments
              
              
              1,277
              
              
              376Proceeds
                  from sale of short-term investments
              
              
              15,152
              
              
              28,721Purchase
                  of short-term investments
              
              
              (15,213
              )
              
              (26,465
              )Net
                  cash provided by investing activities
              
              
              306
              
              
              2,073**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Net
                  payments on bank borrowings
              
              
              (4,920
              )
              
              (3,507
              )Proceeds
                  from issuance of common stock
              
              
              236
              
              
              10Proceeds
                  from issuance of preferred stock
              
              
              33
              
              
              —Redemption
                  of preferred stock
              
              
              (15,000
              )
              
              —Net
                  cash used in financing activities
              
              
              (19,651
              )
              
              (3,497
              )**CASH
                  FLOW FROM DISCONTINUED OPERATIONS**Cash
                  flow from operating activities
              
              
              —
              
              
              (1,116
              )Cash
                  flow from investing activities
              
              
              —
              
              
              —Cash
                  flow from financing activities
              
              
              —
              
              
              —Net
                  cash used in discontinued operations
              
              
              —
              
              
              (1,116
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              33
              
              
              (400
              )Net
                  (decrease) increase in cash and cash equivalents
              
              
              (30,000
              )
              
              10,161Cash
                  and cash equivalents at beginning of period
              
              
              93,998
              
              
              100,497Cash
                  and cash equivalents at end of period
              
              $
              63,998
              
              $
              110,658
 
 *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
        September 30, 2006 and the Company’s results of operations and cash flows for
        the three and nine months ended September 30, 2006 and 2005. The condensed
        consolidated 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 nine months ended September 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 disclosures 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, which are based
        on
        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'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. However, the Company
        occasionally requests that its contract manufacturer ship finished goods
        directly 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 it reaches destination.
 
 ***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
        September 2006, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 157, *Fair
        Value Measurements* (“SFAS
        157”), which provides guidance for using fair value to measure assets and
        liabilities. SFAS 157 clarifies that for items that are not actively traded,
        such as certain kinds of derivatives, fair value should reflect the price
        in a
        transaction with a market participant, including an adjustment for risk,
        not
        just the company’s mark-to-model value. SFAS 157 also requires expanded
        disclosure of the effect on earnings for items measured using unobservable
        data
        and applies whenever other standards require (or permit) assets or liabilities
        to be measured at fair value but does not expand the use of fair value in
        any
        new circumstances. SFAS 157 will be effective for the Company beginning January
        1, 2008. The Company is in the process of determining the effect, if any,
        this
        statement will have on its financial statements.
 
 In
        September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
        Accounting Bulletin No. 108, *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements* (“SAB
        108”), which provides guidance for quantifying financial statement
        misstatements. SAB 108 is effective for the Company beginning in 2006. The
        Company is in the process of determining the effect, if any, this statement
        will
        have on its financial statements.
 
 In
        July 2006, the 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.
 
 ***Reclassifications***
 
 Interest
        expense and interest income have been shown net for the three and nine months
        ended September 30, 2005 to conform to the three and nine months ended September
        30, 2006 presentation on the Condensed Consolidated Statements of Operations.
        Provision for doubtful accounts, proceeds from the sale of short-term
        investments and purchase of short-term investments have been shown separately
        for the nine months ended September 30, 2005 to conform to the nine months
        ended
        September 30, 2006 presentation on the Condensed Consolidated Statements
        of Cash
        Flows.
 
 **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.
 
 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 are 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
        of the
        Company’s common stock on 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 various
        information, assumptions and factors. As of September 30, 2006, there were
        18.3
        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)**Outstanding
                    at December 31, 2005
                
                
                27,626
                
                $
                0.38Granted
                
                
                220
                
                $
                0.45Exercised
                
                
                (621
                )
                $
                0.38Canceled
                
                
                (3,172
                )
                $
                0.38Outstanding
                    at September 30, 2006
                
                
                24,053
                
                $
                0.38
                
                
                5.53Exercisable
                    at September 30, 2006
                
                
                20,287
                
                $
                0.38
                
                
                4.97
 The
        total
        intrinsic value of options exercised during the three and nine months ended
        September 30, 2006 was $32,000 and $43,000. Total cash received from the
        exercise of employee stock options was $175,000 and $236,000 for the three
        and
        nine months ended September 30, 2006.
 
 The
        following table summarizes information for options outstanding as of September
        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
              
              
              23,346
              
              
              5.42
              
              $
              0.38
              
              
              20,264$0.45
              
              
              707
              
              
              9.21
              
              $
              0.45
              
              
              23
  ***Valuation
        and Expense Recognition of Stock-Based Awards under SFAS
        123(R)***
 
 For
        the
        three and nine months ended September 30, 2006, stock-based compensation
        expense
        for employee stock options recognized was $50,000 and $161,000, respectively.
        No
        income tax benefit related to stock-based compensation expense was recognized
        for the three and nine months ended September 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 nine months ended September 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.
  The
        risk-free interest rate assumption is based on observed interest rates for
        the
        expected option life 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 SEC
        Staff Accounting Bulletin No. 107, *Share-Based
        Payment* .
  8
 *Table
            of Contents*
  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 nine months ended September
        30,
        2006.
 
