**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 March 31, 2005**
 
 **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 an accelerated filer (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  353,968,596 shares
and the number of shares of Series B preferred stock outstanding was 7,500,000
shares, each as of
April 30, 2005.
  
 
  **VIEWSONIC CORPORATION**
 **FORM
10-Q**
 **TABLE
OF CONTENTS**
    **PART
I: FINANCIAL INFORMATION**
  **Page**Item
      1.
    Consolidated Condensed Financial Statements
      (unaudited)
    3Consolidated Condensed Balance Sheets as of March 31,
      2005 and December 31, 2004
    3Consolidated Condensed Statements of Operations for the
      three-months ended March 31, 2005 and 2004
    4Consolidated Condensed Statements of Cash Flows for the
      three-months ended March 31, 2005 and 2004
    5Notes to Consolidated Condensed Financial
      Statements
    6Item
      2.
    Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
    12Item
      3.
    Quantitative and Qualitative Disclosures About Market
      Risk
    20Item
      4.
    Controls and Procedures
    29**PART
      II: OTHER INFORMATION**Item
      1.
    Legal Proceedings
    30Item
      2.
    Unregistered Sales of Equity Securities and Use of
      Proceeds
    30Item
      3.
    Defaults Upon Senior Securities
    30Item
      4.
    Submission of Matters to a Vote of Securities
      Holders
    30Item
      5.
    Other Information
    31Item
      6.
    Exhibits
    31Signatures
    32
  2
 *Table of Contents*
  **PART
I. FINANCIAL INFORMATION**
 
 **ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**
 
 **VIEWSONIC CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
CONDENSED BALANCE SHEETS**
 **MARCH
31, 2005 AND DECEMBER 31, 2004**
 **(In
thousands, except for share data and par value)**
 **(Unaudited)**
 
 **March
      31,**
      **2005**
    
    **December
      31,**
      **2004****ASSETS**CURRENT
      ASSETS:Cash
      and cash equivalents
    
    $
    73,680
    
    $
    100,497Short-term
      investments
    
    
    —
    
    
    2,268Trade
      receivables—net
    
    
    128,472
    
    
    153,159Other
      receivables
    
    
    6,329
    
    
    7,296Inventories
    
    
    114,665
    
    
    148,224Deferred
      income taxes
    
    
    9,422
    
    
    9,665Prepaids
      and other current assets
    
    
    3,018
    
    
    3,095Income
      taxes receivable
    
    
    561
    
    
    559Current
      assets of discontinued operations (Note 9)
    
    
    927
    
    
    1,769Total
      current assets
    
    
    337,074
    
    
    426,532PROPERTY,
      PLANT AND EQUIPMENT—Net
    
    
    14,612
    
    
    15,163LONG-TERM
      INVESTMENTS
    
    
    8,029
    
    
    7,072GOODWILL
    
    
    1,347
    
    
    1,347OTHER
      ASSETS—Net
    
    
    8,235
    
    
    8,369NON-CURRENT
      ASSETS OF DISCONTINUED OPERATIONS (Note 9)
    
    
    —
    
    
    40TOTAL
    
    $
    369,297
    
    $
    458,523**LIABILITIES
      AND STOCKHOLDERS' EQUITY**CURRENT
      LIABILITIES:Bank
      borrowings
    
    $
    —
    
    $
    3,529Accounts
      payable
    
    
    196,452
    
    
    281,609Accrued
      promotional expenses
    
    
    28,071
    
    
    30,267Accrued
      warranty expense
    
    
    18,762
    
    
    17,365Other
      accrued expenses
    
    
    20,352
    
    
    18,702Current
      liabilities of discontinued operations (Note 9)
    
    
    1,827
    
    
    3,656Total
      current liabilities
    
    
    265,464
    
    
    355,128SUBORDINATED
      NOTES PAYABLE—Related
      party
    
    
    43,000
    
    
    43,000DEFERRED
      INCOME TAXES
    
    
    349
    
    
    —CONVERTIBLE
      MANDATORILY REDEEMABLE PREFERRED STOCK
    
    
    13,789
    
    
    13,428STOCKHOLDERS'
      EQUITY:Common
      stock, $.01 par value:Authorized—600,000,000
      shares at March 31, 2005 and December 31, 2004Outstanding—353,968,596
      and 353,959,176 shares at March 31, 2005 and December 31, 2004,
      respectively
    
    
    3,540
    
    
    3,540Additional
      paid-in capital
    
    
    92,158
    
    
    92,149Accumulated
      deficit
    
    
    (46,699
    )
    
    (45,754
    )Accumulated
      other comprehensive loss
    
    
    (2,304
    )
    
    (2,968
    )Total
      stockholders' equity
    
    
    46,695
    
    
    46,967TOTAL
    
    $
    369,297
    
    $
    458,523
 
 The
accompanying notes are an integral part of these consolidated condensed
financial statements.
  3
 *Table of Contents*
  **VIEWSONIC CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS**
 **MARCH
31, 2005 AND 2004**
 **(In
thousands, except per share data)**
 **(Unaudited)**
 
 
 **Three
      Months Ended March 31,****2005**
    
    **2004**Net
      sales
    
    $
    273,912
    
    $
    292,605Cost
      of sales
    
    
    245,843
    
    
    250,096Gross
      profit
    
    
    28,069
    
    
    42,509Selling,
      general and administrative expenses
    
    
    27,312
    
    
    29,120Income
      from operations
    
    
    757
    
    
    13,389Other
      income (expense) - net:Interest
      expense
    
    
    (524
    )
    
    (607
    )Other
      (expense) income-net
    
    
    (947
    )
    
    1,263Other
      (expense) income-net
    
    
    (1,471
    )
    
    656(Loss)
      income from continuing operations before income taxes
    
    
    (714
    )
    
    14,045(Benefit)
      provision for income taxes
    
    
    (200
    )
    
    3,369(Loss)
      income from continuing operations
    
    
    (514
    )
    
    10,676Loss
      from discontinued operations (Note 9)
    