 As
        of
        September 30, 2006, the remaining amount of unrecognized compensation cost
        related to employee stock options was $168,000, which is expected to be
        recognized over a weighted average period of 2.6 years.
 
 ***Accounting
        for Stock Options 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 nine months ended September
        30, 2005 was $94,000 and $366,000, 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. Impairment on investments totaled
        $0.5
        million and $1.5 million for the three and nine months ended September 30,
        2006,
        respectively. During the three and nine months ended September 30, 2006,
        the
        Company reduced its positions in certain long-term investments and recognized
        realized losses of $0.1 million and $0.4 million, 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**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Net
                  income (loss)
              
              $
              10,597
              
              $
              1,901
              
              $
              14,698
              
              $
              (14,197
              )Foreign
                  currency translation
              
              
              (119
              )
              
              (254
              )
              
              82
              
              
              (104
              )Unrealized
                  holding (losses) gains on marketable securities, less realized
                  gains
              
              
              247
              
              
              (634
              )
              
              675
              
              
              150Net
                  change in other comprehensive (loss) income
              
              
              128
              
              
              (888
              )
              
              757
              
              
              46Total
                  comprehensive income (loss)
              
              $
              10,725
              
              $
              1,013
              
              $
              15,455
              
              $
              (14,151
              )
 
 **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 of 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. 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 alleged, among other things, that Mr. Chu breached
        various fiduciary duties by personally investing in certain of the Company’s
        suppliers, thereafter directing the Company’s contracts to these suppliers
        and failing to disclose such actions. Plaintiffs sought 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. On
        October 11, 2006, plaintiffs voluntarily dismissed the complaint without
        prejudice.
  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.* (“CPT”) *,
        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 and/or exemplary damages as well as injunctive relief which may require
        the
        Company to, among other things, change its sourcing of certain LCD displays
        or
        key components. The Court has not entered judgment in the case. Instead,
        the
        Court has entered a briefing schedule for defendants’ motions challenging
        various aspects of the jury’s verdict. While the outcome of these post-trial
        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.
 
 ***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 No. 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 its segments, including CRT displays, LCD
        displays, projectors, HDTV technology and the latest in mobile products
        including wireless products. 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
        nine
        months ended September 30, 2006 and 2005 (in thousands):
 
 **Three Months Ended**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****Net
                  Sales:**Americas
              
              $
              192,638
              
              $
              138,769
              
              $
              533,023
              
              $
              393,784Europe
              
              
              97,241
              
              
              77,418
              
              
              240,920
              
              
              209,051Asia
                  Pacific
              
              
              136,566
              
              
              100,491
              
              
              358,564
              
              
              272,373**Total**
              
              $
              426,445
              
              $
              316,678
              
              $
              1,132,507
              
              $
              875,208**Income
                  (loss) from operations:**Americas
              
              $
              5,468
              
              $
              254
              
              $
              14,069
              
              $
              (8,376
              )Europe
              
              
              3,390
              
              
              1,218
              
              
              (3,877
              )
              
              4,377Asia
                  Pacific
              
              
              3,616
              
              
              1,570
              
              
              5,772
              
              
              7,102**Total**
              
              $
              12,474
              
              $
              3,042
              
              $
              15,964
              
              $
              3,103
  **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 used in estimating the warranty accrual 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
        nine months ended September 30, 2006 and 2005 (in thousands):
 
 **Nine
                  Months Ended September 30,**
              
              **Beginning
                  Accrued Warranty Liability**
              
              **Additions
                  Charged to Expenses**
              
              **Payments
                  for Units Returned**
              
              **Adjustments****(1)**
              
              **Ending
                  Accrued Warranty Liability****2006**
              
              $
              21,350
              
              $
              15,585
              
              $
              (9,765
              )
              $
              (2,293
              )
              $
              24,877**2005**
              
              $
              17,365
              
              $
              12,246
              
              $
              (8,833
              )
              $
              595
              
              $
              21,373
 
 
 (1)
              For
                  the nine months ended September 30, 2006, the adjustment is primarily
                  due
                  to lower defect rates, partially offset by higher cost of
                  repair.
 
 **Note
        9 - Earnings Per Share**
 
 The
        Company presents both basic and diluted earnings (loss) per common 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 common share computations (in thousands,
        except per share data):
  11
 *Table
            of Contents*
 **Three Months Ended**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Basic
                  EPS:Numerator:Income
                  (loss) from continuing operations (1)
              
              $
              10,507
              
              $
              1,627
              
              $
              14,608
              
              $
              (15,920
              )Income
                  (loss) from discontinued operations
              
              $
              —
              
              $
              (115
              )
              $
              —
              
              $
              599Denominator
                  - Weighted-average shares outstanding
              
              
              354,326
              
              
              353,970
              
              
              354,173
              
              
              353,967Basic
                  EPS:Continuing
                  operations
              
              $
              0.03
              
              $
              0.00
              
              $
              0.04
              
              $
              (0.04
              )Discontinued
                  operations
              
              $
              —
              
              $
              0.00
              
              $
              —
              
              $
              0.00Total
                  Basic EPS
              
              $
              0.03
              
              $
              0.00
              
              $
              0.04
              
              $
              (0.04
              )Diluted
                  EPS:Numerator:Income
                  (loss) from continuing operations (1)
              
              $
              10,507
              
              $
              1,627
              
              $
              14,608
              
              $
              (15,920
              )Income
                  (loss) from discontinued operations
              
              $
              —
              
              $
              (115
              )
              $
              —
              
              $
              599Denominator:Weighted-average
                  shares outstanding
              
              
              354,326
              
              
              353,970
              
              
              354,173
              
              
              353,967Stock
                  options(2)
              
              
              3,278
              
              
              —
              
              
              3,382
              
              
              —Interest
                  warrants(3)
              
              
              —
              
              
              3,213
              
              
              2,151
              
              
              —Total
                  shares
              
              
              357,604
              
              
              357,183
              
              
              359,706
              
              
              353,967Diluted
                  EPS:Continuing
                  operations
              
              $
              0.03
              
              $
              0.00
              
              $
              0.04
              
              $
              (0.04
              )Discontinued
                  operations
              
              $
              —
              
              $
              0.00
              
              $
              —
              
              $
              0.00Total
                  Diluted EPS
              
              $
              0.03
              
              $
              0.00
              
              $
              0.04
              
              $
              (0.04
              )
  (1)
              In
                  accordance with EITF 03-06, income (loss) from continuing operations
                  includes the accretion for the mandatorily redeemable preferred
                  stock.
                  Income from continuing operations of $90,000 and $42,000 was allocated
                  to
                  preferred stock for the three and nine months ended September 30,
                  2006,
                  respectively, and is excluded in the computation above. The EPS
                  calculation reflects the allocation of income from continuing operations
                  between common stock and preferred
                  stock.
 
 (2)
              For
                  the three and nine months ended September 30, 2006, 0.7 million
                  shares and
                  0.6 million shares, respectively, were excluded from the diluted
                  earnings
                  per common share calculation because they were anti-dilutive. For
                  the
                  three and nine months ended September 30, 2005, all stock options
                  were
                  excluded from the diluted earnings per common share calculation
                  because
                  they were anti-dilutive.
 
 (3)
              For
                  the three and nine months ended September 30, 2006, common stock
                  issuable
                  upon the exercise of outstanding warrants of 0.8 million and 5.2
                  million,
                  respectively, were excluded from the diluted earnings per share
                  calculation because they were anti-dilutive. For the three and
                  nine months
                  ended September 30, 2005, common stock issuable upon the exercise
                  of
                  outstanding warrants of 7.5 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
        Convertible 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 7.5 million shares
        of
        Series B mandatorily redeemable convertible preferred stock, par value of
        $.001 per share (the "Series B Stock") to Intel. 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 Intel 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 3.3 million were exercised on July
        7,
        2006. The Valuation Warrants were immediately vested, have an exercise price
        of
        $2.00 per share and 7.5 million 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 September
        30, 2006, a total of 18.0 million shares of Series C Preferred Stock were
        authorized and 3.3 million shares were outstanding.
 
 The
        Series C Preferred Stock is convertible into the Company’s common stock at any
        time on a one-to-one ratio based upon a conversion price initially set at
        $2.00
        per share. The conversion ratio may be adjusted upon the issuance of additional
        shares of common stock at an issue price that is less than the initial $2.00
        conversion price of the Series C Preferred Stock, subject to certain exceptions.
        The Series C Preferred Stock shall automatically convert into the Company’s
        common stock upon the occurrence of certain events including an initial public
        offering under certain restrictions, or a majority vote by the holders of
        Series
        C Preferred Stock. Each holder of the Series C Preferred Stock is entitled
        to
        voting rights under applicable law. In addition, our certificates of
        incorporation possess certain protective provisions which require the consent
        of
        the holders of Series C Preferred Stock. The holders of Series C Preferred
        Stock
        are entitled to receive dividends, when and if declared by the Board of
        Directors. Such dividends will be non-cumulative. No dividends will be payable
        on the Company’s common stock unless equal or greater dividends have been
        declared and paid to the holders of the Series C Preferred Stock. The Series
        C
        Preferred Stock has a liquidation preference of $2.60 per share, plus any
        declared and unpaid dividends. Upon a liquidation, dissolution or winding
        up of
        the Company, the holders of the Company’s common stock and C Preferred Stock
        shall participate in the remaining assets of the Company on a pro rata
        basis.
 
 12
 *Table
            of Contents*
  **ITEM2.**
              **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 third quarter of 2006, the display industry continued to experience
        competitive pressures in terms of declining average selling prices (“ASPs”) and
        margin compression. However, unlike the first half of 2006, we began to
        experience spot shortages of display panels for some LCD sizes. This was
        primarily due to an increase in demand in excess of LCD panel production
        capacities. The 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
        continued to positively impact our margins. While product costs began to
        increase during the third quarter of 2006, we benefited from lower cost
        inventories that were purchased during the second quarter of 2006. Our
        initiative to source LCD panels directly from manufacturers also continued
        to
        benefit us resulting in higher margins and profitability. 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. We believe that spot shortages for
        some
        LCD sizes will continue through the fourth quarter of 2006.
 