    
    (70
    )
    
    (1,031
    )Net
      (loss) income
    
    
    (584
    )
    
    9,645Preferred
      stock accretion
    
    
    (361
    )
    
    (327
    )Net
      (loss) income available to common stockholders
    
    $
    (945
    )
    $
    9,318Basic
      (loss) earnings per shareContinuing
      operations
    
    $
    0.00
    
    $
    0.03Discontinued
      operations (Note 9)
    
    $
    0.00
    
    $
    0.00Total
      basic (loss) earnings per share
    
    $
    0.00
    
    $
    0.03Diluted
      (loss) earnings per shareContinuing
      operations
    
    $
    0.00
    
    $
    0.03Discontinued
      operations
    
    $
    0.00
    
    $
    0.00Total
      diluted (loss) earnings per share
    
    $
    0.00
    
    $
    0.03Basic
      weighted average shares outstanding
    
    
    353,962
    
    
    353,903Diluted
      weighted average shares outstanding
    
    
    353,962
    
    
    358,547
 
 The
accompanying notes are an integral part of these consolidated condensed
financial statements.
  4
 *Table of Contents*
  **VIEWSONIC CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS**
 **MARCH
31, 2005 AND 2004**
 **(In
thousands)**
 **(Unaudited)**
 
 **Three
      Months Ended****March
      31,****2005**
    
    **2004**CASH
      FLOWS FROM OPERATING ACTIVITIES:(Loss)
      income from continuing operations
    
    $
    (514
    )
    $
    10,676Adjustments
      to reconcile net (loss) income from continuing operations to net cash
      (used in) provided by operating activities:Depreciation
      and amortization
    
    
    765
    
    
    953(Gain)
      loss on disposal of property, plant and equipment
    
    
    (3
    )
    
    52Net
      (gain) loss on sale and impairment of long-term
investments
    
    
    (46
    )
    
    (308
    )Deferred
      income taxes
    
    
    244
    
    
    (962
    )Changes
      in operating assets and liabilities:Trade
      receivables—net
    
    
    24,688
    
    
    (23
    )Other
      receivables
    
    
    966
    
    
    1,444Inventories
    
    
    33,560
    
    
    16,157Prepaids
      and other current assets
    
    
    178
    
    
    1,265Accounts
      payable
    
    
    (85,158
    )
    
    (14,585
    )Accrued
      promotional and other expenses
    
    
    (1,050
    )
    
    (860
    )Accrued
      warranty expense
    
    
    1,396
    
    
    269Income
      taxes payable/receivable
    
    
    446
    
    
    2,573Net
      cash (used in) provided by operating activities
    
    
    (24,528
    )
    
    16,651CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      purchase of property, plant and equipment
    
    
    (141
    )
    
    (1,389
    )Proceeds
      on sale of long-term investments
    
    
    90
    
    
    507Sales
      of short-term investments
    
    
    2,268
    
    
    2,471Net
      cash provided by investing activities
    
    
    2,217
    
    
    1,589CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from bank borrowings
    
    
    483
    
    
    2,577Payments
      on bank borrowings
    
    
    (4,012
    )
    
    (2,229
    )Proceeds
      from issuance of common stock
    
    
    9
    
    
    15Net
      cash (used in) provided by financing activities
    
    
    (3,520
    )
    
    363Net
      cash (used in) operating activities of discontinued
    operations
    
    
    (1,012
    )
    
    (3,718
    )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (26,843
    )
    
    14,885CASH
      AND CASH EQUIVALENTS—Beginning
      of year
    
    
    100,497
    
    
    86,828EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    
    
    26
    
    
    254CASH
      AND CASH EQUIVALENTS—End
      of period
    
    $
    73,680
    
    $
    101,967
 
 The
accompanying notes are an integral part of these consolidated condensed
financial statements.
  5
 *Table of Contents*
  **VIEWSONIC CORPORATION AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **Note
1 - Summary of Significant Accounting Policies**
 
 *Basis
of Presentation*
 
  The
accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States for interim consolidated condensed 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 consolidated condensed
financial statements for ViewSonic Corporation and the Company’s consolidated
subsidiaries contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the Company’s financial position as of
March 31, 2005, and the Company’s results of operations and cash flows for
the three months ended March 31, 2005 and 2004. The consolidated condensed
balance sheet as of December 31, 2004 is derived from the December 31,
2004 audited financial statements.
 
 The
results of operations for the three months ended March 31, 2005 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, 2004 and notes thereto included in the Company’s
Form 10-K filed with the Securities and Exchange Commission, or SEC, on
March 29, 2005.
 
 The
accompanying unaudited consolidated condensed 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, revenue and expenses, and related disclosure of contingent assets
and liabilities. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of 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 and Promotional Expense*
 
 Revenues
are recognized when products are shipped and risk of loss is transferred,
evidence of an arrangement exists, the price is fixed or readily determinable,
and collectability is probable. 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 records estimated reductions to revenue for customer and distributor
programs and incentive offerings, including price protection, rebates,
promotions, other volume-based incentives and expected returns. Future market
conditions and product transitions may require the Company to take actions to
increase customer incentive offerings, possibly resulting in an incremental
reduction of revenue at the time the incentive is offered. Additionally, certain
incentive programs require the Company to estimate, based on historical
experience, the number of customers who will actually redeem the incentive.
 
 *Promotional
Pricing Incentives from Vendors*
 
 The
Company receives promotional pricing incentives from several product vendors.
The amount of the pricing incentives is based on the volatility of the price on
the Company’s key product components and the quantity of historical purchases of
these components from such vendors. The pricing incentives have no impact on
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. Promotional pricing incentives from the Company’s
vendors totaled $5.4 million and $0 in the first quarter of 2005 and 2004,
respectively.
  6
 *Table of Contents*
  *Expense
Classifications*
 
 In the
first quarter of 2005, warehouse and storage related expenses have been
reclassified from selling, general and administrative expenses to cost of sales.
Classification of these expenses as a component of cost of sales is a practice
that is consistent with others within the Company’s industry. The reclassified
warehouse and storage related expenses were $2.5 million and $2.2 million for
the three months ended March 31, 2005 and 2004, respectively.
 
 
 **Note
2** **-**  **Stock-Based
Compensation**
 
 The
Company accounts for employee stock options in accordance with Accounting
Principles Board, or APB, Opinion No. 25, *Accounting
for Stock Issued to Employees* .
 
 In
December 2004, the FASB issued SFAS 123(R), *Share-Based
Payment* , which
revises SFAS 123, *Accounting
for Stock-Based Compensation* , and
supersedes APB Opinion No. 25, *Accounting
for Stock Issued to Employees.* SFAS 123(R) requires fair value recognition of stock option grants in the income
statement as an expense and is effective for the first interim and annual
reporting period that begins after January 1, 2006.  This pronouncement
will become effective for the Company as of the first quarter of 2006 and may
have a material impact on the Company operating results.  The Company is in
the process of evaluating the impact of this pronouncement on the financial
statements and how it may change the way the Company provides incentive
compensation to its employees in the future.
 
 If
compensation expense for the Company's stock options had been recognized based
on the fair value on the grant date under the methodology prescribed by SFAS
No. 123, the Company's net income (loss) would have been impacted as shown
in the following table for the periods indicated (in thousands):
 
 **Three
      Months Ended March 31,****2005**
    
    **2004**Net
      (loss) incomeAs
      reported
    
    $
    (584
    )
    $
    9,645Pro
      forma
    
    $
    (603
    )
    $
    9,579Basic
      earnings per share:As
      reported
    
    $
    0.00
    
    $
    0.03Pro
      forma
    
    $
    0.00
    
    $
    0.03Diluted
      earnings per share:As
      reported
    
    $
    0.00
    
    $
    0.03Pro
      forma
    
    $
    0.00
    
    $
    0.03
 
 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:
 
 **Three
      Months Ended March 31,****2005**
    
    **2004**Dividend
      yield
    
    
    0
    %
    
    0
    %Expected
      volatility
    
    
    0
    %
    
    0
    %Risk-free
      interest rates
    
    
    3.90
    %
    
    4.01
    %Expected
      lives
    
    
    4
      years
    
    
    4
      years
  7
 *Table of Contents*
  **Note
3** **- Comprehensive Income**
 
 Comprehensive
income includes foreign currency translation gains and losses and unrealized
gains and losses on marketable securities available for sale that are reflected
in stockholders’ equity instead of net income/(loss).  The following table
sets forth the calculation of comprehensive income for the periods indicated (in
thousands):
 
 **Three
      Months Ended March 31,****2005**
    
    **2004**Net
      (loss) income
    
    $
    (584
    )
    $
    9,645Foreign
      currency translation
    
    
    88
    
    
    582Unrealized
      holding gains on marketable securities-less realized gains
    
    
    576
    
    
    733Net
      change in other comprehensive income
    
    
    664
    
    
    1,315Total
      comprehensive income
    
    $
    80
    
    $
    10,960
 
 
 **Note
4 - Income Taxes**
 
 The
provision for income taxes has been recorded based upon the current estimate of
the Company’s annual effective tax rate. This rate differs from the federal
statutory rate primarily due to the provision for state income taxes and the
effects of the Company’s foreign operations. The Company’s effective tax rate on
income/(loss) from continuing operations was approximately (28.0)% and 24.0% for
the three months ended March 31, 2005 and 2004, respectively.
 
 On
October 22, 2004, the President of the United States signed the American Jobs
Creation Act of 2004 (the "Act").  The Act creates a temporary incentive
for U.S. corporations to repatriate accumulated income earned abroad by
providing an 85 percent dividends received deduction for certain dividends from
controlled foreign corporations.  The deduction is subject to a number of
limitations and, as of today, uncertainty remains as to how to interpret
numerous provisions of the Act.  As such, the Company is not in a position
to decide whether, and to what extent, it might repatriate foreign earnings that
have not yet been remitted to the United States.  The Company is currently
conducting an evaluation of the effects of the repatriation provisions of the
Act and will complete this evaluation by December 31, 2005. The Company does not
expect the Act to have a material impact on the Company’s financial position or
results of operations.
 
 
 **Note
5 - Commitments and Contingencies**
 
 ***Litigation*** —The
Company is involved in various legal matters in the normal course of its
business. Management believes that the ultimate outcome of such matters will not
have a material adverse effect on the accompanying consolidated condensed
financial statements.
 
 ***Imposition
of Additional Duties and Taxes*** — ****** The
European Union countries have issued notices stating that effective October 1,
2004, LCD monitors with DVI connectors will incur a 14% import duty
tax. Thus far, this change in classification has been applied
prospectively. However, the Company believes it is probable that the tariff
could be applied retroactively.  The Company will continue to monitor this
situation and will work to change its business processes to minimize the
negative impacts of this new tariff. As of March 31, 2005, the Company has
accrued $3.4 million of expense related to this potential liability. There have
been no new developments that the Company is aware of regarding this tariff
since the Company filed its annual report on Form 10-K on March 29,
2005.
 