 We
        sold
        2.2 million display products in the third quarter of 2006 compared to 1.5
        million display products in the third 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 83% and 93%, respectively, in the third quarter of 2006
        compared to the third quarter of 2005, while sales of CRT monitors declined
        35%
        to 0.2 million units in the third quarter of 2006 from 0.4 million units
        in the
        third quarter of 2005.
 
 Our
        net
        sales increased $109.8 million, or 34.7%, to $426.4 million in the third
        quarter
        of 2006 from $316.7 million in the third quarter of 2005 despite a 3% decline
        in
        average selling prices. Income from operations increased $9.4 million to
        $12.5
        million in the third quarter of 2006 from $3.0 million in the third quarter
        of
        2005. The increase was primarily the result of higher gross margin of 1.1
        percentage points and increased leverage in our selling, general and
        administrative expenses which were 7.1% of net sales in the third quarter
        of
        2006 compared to 7.9% of net sales in the third quarter of 2005.
 
 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**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of sales
              
              
              90.0
              
              
              91.1
              
              
              90.9
              
              
              90.5Gross
                  profit
              
              
              10.0
              
              
              8.9
              
              
              9.1
              
              
              9.5Selling,
                  general and administrative expenses
              
              
              7.1
              
              
              7.9
              
              
              7.7
              
              
              9.2Income
                  (loss) from operations
              
              
              2.9
              
              
              1.0
              
              
              1.4
              
              
              0.3Other
                  income (expense):Interest
                  income (expense), net
              
              
              (0.1
              )
              
              (0.2
              )
              
              —
              
              
              (0.2
              )Other
                  income (expense) net
              
              
              (0.1
              )
              
              0.2
              
              
              0.1
              
              
              (0.2
              )Total
                  other income (expense), net
              
              
              (0.2
              )
              
              —
              
              
              0.1
              
              
              (0.4
              )Income
                  (loss) from continuing operations before income taxes
              
              
              2.7
              
              
              1.0
              
              
              1.5
              
              
              (0.1
              )Provision
                  for income taxes
              
              
              0.2
              
              
              0.3
              
              
              0.2
              
              
              1.6Income
                  (loss) from continuing operations
              
              
              2.5
              
              
              0.7
              
              
              1.3
              
              
              (1.7
              )Net
                  gain on disposal of discontinued operations, net of tax
              
              
              —
              
              
              —
              
              
              —
              
              
              0.1Net
                  income (loss)
              
              
              2.5
              
              
              0.7
              
              
              1.3
              
              
              (1.6
              )Preferred
                  stock accretion
              
              
              —
              
              
              (0.1
              )
              
              —
              
              
              (0.1
              )Net
                  income (loss) available to common stockholders
              
              
              2.5
              %
              
              0.6
              %
              
              1.3
              %
              
              (1.7
              )%
  The
        following table compares net sales and income (loss) from operations by segment
        for the periods indicated (in thousands):
 
 **Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****Increase/(Decrease)**
              
              
              
              **Increase/(Decrease)****2006**
              
              **2005**
              
              $
              
              %
              
              **2006**
              
              **2005**
              
              $
              
              %**Net
                  sales:**Americas
              
              $
              192,638
              
              $
              138,769
              
              $
              53,869
              
              
              38.8
              %
              $
              533,023
              
              $
              393,784
              
              $
              139,239
              
              
              35.4
              %Europe
              
              
              97,241
              
              
              77,418
              
              
              19,823
              
              
              25.6
              %
              
              240,920
              
              
              209,051
              
              
              31,869
              
              
              15.2
              %Asia
                  Pacific
              
              
              136,566
              
              
              100,491
              
              
              36,075
              
              
              35.9
              %
              
              358,564
              
              
              272,373
              
              
              86,191
              
              
              31.6
              %**Total**
              
              $
              426,445
              
              $
              316,678
              
              $
              109,767
              
              
              34.7
              %
              $
              1,132,507
              
              $
              875,208
              
              $
              257,299
              
              
              29.4
              %**Income
                  (loss) from operations:**Americas
              
              $
              5,468
              
              $
              254
              
              $
              5,214
              
              
              2052.8
              %
              $
              14,069
              
              $
              (8,376
              )
              $
              22,445
              
              
              268.0
              %Europe
              
              
              3,390
              
              
              1,218
              
              
              2,172
              
              
              178.3
              %
              
              (3,877
              )
              
              4,377
              
              
              (8,254
              )
              
              (188.6
              %)Asia
                  Pacific
              
              
              3,616
              
              
              1,570
              
              
              2,046
              
              
              130.3
              %
              
              5,772
              
              
              7,102
              
              
              (1,330
              )
              