 ***Services
Agreements*** — The
Company entered into services agreements with logistics suppliers in the United
States and Europe in 1999 and 2002, respectively. These agreements provide for
warehousing, shipping and freight services. The amount to be paid is based on
the level of services provided as defined in the agreements. For the
three months ended March 31, 2005 and 2004, the expense was $2.2 million and
$2.0 million, respectively.
  8
 *Table of Contents*
  **Note
6 - 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 believes these segments do not meet the economically similar criteria
requirements of SFAS No. 131, and, therefore, are separate reportable
segments. The Company sells similar products in the local markets, including CRT
displays, LCD displays, projectors, plasma displays, HDTV technology and the
latest in mobile products including wireless monitors. The types and class of
customers, primarily distributors and retailers, are also similar across the
product lines. The Company has two core products—visual displays (CRT and LCD
computer monitors) and other products. Both products are sold in all of its
markets. The
following segment financial information is for the periods indicated (in
thousands):
 
 
 **Three
      Months Ended****March
      31,****2005**
    
    **2004****Net
      sales:**Americas
    
    $
    120,639
    
    $
    159,670Europe
    
    
    76,221
    
    
    66,774Asia
      Pacific
    
    
    77,052
    
    
    66,161$
    273,912
    
    $
    292,605**Income
      from operations:**Americas
    
    $
    (6,670
    )
    $
    5,943Europe
    
    
    4,417
    
    
    5,770Asia
      Pacific
    
    
    3,010
    
    
    1,676$
    757
    
    $
    13,389
 
 
 **Note
7 - Warranty**
 
 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, and such amounts
are based upon historical experience. The historical data that determines the
warranty accrual and the overall estimate of the warranty reserve includes the
following key factors: net cost of repair (repair costs less reimbursements from
suppliers), defect rates and total number of products under warranty. The
following table summarizes the Company’s activity in the warranty liability for
the periods indicated (in thousands):
 
 **Three
      Months Ended March 31,**
    
    **Beginning**
      **Accrued**
      **Warranty**
      **Liability**
    
    **Payments**
      **for
      Units**
      **Returned**
    
    **Additional**
      **Warranty**
      **Expense**
      **for
      Units**
      **Sold**
    
    **Ending**
      **Accrued**
      **Warranty**
      **Liability**2004
    
    $
    14,567
    
    $
    (2,744
    )
    $
    3,013
    
    $
    14,8362005
    
    $
    17,365
    
    $
    (3,110
    )
    $
    4,507
    
    $
    18,762
  9
 *Table of Contents*
  **Note
8 - Earnings Per Share**
 
 The
Company presents both basic and diluted earnings (loss) per share ("EPS")
amounts. Basic EPS
is calculated by dividing net income (loss) by the weighted-average number of
common shares outstanding during the period. Diluted EPS amounts are based upon
the weighted-average number of common and potential common shares, including
warrants outstanding during the period.
 
 Potential
common shares are excluded from the computation in periods in which they have an
anti-dilutive effect. The Company uses the treasury stock method to calculate
the impact of outstanding stock options. Stock options for which the exercise
price exceeds the average market price over the period have an anti-dilutive
effect on EPS and, accordingly, are excluded from the calculation. For March
31, 2005 and 2004, options for
29,379,365 and 4,719,489 shares, respectively, were excluded from the diluted earnings per
common share calculation because they were anti-dilutive.
 
 The basic
and diluted EPS was calculated using the EITF 03-06 *Participating
Securities and the Two Class Method under SFAS No. 128.* The
following is a reconciliation of the numerators and denominators of the basic
and diluted net income (loss) per share computations. Amounts
are for the periods indicated (amounts in thousands, except per share
information).
 
 **Three
      Months Ended****March
      31,****2005**
    
    **2004**Basic
      EPS:Numerator:(Loss)
      income from continuing operations (1)
    
    $
    (875
    )
    $
    10,356Loss
      from discontinued operations
    
    $
    (70
    )
    $
    (1,031
    )Denominator—weighted-average
      shares outstanding
    
    
    353,962
    
    
    353,903Basic
      EPS:Continuing
      operations
    
    $
    0.00
    
    $
    0.03Discontinued
      operations
    
    $
    0.00
    
    $
    0.00Total
      Basic EPS
    
    $
    0.00
    
    $
    0.03Diluted
      EPS:Numerator:(Loss)
      income from continuing operations (1)
    
    $
    (875
    )
    $
    10,356Loss
      from discontinued operations
    
    $
    (70
    )
    $
    (1,031
    )Denominator—weighted-average
      shares outstanding
    
    
    353,962
    
    
    353,903Stock
      options(2)
    
    
    —
    
    
    1,369Interest
      warrants(3)
    
    
    —
    
    
    3,275Total
      shares
    
    
    353,962
    
    
    358,547Diluted
      EPS:Continuing
      operations
    
    $
    0.00
    
    $
    0.03Discontinued
      operations
    
    $
    0.00
    
    $
    0.00Total
      Diluted EPS
    
    $
    0.00
    
    $
    0.03
 
 (1)
    Prepared
      in accordance to EITF 03-06*Participating
      Securities and the Two Class Method under SFAS No. 128.*The EPS calculation allocated (loss) income from continuing operations
      between common stock and the convertible mandatorily redeemable preferred
      stock.
 
 (2)
    For
      the three months ended March 31, 2005 and 2004, options for 29,379,365 and
      4,719,489 shares, respectively, were excluded from the diluted earnings
      per common share calculation because they were anti-dilutive.
 
 (3)
    For
      the three months ended March 31, 2005, common stock issuable upon the
      exercise of outstanding warrants of 3,275,000 shares were excluded from
      the diluted earnings per share calculation because they were
      anti-dilutive.
  10
 *Table of Contents*
  **Note
9 -** **Discontinued
Operations**
 
 On July
30, 2004, the Company completed the sale of Advance Digital Optics, Inc.,
(“ADO”), a majority-owned subsidiary and recorded a $3.3 million gain, net
of tax expense of $1.1 million. The cost basis of its investment in ADO was
$4.1 million. The Company also incurred $0.3 million of expenses
associated with the sale. Ten percent of the gross proceeds payable to the
Company, as well as ten percent payable to certain other principal shareholders
of ADO, will remain in escrow through July 30, 2005 to afford the buyer recourse
in the event of a breach of representations and warranties under the merger
agreement.
 
 During
the fourth quarter of 2004, the Company made the decision to dispose of
VisionBank, one of its majority-owned subsidiaries. As of March 31, 2005, the
net liabilities of VisionBank were $0.9 million. The loss recorded from
discontinued operations was $70,000 during the quarter ended March 31,
2005.
 
 In
accordance with SFAS No. 144, *Accounting
for the Impairment or Disposal of Long-Lived Assets* , the
results of operations of these businesses are reported as discontinued
operations for the periods indicated (in thousands):
 
 **Three
      Months Ended March 31,****Discontinued
      Operations**
    
    **2005**
    
    **2004**Net
      Sales
    
    $
    40
    
    $
    1,630Loss
      from discontinued operations (no tax benefit)
    
    $
    (70
    )
    $
    (1,031
    )
 
 **March
      31, 2005**
    
    **December
      31, 2004**Current
      assets
    
    $
    927
    
    $
    1,769Other
      assets
    
    
    —
    
    
    40Total
      assets
    
    
    927
    
    
    1,809Accounts
      payable and accrued expenses
    
    
    1,827
    
    
    3,656Net
      (liabilities)/assets of discontinued operations
    
    $
    (900
    )
    $
    (1,847
    )
 
 
 **Note
10 -** **Subsequent
Events**
 
 On May 9,
2005, the Company repriced all outstanding stock options held by the Company’s
employees, executive officers and members of the Board of Directors of record on
March 2, 2005. As a result, the exercise price of all the Company’s outstanding
stock options subject to the re-pricing was lowered to $0.38 per share. 
There was no change in the number of shares subject to each re-priced stock
option, vesting or other terms.   The re-pricing has resulted in a
modification of the Company’s agreements with the holders of stock options
subject to the re-pricing, and a compensation expense in the range of $1.25
million to $1.75 million will be recorded beginning in the second quarter of
2005, assuming adoption of SFAS 123, *Accounting
for Stock-Based Compensation* *,* effective in the second quarter of 2005.
  11
 *Table of Contents*
  **ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS**
 
 *The
following discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which are subject to the "safe harbor" created by those
sections. These forward-looking statements include but are not limited to:
statements related to industry trends and future growth in the markets for
visual display technology products; our product development efforts; the timing
of our introduction of new products; industry and consumer acceptance of our
products; and future profitability. These forward-looking statements involve
risks and uncertainties that could cause our actual results to differ materially
from those in the forward-looking statements. We undertake no obligation to
publicly release any revisions to the forward-looking statements or reflect
events or circumstances after the date of this document. The "Business Risks"
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 displays, or LCD, monitors, cathode ray tube, or CRT,
monitors, projectors, LCD TVs, plasma displays 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***
 
 In the
first quarter of 2005, we saw continuation of the trends observed in the second
half of 2004, where the display industry experienced oversupply from increased
LCD panel production capacities and slower than expected demand increases,
particularly for LCD TVs. The pricing and margin pressures intensified in the
first quarter of 2005. We sold approximately 1.3 million display products in the
first quarter of 2005 compared to approximately 1.1 million display products in
the first quarter of 2004. However, average selling prices continued to decline
in the first quarter of 2005 and, as a result, our net sales decreased to
$273.9 million in the first quarter of 2005 from $292.6 million the first
quarter of 2004. According to a March 2005 iSuppli report, larger size LCD panel
prices are expected to stabilize while the LCD TV panel prices will continue to
decline due to competition from plasma and microdisplay-based rear-projection
products. Overall, we expect the excess capacity situation and price declines to
continue in the short term until anticipated market demand growth is realized
and consumes the increased supply.
 
 Our
industry experiences volatile market conditions. We could face an oversupply of
products due to additional production capacities and technological advances or a
shortage of products due to a surge in demand that exceeds production
capacities. Other challenges include our ability to increase the demand for our
products in order to maintain and grow our market share, anticipate changing
customer demands, manage relationships with our suppliers and reduce our
operating expenses to successfully compete in this competitive environment. In
order to respond and address these challenges, we have begun to implement
strategic initiatives designed to focus our resources on our core products,
improve supply chain and logistics efficiency, simplify our business processes
to maximize operating efficiencies in all aspects of our business, grow sales in
regional markets and expand core product offerings, among others. We believe
that the successful implementation of these initiatives will position us to
compete favorably.
  12
 *Table of Contents*
  The
European Union countries have issued notices stating that effective October 1,
2004, LCD monitors with DVI connectors would incur a 14% import duty
tax. Thus far, this change in classification has been applied
prospectively. However, we believe it is possible that the tariff could be
applied retroactively.  We will continue to monitor this situation
and will work to change our business processes to minimize the
negative impacts of this new tariff. There have been no new developments that we
are aware of regarding this tariff since we filed our annual report on Form 10-K
on March 29, 2005.
 
  We are
subject to local laws and regulations in various regions in which we operate,
including the European Union, or EU.  There are two particular EU
directives that may have a material impact on our business.  The first is
the Restriction of Certain Hazardous Substances Directive, or RoHS, which
restricts the distribution of certain substances, including lead, within the EU
and is effective July 1, 2006.  In addition to eliminating and/or reducing
the level of specified hazardous materials from our products, we will also be
required to maintain and publish  a detailed list of all chemical
substances in our products.  We are starting to receive requests from our
customers, including some of our major customers, for RoHS compliant
products.  We are in the process of compiling RoHS compliant information on
our products as well as procuring RoHS compliant material and information from
our suppliers. The second directive is the Waste Electrical and Electronic
Equipment Directive, or WEEE, which is effective January 2006, and requires
manufacturers or importers to take back and recycle all products it manufactures
or imports into the EU at its own expense. We are currently unable to
assess the impact of these directives on our operations until more information
becomes available.
 
 
 **Results
of Operations**
 
 The
following table sets forth, for the periods indicated, our consolidated
condensed statements of operations expressed as a percentage of net sales.
 