              (18.7
              %)**Total**
              
              $
              12,474
              
              $
              3,042
              
              $
              9,432
              
              
              310.1
              %
              $
              15,964
              
              $
              3,103
              
              $
              12,861
              
              
              414.5
              %
  ***Net
        Sales***
 
 Our
        consolidated net sales increased $109.8 million, or 34.7%, to $426.4 million
        for
        the third quarter of 2006 from $316.7 million for the third quarter of
        2005. Net sales increased $257.3 million, or 29.4%, to $1,132.5 million for
        first nine months of 2006 from $875.2 million for the first nine months of
        2005. The increase was primarily due to increased LCD and LCD TV unit sales
        of
        83.0% and 93.2%, respectively, for the third quarter of 2006 compared to
        the
        third quarter of 2005, and 81.1% and 95.1%, respectively, for the first nine
        months of 2006 compared to the first nine months of 2005. In addition, sales
        of
        our LCD TVs experienced relatively higher ASPs during the first nine months
        of
        2006 compared to the first nine months of 2005 due to a shift in mix to larger
        LCD TV sizes. These increases were partially offset by lower CRT unit sales
        of
        35.4% and 35.6% for the third quarter of 2006 compared to the third quarter
        of
        2005 and for the first nine months of 2006 compared to the first nine months
        of
        2005, respectively. In addition, we continued to experience declines in ASPs
        within the LCD and CRT product categories for the third quarter and first
        nine
        months of 2006 compared to the third quarter and first nine months of 2005.
        The
        decline in the ASPs reflects the effects of competition **** and
        reduced costs associated with advances in visual display technology.
 
 We
        sold
        2.2 million visual display products in the third quarter of 2006 compared
        to 1.5 million visual display products in the third quarter of 2005 and
        5.7 million visual display products in the first nine months of 2006
        compared to 4.3 million visual display products in the first nine months of
        2005. The increase in units sold was primarily 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 third quarter of 2006, LCDs accounted for 80.9%, CRTs accounted
        for
        10.7% and other products accounted for 8.4% as compared to 60.7%, 23.2%,
        and
        16.1%, respectively, in the third quarter of 2005. Of the visual display
        product
        units sold in the first nine months of 2006, LCDs accounted for 75.8%, CRTs
        accounted for 13.8% and other products accounted for 10.4% as compared to
        55.0%,
        28.4%, and 16.6%, respectively, in the first nine months of
        2005.
  14
 *Table
            of Contents*
  ***Americas*** - In our
        Americas region, net sales increased $53.9 million, or 38.8%, to $192.6 million
        for the third quarter of 2006 from $138.8 million for the third quarter of
        2005. Net sales increased $139.2 million, or 35.4%, to $533.0 million for
        the
        first nine months of 2006 from $393.8 million for the first nine months of
        2005. The increase was primarily due to growth in LCD unit sales of 78.4%
        and
        99.1% in the third quarter and first nine months of 2006 compared to the
        third
        quarter and first nine months of 2005, respectively, and an increase in LCD
        TV
        and projector unit sales in the third quarter and first nine months of 2006
        compared to the third quarter and first nine 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 $19.8 million, or 25.6%, to $97.2 million
        for
        the third quarter of 2006 from $77.4 million for the third quarter of 2005.
        Net sales increased $31.9 million or 15.2% to $240.9 million for the first
        nine
        months of 2006 from $209.1 million for the first nine months of 2005. The
        increase was primarily due to growth in our LCD unit sales and LCD TV unit
        sales, 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 third quarter of 2006 compared to the third quarter of 2005.
        Foreign currency translation also had a positive impact on our net sales
        due to
        the 7.4% stronger Euro exchange rate relative to the U.S. dollar during the
        first nine months of 2006.
 
 ***Asia
        Pacific*** *-* In our
        Asia Pacific region, net sales increased $36.1 million, or 35.9%, to $136.6
        million for the third quarter of 2006 from $100.5 million for the third
        quarter of 2005. Net sales increased $86.2 million or 31.6% to $358.6 million
        for the first nine months of 2006 from $272.4 million for the first nine
        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 $95.5 million, or 33.1%, to $384.0 million for the third
        quarter
        of 2006 from $288.5 million for the third quarter of 2005. As a percentage
        of
        net sales, cost of sales decreased to 90.0% for the third quarter of 2006
        from
        91.1% for the third quarter of 2005. For the first nine months of 2006, cost
        of
        sales increased $237.8 million, or 30.0%, to $1,029.6 million from $791.8
        million for the first nine months of 2005. Cost of sales as a percentage
        of net
        sales increased to 90.9% for the first nine months of 2006 from 90.5% for
        the
        first nine months of 2005. The decrease in cost of sales as a percentage
        of net
        sales for the third quarter of 2006 compared to the third quarter of 2005
        was
        primarily due to the ASP of our products declining at a slower rate than
        our
        cost of sales. The increase in cost of sales as a percentage of net sales
        during
        the first nine months of 2006 compared to the first nine months of 2005 was
        primarily due to the ASP of our products declining at a faster rate than
        our
        cost of sales. The first nine months of 2006 experienced lower margins primarily
        in our European region due to oversupply in the Russian market resulting
        in
        inventory write-downs of $4.2 million for the first nine months of 2006 compared
        to $1.5 million for the first nine months of 2005. As a percentage of net
        sales,
        product costs decreased to 86.7% for the third quarter of 2006 from 87.2%
        for
        the third quarter of 2005. For the first nine months of 2006, product costs
        as a
        percentage of net sales increased to 87.1% from 85.9% for the first nine
        months
        of 2005. Gross margin improved to 10.0% for the third quarter of 2006 from
        8.9%
        for the third quarter of 2005. For the first nine months of 2006, gross margin
        declined to 9.1% from 9.5% for the first nine months of 2005. The gross margin
        increase in the third quarter of 2006 was primarily due to the increase in
        selling prices as a result of spot shortages experienced for some LCD sizes
        and
        the continued benefit from our sourcing of LCD components directly from
        manufacturers resulting in better pricing, partially offset by higher
        promotional allowances offered to our customers. The gross margin decrease
        in
        the first nine months of 2006 was primarily due to increased product costs
        as a
        percentage of net sales, partially offset by better pricing due to our sourcing
        of LCD components directly from manufacturers and promotional incentives
        received from our vendors 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 $4.8 million, or 19.2%, to
        $30.0 million for the third quarter of 2006 from $25.2 million for the
        third quarter of 2005. Selling, general and administrative expenses as a
        percentage of net sales for the third quarter of 2006 decreased to 7.1% compared
        to 7.9% for the third quarter of 2005. For the first nine months of 2006,
        selling, general and administrative expenses increased $6.6 million, or 8.3%,
        to
        $86.9 million from $80.3 million for the first nine months of 2005. Selling,
        general and administrative expenses as a percentage of net sales for the
        first
        nine months of 2006 decreased to 7.7% compared to 9.2% for the first nine
        months
        of 2005. The increase in expenses for the third quarter of 2006 was primarily
        due to an increase in account development funds expense of $2.0 million,
        higher
        personnel-related costs of $1.2 million due to higher headcount, an increase
        in
        advertising and marketing expenses of $0.6 million and other costs of $1.0
        million. For the first nine months of 2006, the increase in expenses was
        primarily due to an increase in account development funds expense of $4.8
        million, higher incentive compensation of $3.4 million as a result of the
        increase in sales and profits, an increase in advertising and marketing expenses
        of $0.9 million and other costs of $0.4 million, partially offset by lower
        legal
        fees of $1.8 million related to patent infringement lawsuits and a decrease
        in
        stock-based compensation of $1.3 million. 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.
 
 15
 *Table
            of Contents*
  ***Income
        from Operations***
 
 Income
        from operations increased $9.4 million, or 310.1%, to $12.5 million for the
        third quarter of 2006 from $3.0 million for the third quarter of 2005. For
        the first nine months of 2006, income from operations increased $12.9 million
        to
        $16.0 million from $3.1 million for the first nine months of 2005.
 
 ***Americas*** - In our
        Americas region, income from operations increased $5.2 million to
        $5.5 million for the third quarter of 2006 from $0.3 million for the
        third quarter of 2005. For the first nine months of 2006, income from operations
        increased $22.4 million to $14.1 million from a loss of $8.4 million for
        the
        first nine months of 2005. The increase was primarily due to a 38.8% and
        35.4%
        increase in net sales for the third quarter and first nine months of 2006,
        respectively, sourcing of LCD panels from manufacturers which resulted in
        additional benefits and increased leverage in selling, general and
        administrative expenses. The majority of the benefits related to the sourcing
        of
        the LCD panels from manufacturers remained in the Americas during the first
        nine
        months of 2006. We do not expect these panel sourcing benefits to remain
        in the
        Americas in the fourth quarter of 2006 as the sourcing of LCD panels will
        move
        to China during the fourth quarter of 2006.
 
 ***Europe*** - In our
        Europe region, income from operations increased $2.2 million to $3.4
        million for the third quarter of 2006 from $1.2 million for the third
        quarter of 2005. For the first nine months of 2006, income from operations
        decreased $8.3 million to a $3.9 million loss from $4.4 million of income
        for
        the first nine months of 2005. The increase in the third quarter of 2006
        was
        primarily due to a 25.6% increase in net sales, lower product cost as a
        percentage of net sales and a decrease in warranty costs. The decrease for
        the
        first nine months of 2006 was primarily due to a decline in gross profit
        margins
        as a result of higher product costs and higher inventory write-down expense
        resulting from an oversupply of LCD monitors in Russia during the first quarter
        of 2006, partially offset by lower warranty costs due to lower defect rates.
        Selling, general and administrative expenses increased slightly as a percentage
        of net sales in the third quarter and first nine months of 2006 compared
        to the
        third quarter and first nine months of 2005 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, income from operations increased $2.0 million to
        $3.6 million for the third quarter of 2006 from $1.6 million for the
        third quarter of 2005. For the first nine months of 2006, income from operations
        decreased $1.3 million to $5.8 million from $7.1 million for the first nine
        months of 2005. The increase in the third quarter of 2006 was primarily due
        to a
        35.9% increase in net sales and lower product costs as a percentage of net
        sales. The decrease in the first nine months of 2006 was primarily the result
        of
        aggressive pricing strategies to promote LCD monitors which resulted in lower
        gross margins on products sold despite an 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 for the third quarter and first nine months of 2006 compared to the
        third
        quarter and first nine months of 2005 due to higher headcount as we continue
        to
        build our infrastructure to support our growing sales in the Asia
        markets.
 