 **Three
      Months Ended March 31,****2005**
    
    **2004**Net
      sales
    
    
    100.0
    %
    
    100.0
    %Cost
      of sales
    
    
    89.8
    
    
    85.5Gross
      profit
    
    
    10.2
    
    
    14.5Selling,
      general and administrative expenses
    
    
    10.0
    
    
    10.0Income
      from operations
    
    
    0.2
    
    
    4.5Other
      income (expense) - net:Interest
      expense
    
    
    (0.2
    )
    
    (0.2
    )Other
      (expense) income
    
    
    (0.3
    )
    
    0.4Other
      (expense) income - net
    
    
    (0.5
    )
    
    0.2(Loss)
      income from continuing operations before income taxes
    
    
    (0.3
    )
    
    4.7(Benefit)
      provision for income taxes
    
    
    (0.1
    )
    
    1.2(Loss)
      income from continuing operations
    
    
    (0.2
    )
    
    3.5(Loss)
      from discontinued operations
    
    
    (0.0
    )
    
    (0.4
    )Net
      (loss) income
    
    
    (0.2
    )
    
    3.1Preferred
      stock accretion
    
    
    (0.1
    )
    
    (0.1
    )Net
      (loss) income available to common stockholders
    
    
    (0.3
    )%
    
    3.0
    %
  13
 *Table of Contents*
  **Dollar**
    
    **Percentage****Three
      Months Ended March 31,**
    
    **Increase/**
    
    **Increase/****2005**
    
    **2004**
    
    **(Decrease)**
    
    **(Decrease)****(in
      thousands)****Net
      Sales**Americas
    
    $
    120,639
    
    $
    159,670
    
    $
    (39,031
    )
    
    (24.4
    )%Europe
    
    
    76,221
    
    
    66,774
    
    
    9,447
    
    
    14.1Asia
      Pacific
    
    
    77,052
    
    
    66,161
    
    
    10,891
    
    
    16.5**Total**
    
    $
    273,912
    
    $
    292,605
    
    $
    (18,693
    )
    
    (6.4
    )%**Income
      from operations**Americas
    
    $
    (6,670
    )
    $
    5,943
    
    $
    (12,613
    )
    
    (212.2
    )%Europe
    
    
    4,417
    
    
    5,770
    
    
    (1,353
    )
    
    (23.4
    )Asia
      Pacific
    
    
    3,010
    
    
    1,676
    
    
    1,334
    
    
    79.6**Total**
    
    $
    757
    
    $
    13,389
    
    $
    (12,632
    )
    
    (94.3
    )%
 **Consolidated
Results of Operations** **—** **March 31,
2005 Compared to March 31, 2004**
 
 ***Net
Sales***
 
 Our
consolidated net sales decreased $18.7 million, or 6.4%, to
$273.9 million in the first quarter of 2005 from $292.6 million in the
first quarter of 2004. Net sales outside of the Americas region accounted for
56.0% and 45.4% of net sales in the first quarter of 2005 and 2004,
respectively. The growth in net sales outside of the Americas was predominantly
driven by higher net sales in China, Russia, Germany, France, Finland and the
United Kingdom. The decrease in consolidated net sales was primarily due to the
decline in the average selling price, or ASP, per unit of 17.1% partially offset
by increase in unit volume from CRT displays to LCD displays as well as a mix
shift in the LCD and CRT displays to larger screen sizes. The decrease in net
sales was also due to the increase
in sales allowances offered worldwide in the first quarter of 2005 compared to
the first quarter of 2004 when the industry was experiencing an LCD panel
shortage. Returns and sales allowances charged against gross sales were $34.3
million and $21.1 million in the first quarter of 2005 and 2004,
respectively.
 
 We sold
approximately 1.3 million display products during the first quarter of 2005
compared to approximately 1.1 million display products in the first quarter
2004. Of the display product units sold in the first quarter of 2005, CRT
accounted for 30.6%, LCD accounted for 53.0% and other products accounted for
16.4% as compared to 51.1%, 37.4%, and 11.5%, respectively, in the first quarter
2004. The increase in units sold was primarily due to continued expansion in
China as well stronger unit sales in Europe.
 
 *Americas* - In our
Americas region, net sales decreased $39.0 million, or 24.4%, to
$120.6 million in the first quarter of 2005 from $159.7 million in the
first quarter of 2004. The decrease in net sales was primarily due to lower unit
shipments of our CRT displays, which were not offset by increased unit shipments
of our LCD displays. The decrease in net sales was also due to lower average
selling prices in the first quarter of 2005 as compared to the first quarter of
2004. The decrease in net sales was partially offset by an increase in LCD unit
shipments as well as a shift to larger screen sizes.
 
 *Europe
-* In our
Europe region, net sales increased $9.4 million, or 14.1%, to
$76.2 million in the first quarter of 2005 from $66.8 million in the
first quarter of 2004. The increase in net sales was primarily due to the
region's continued expansion in Russia, Germany, France, Finland and the United
Kingdom. The stronger Euro exchange rate relative to the U.S. dollar also had a
positive impact on our net sales. Net sales also increased due to the shift in
the ratio of sales from CRT to LCD products as well as a shift to larger screen
sizes partially offset by lower average selling prices in the first quarter of
2005 as compared to the first quarter of 2004.
  14
 *Table of Contents*
  *Asia
Pacific -* In our
Asia Pacific region, net sales increased $10.9 million, or 16.5%, to
$77.1 million in the first quarter of 2005 from $66.2 million in the
first quarter of 2004. The primary reason for the increase in net sales was due
to our continued growth in the China market. Similar to our other segments, net
sales benefited due to a shift in the product mix from CRT to LCD displays as
well as a shift to larger screen sizes. In addition, net sales increased due to
higher unit sales in existing markets such as Australia, New Zealand and
Southeast Asia as a result of expanding our customer base.
 