 ***Other
        Income (Expense) - Net***
 
 Other
        income (expense), net decreased to $1.0 million in expense for the third
        quarter
        of 2006 from $5,000 in expense for the third quarter of 2005. For the first
        nine
        months of 2006, other income (expense), net increased to $0.9 million of
        other
        income from $3.7 million in expense for the first nine months of 2005. The
        decrease for the third quarter of 2006 compared to 2005 was primarily due
        to
        $0.6 million of impairment write-downs of investments, $0.2 million of
        unfavorable foreign currency translation and $0.2 million in higher interest
        expense. The increase in the first nine months of 2006 compared to 2005 was
        primarily due to $6.1 million of favorable foreign currency translation and
        $0.4
        million of other income, partially offset by $1.9 million of realized losses
        on
        the sale of certain investments and impairment write-downs of
        investments.
 
 ***Provision
        for Income Taxes***
 
 The
        provision for income taxes decreased $0.2 million in the third quarter of
        2006
        compared to the third quarter of 2005. For the first nine months of 2006,
        the
        provision for income taxes decreased $12.0 million compared to the first
        nine
        months of 2005. The effective tax rate on pre-tax income (i.e., provision)
        decreased to 7.5% for the third quarter of 2006 from an effective tax rate
        of
        33.6% for the third quarter of 2005. For the first nine months of 2006, the
        effective tax rate on net income decreased to 12.9% from an effective tax
        rate
        of 2455% on losses from continuing operations for the first nine months of
        2005.
        The decrease in the third quarter of 2006 compared to 2005 was primarily
        due to
        the fact that no U.S. income taxes were provided for our Americas region
        due to
        the utilization of deferred tax assets which were previously subject to a
        full
        valuation allowance. The decrease in the first nine months of 2006 compared
        to
        2005 was primarily due to, (1) 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, and (2) for the first nine months
        of
        2006, we did not provide for U.S. income taxes on pre-tax income of $14.6
        million for our Americas region due to the utilization of deferred tax assets
        which were previously subject to a full valuation allowance. This benefit
        was
        partially offset by our European region, where we did not provide tax benefits
        on operating losses of $2.9 million for the first nine months of 2006 due
        to the
        full valuation allowance in Europe.
  16
 *Table
            of Contents*
  **LIQUIDITY
        AND CAPITAL RESOURCES**
  **Nine
                  Months Ended September 30,****2006**
              
              **2005****(in
                  thousands)**Net
                  cash (used in) provided by operating activities
              
              $
              (10,688
              )
              $
              13,101Net
                  cash provided by investing activities
              
              
              306
              
              
              2,073Net
                  cash used in financing activities
              
              
              (19,651
              )
              
              (3,497
              )Net
                  cash used in discontinued operations
              
              
              —
              
              
              (1,116
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              33
              
              
              (400
              )Net
                  (decrease) increase in cash and cash equivalents
              
              $
              (30,000
              )
              $
              10,161
 
 As
        of
        September 30, 2006, we had cash and cash equivalents of $64.0 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 $10.7 million during the first nine months
        of
        2006 compared to cash flow provided by operating activities of $13.1 million
        during the first nine months of 2005. The use of cash during the first nine
        months of 2006 was primarily due to cash used for working capital requirements
        related to timing of payments for our strategic purchases of inventory with
        favorable pricing terms. This increased cash outlay was partially offset
        by
        income from continuing operations and less cash outlay for warranty and accrued
        promotional and other expenses.
  Trade
        receivables increased $95.6 million during the first nine months of 2006
        compared to a decrease of $9.1 million during the first nine months of 2005.
        The
        increase during the first nine months of 2006 was primarily due to increased
        sales and shift in customer mix. Day sales outstanding slightly increased
        from
        45 days at December 31, 2005 to 46 days at September 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.
 
 Inventories
        decreased $1.7 million during the first nine months of 2006 compared to a
        decrease of $20.4 million during the first nine months of 2005. The decrease
        during first nine months of 2006 was primarily due to the selling of our
        European inventories, which were overstocked due to oversupply in Russia,
        offset
        by increased purchases of inventory with favorable pricing terms as a result
        of
        the oversupply of display panels in the industry during the first half of
        2006.
        Our inventory turns have remained relatively stable at four turns during
        the
        first nine months of 2006 and 2005.
 
 Accounts
        payable increased $52.9 million during the first nine months of 2006 compared
        to
        a decrease of $14.8 million during the first nine months of 2005. The increase
        during the first nine months of 2006 was primarily due to increased purchases
        of
        inventory and timing of payments to our suppliers. The decrease during the
        first
        nine months of 2005 was primarily due to the reduction in our inventory balances
        and timing of product payments.
 
 ***Investing
        Activities***
 
 Cash
        provided by investing activities was $0.3 million during the first nine months
        of 2006 compared to $2.1 million during the first nine months of 2005. The
        increase during the first nine months of 2006 was primarily the result of
        cash
        proceeds from the sale of long-term investments. The increase during the
        first
        nine months of 2005 was primarily the result of cash proceeds from the sale
        of
        short-term investments.
 17
 *Table
              of Contents*
  ***Financing
        Activities***
 
 Cash
        used
        in financing activities was $19.7 million during the first nine months of
        2006
        and $3.5 million during the first nine months of 2005. During the first nine
        months of 2006, we redeemed all outstanding shares of series B convertible
        mandatorily redeemable preferred stock for $15.0 million and had net payments
        on
        borrowings of $4.9 million. During the first nine months of 2005, we repaid
        bank
        loans of $3.5 million.
 