 
 ***Cost
of Sales***
 
 C ost of
sales decreased $4.3 million, or 1.7%, to $245.8 million in the first quarter of
2005 from $250.1 million in the first quarter of 2004.  As a
percentage of net sales, cost of sales increased to 89.8% in the first quarter
of 2005 from 85.5% in the first quarter of 2004. The increase in cost of sales
as a percentage of our net sales is primarily due to the ASP per unit declining
at a faster rate than our cost of sales declined. As a percentage of net sales,
product costs increased to 84.0% in the first quarter of 2005 from 81.0% in the
first quarter of 2004. The lower gross margin was also due to higher inventory
write downs of $1.9 million in the first quarter 2005 compared to an adjustment
of $42,000 in the first quarter 2004 as well as higher warranty related expenses
of $1.5 million in the first quarter of 2005 compared to the first quarter of
2004 because of higher unit sales and increased repair costs. In addition, gross
margin was lower because of an
additional duty accrual of $0.4 million in the first quarter of 2005 on 20” and
larger LCD displays with DVI connectors in the Europe region. The decrease in
gross margin was partially offset by $5.4 million of promotional pricing
incentives received from our vendors during the first quarter of 2005. Overall,
gross margin declined to 10.2% in the first quarter of 2005 from 14.5% in the
first quarter of 2004.
 
 
 ***Selling,
General, and Administrative***
 
 Selling,
general and administrative expenses decreased $1.8 million, or 6.2%, to
$27.3 million in the first quarter of 2005 from $29.1 million in the
first quarter of 2004. The decrease was mainly attributed to lower advertising
and marketing expenses of $1.9 million and lower bad debt expense of $280,000.
The decrease was partially offset by higher patent related legal settlement
expenses of $621,000. In addition to a decrease in the selling, general and
administrative expenses, we also had lower net sales. As a result, selling,
general and administrative expenses as a percentage of net sales remained flat
at 10.0% in the first quarter of 2005 compared to the first quarter of
2004.
 
 
 ***Income
from Operations***
 
 Income
from operations decreased $12.6 million, or 94.3%, to $757,000 in the first
quarter of 2005 from $13.4 million in the first quarter of 2004. As a
percentage of net sales, income from operations decreased to 0.2% in the first
quarter of 2005 from 4.5% in the first quarter of 2004.
 
 *Americas* - In our
Americas region, income from operations decreased $12.6 million, or 212.2%,
to a loss of $6.7 million in the first quarter of 2005 from income of
$5.9 million in the first quarter of 2004. The decrease was mainly due to
lower unit sales combined with the decline in the ASP per unit as a result of
intense competition and relative oversupply of LCD panels as compared to the
relative shortage of LCD panels experienced in the first quarter of 2004. The
decrease was partially offset by lower advertising expenses as a result of our
continuous focus on driving business efficiency.
  15
 *Table of Contents*
  *Europe* - In our
Europe region, income from operations decreased $1.4 million, or 23.5%, to
$4.4 million in the first quarter of 2005 from $5.8 million in the first
quarter of 2004. Despite solid growth in the region’s net sales in the first
quarter of 2005 compared to the first quarter of 2004, the decrease in income
from operations was primarily due to aggressive pricing resulting from intense
competition and a relative oversupply of LCD panels as compared to a relative
shortage of LCD panels experienced in the first quarter of 2004. In addition,
income from operations was also negatively impacted by higher warranty related
costs due to higher unit sales and increased repair costs. The amount of
selling, general and administrative expenses in the first quarter of 2005
remained consistent with the first quarter of 2004.
 
 *Asia
Pacific* - In our
Asia Pacific region, income from operations increased $1.3 million, or
79.6%, to $3.0 million in the first quarter of 2005 from $1.7 million
in the first quarter of 2004. The increase was mainly due to the increase in net
sales in the China market combined with stable gross margins and flat selling,
general and administrative expenses in our China operations.
 
 
 *Other
(Expense) Income -Net*
 
 Net other
(expense) income decreased $2.1 million to a loss of $1.5 million in the first
quarter 2005 compared to income of $656,000 in the first quarter 2004. The
decrease was mainly due to higher foreign transaction losses and lower
investment gains, which were $1.5 million and $45,000 in the first quarter of
2005, respectively, as compared to a $829,000 foreign transaction gain and a
$308,000 investment gain in the first quarter of 2004. The decrease was
partially offset by an increase in interest income and other gains.
 
 
 *Provision
for Income Taxes*
 
 The
(benefit)/provision for income taxes was $(200,000), or (28.0)% on loss from
continuing operations for the three months ended March 31, 2005 as compared to
$3.4 million, or 24.0% on income from continuing operations for the three months
ended March 31, 2004. The effective tax rate on net income (i.e., provision)
increased from 24.0% for the three months ended March 31, 2004 to an effective
tax rate on net losses (i.e., benefit) of ( 28.0)%
for the three months ended March 31, 2005. This increase resulted primarily from
the utilization of larger loss carryforwards during the three months ended March
31, 2004 from non-U.S. jurisdictions where no tax benefit had previously been
provided compared to the three months ended March 31, 2005.
 
 
 **Liquidity
and Capital Resources**
 
 **Three
      Months Ended March 31,******
      **2005**
    
    ****
      **2004****(in
      thousands)**Net
      cash (used in) provided by operating activities
    
    $
    (24,528
    )
    $
    16,651Net
      cash provided by investing activities
    
    
    2,217
    
    
    1,589Net
      cash (used in) provided by financing activities
    
    
    (3,520
    )
    
    363Net
      cash (used in) operating activities of discontinued
    operations
    
    
    (1,012
    )
    
    (3,718
    )Net
      (decrease) increase in cash and cash equivalents
    
    $
    (26,843
    )
    $
    14,885
  16
 *Table of Contents*
  As of
March 31, 2005, we had cash, cash equivalents and short-term investments of
$73.7 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 United States
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 a variety of 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 expect to meet expected and unexpected cash flow needs by
accessing our credit lines in the Americas, Europe and Asia
Pacific.
 
 In
October 2004, the “American Jobs Creation Act of 2004” was passed.  We are
currently assessing the impact of this law on our operations and expect this
assessment to be completed by December 31, 2005, particularly relative to
provisions on repatriation of foreign earnings.  We do not expect this act
to have a material impact on our financial position or results of
operations.
 
 *Operating
Activities*
 
 Cash flow
used in operating activities was $24.5 million during the first quarter of
2005 compared to cash flow provided by operating activities of $16.7 million
during the first quarter of 2004. The decrease in the first quarter of 2005 from
the first quarter of 2004 was primarily due to losses from continuing operations
incurred in the first quarter 2005 compared with income from continuing
operations in the first quarter 2004. The decrease was also due to the decline
in accounts payable. The decrease was partially offset by the decline in
inventory and accounts receivable.
 