 On
        July
        7, 2006, we issued an aggregate of 3.3 million shares of our Series C Preferred
        Stock to Intel Capital Corporation pursuant to the exercise of an outstanding
        warrant, dated January 10, 2002. The warrant had an exercise price of $0.01
        per
        share and Intel paid an aggregate of $33,000 for the shares of Series C
        Preferred Stock.
 
 ***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 September 30,
        2006) with interest payable monthly. As of September 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%. There were no outstanding borrowings against this facility as of
        September 30, 2006, and December 31, 2005.
 
 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 September 30, 2006 and December 31, 2005, there were
        outstanding cash advances of $0 and $4.9 million, respectively. As of
        September 30, 2006, the aggregate borrowing limit was $23.4
        million.
 
 ***Off-Balance
        Sheet Arrangements***
 
 As
        of
        September 30, 2006 and December 31, 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”).
 
 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 third quarter and first nine months of 2006 applies
        to
        unvested stock options granted prior to January 1, 2006 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 third
        quarter and first nine 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 third quarter and first
        nine months of 2006, stock-based compensation expense was $50,000 and $161,000,
        respectively. As of September 30, 2006, unrecognized compensation cost related
        to employee stock options was $168,000, 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
        nine
        months of 2006, the Euro-to-U.S. Dollar foreign currency exchange rate
        strengthened against the U.S. Dollar increasing 7.4% compared to the year-end
        rate of 2005. During the first nine months of 2005, the Euro-to-U.S. Dollar
        decreased by 13.0% as compared to the 2004 year-end rate. For the third quarter
        of 2006, the strengthening of the Euro positively impacted our net sales
        and
        income from operations by $3.0 million and $1.9 million, respectively, compared
        to the third quarter of 2005 assuming all other factors remained constant.
        For
        the first nine months of 2006, the strengthening of the Euro increased our
        net
        sales and income from operations by $5.4 million and $3.6 million, respectively,
        compared to the first nine 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.
 
 **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 September 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 September 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 alleged, among other things, that Mr. Chu 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 sought 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. On October 11, 2006, plaintiffs voluntarily
        dismissed the complaint without prejudice.
 
 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.* (“CPT”) *,
        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 and/or
        exemplary damages as well as injunctive relief which may require us to, among
        other things, change our sourcing of certain LCD displays or key components.
        The
        Court has not entered judgment in the case. Instead, the Court has entered
        a
        briefing schedule for defendants’ motions challenging various aspects of the
        jury’s verdict. While the outcome of these post-trial proceedings cannot be
        predicted with certainty, we do 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, we do not believe that the outcome of
        any
        pending legal matters will have a material adverse effect on our condensed
        consolidated financial statements.
 
 **ITEM1A.**
              **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.*
 
 *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;
  20
 *Table
            of Contents*
  ·
                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.
 
 *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.
  21
 *Table
            of Contents*
  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.
 
 *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.
 
 *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.
 
 *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
        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.
  22
 *Table
            of Contents*
  *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.*
 
 As
        a
        percentage of net sales, selling, general and administrative expenses represent
        7.1% and 7.9% for the three months ended September 30, 2006 and 2005,
        respectively, and 7.7% and 9.2% for the nine months ended September 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
        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 nine 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.
  *Intellectual
        property litigation and infringement claims could cause us to incur significant
        expenses or prevent us from selling our products.*
  23
 *Table
            of Contents*
  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.
 
 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.
 
 *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
 *Table
            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
      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:


·
              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, were named as defendants
      in
      a purported derivative action brought by certain of our stockholders. The
      complaint alleged, among other things, that Mr. Chu had 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
      October 2006, the plaintiffs voluntarily dismissed the complaint without
      prejudice. If the plaintiffs refile the complaint or otherwise make proper
      demand upon our Board of Directors in accordance with Delaware law, in
      connection with investigating and/or litigating this action, we may incur
      substantial costs.





25
 *Table
            of Contents*





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





James
      Chu, our Chairman of the Board and Chief Executive Officer and majority
      stockholder, along with other senior officers of the Company, possess
      specialized knowledge with respect to our business and our operations.
      Consequently, 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.





*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.
  *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.





26
 *Table
            of Contents*





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**




On
      July
      7, 2006, ViewSonic issued an aggregate of 3,300,000 shares of our Series C
      Preferred Stock to Intel Capital Corporation, a Cayman Islands company, pursuant
      to the exercise of an outstanding warrant, dated January 10, 2002. The warrant
      had an exercise price of $0.01 per share and Intel paid an aggregate of $33,000
      for the shares of Series C Preferred Stock. We relied upon Section 4(2) of
      the
      Securities Act of 1933, as amended, and Regulation D promulgated thereunder,
      for
      the issuance of the Series C Preferred Stock to Intel.





**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**





Not
      applicable





27
 *Table
          of Contents*





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





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





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.




*
            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 November 13, 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**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.




*
            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