 Accounts
receivable decreased by $24.7 million to $128.5 million at
March 31, 2005 from $153.2 million at December 31, 2004 primarily
due to a 6.4% decrease in net sales over the first quarter of 2004. Days sales
outstanding remained relatively stable from 40 days at March 31, 2004
compared to 42 days at March 31, 2005. As of March 31, 2005, we had no
major collection or billing problems that had not already been accounted for in
our allowance for doubtful accounts. Payment terms vary by geographic location
and, in some cases, a cash discount option is offered in addition to the
standard payment terms. We have not materially changed our payment terms or
delinquency policies between 2004 and 2005.
 
 Inventories
decreased by $33.6 million to $114.7 million at March 31, 2005
compared to $148.2 million at December 31, 2004. The decrease was
primarily due to the decline in net sales and an adjustment to our purchasing
plan in the first quarter of 2005. Our inventory turns have remained relatively
stable at two turns during the first quarter of 2005 and the first quarter of
2004.
 
 Accounts
payable decreased approximately $85.2 million to $196.5 million at
March 31, 2005 compared to $281.6 million at December 31, 2004.
The decrease was largely due to the decrease in inventory balances and timing of
payments to our suppliers.
 
 *Investing
Activities*
 
 Cash flow
provided by investing activities was $2.2 million during the first quarter
of 2005 compared to $1.6 million during the first quarter of 2004. The primary
reason for the variance between periods was lower net purchases of property,
plant and equipment.
 
 *Financing
Activities*
 
 Cash flow
used in financing activities was $3.5 million during the first quarter of
2005 compared to cash flow provided by financing activities of $363,000 during
the first quarter of 2004. The primary reason for the variance was the net
decrease of bank borrowings in the first quarter of 2005 compared to a net
increase of bank borrowings in the first quarter of 2004 to fund operations in
our Asia Pacific region.
  17
 *Table of Contents*
  **Contractual
Obligations and Commitments**
 
 At March
31, 2005, we had contractual obligations and commercial commitments of $67.5
million as shown in the table below. The table below excludes obligations
related to accounts payable and accrued liabilities incurred in the ordinary
course of business.
  **Payments
      due by period****Contractual
      Obligations**
    
    **Total**
    
    **Less
      than****1
      year**
    
    **1-3
      years**
    
    **3-5
      years**
    
    **More****than****5
      years****(in
      thousands)**Operating
      lease obligations
    
    $
    4,296
    
    $
    1,931
    
    $
    2,365
    
    $
    —
    
    $
    —Subordinated
      notes payable (1)
    
    
    48,192
    
    
    1,280
    
    
    46,912
    
    
    —
    
    
    —Preferred
      stock mandatory redemption
    
    
    15,000
    
    
    —
    
    
    15,000
    
    
    —
    
    
    —Total
    
    $
    67,488
    
    $
    3,211
    
    $
    64,277
    
    $
    —
    
    $
    —
 (1)
    Includes
      interest payable of $1.3 million and $3.9 million for the respective
      periods presented above.
 
 
 **Credit
Facilities**
 
 Effective
as of March 16, 2005, we renewed our $50.0 million line of credit with CIT
Group/Business Credit, Inc. with a new $60.0 million credit line that expires in
March 2008. Advances bear interest at the prime rate plus 0.75% (5.9% at
December 31, 2004) with interest payable monthly. ViewSonic Europe Limited
entered into a $20.0 million line of credit facility with Burdale
Financial Limited. This line of credit is secured by trade receivables and
inventory of ViewSonic Europe Limited. Advances bear interest at Libor plus a
margin. There were no borrowings against this facility as of December 31,
2004. Certain of our other international subsidiaries also have separate
lines of credit, which are secured by certain of their assets. As of
December 31, 2004 and 2003, an aggregate of $3.5 million and
$1.5 million was outstanding under these credit facilities. As of March 31,
2005, there were no outstanding balances on the lines of credit.
 
 
 **Off-Balance
Sheet Arrangements**
 
 At March
31, 2005 and 2004, 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.
  18
 *Table of Contents*
  **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;
 
 ·
    Competitive
      pressures resulting in lower than expected average selling prices;
      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 Item 2 Financial Information of our Annual Report on Form 10-K
for the year ended December 31, 2004, filed with the Securities and
Exchange Commission on March 29, 2005. We have not changed those policies since
such date.
  19
 *Table of Contents*
  **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, 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. Product shipping, and
selling, general and administrative costs associated with a portion of these
sales are U.S. Dollar-denominated. During the first quarter of 2005, the
Euro-to-U.S. Dollar foreign currency exchange rate weakened against the U.S.
Dollar decreasing 0.3% compared to the year-end rate of 2004. During the first
quarter of 2004, the Euro-to-U.S. Dollar increased by 3.5% compared to the
year-end rate of 2003. The weakening of the Euro negatively impacted our first
quarter 2005 net sales and income from operations by $76,000 and $62,000,
respectively, assuming all other factors remain constant. We currently estimate
that a 1% change in value of the Euro-to-U.S. Dollar exchange rates could impact
net sales by $250,000. We cannot determine the ultimate impact of future changes
to these and other currency exchange rates on our 2005 net sales, income from
operations, net income, equity, and comprehensive income.
 
 We have a
portfolio of investments that includes marketable securities classified as
available-for-sale long-term investments. To the extent that these investments
continue to have strategic value, we typically do not attempt to reduce or
eliminate our market exposure. For those securities that are no longer
considered strategic, management will evaluate market and economic factors in
its decision on the timing of disposal. Our investments are generally in
companies in the high-technology industry.
 
 **Factors
that May Affect Our Business and Financial Results**
 
 *Our
revenues and profitability can fluctuate from period to period and are often
difficult to predict for particular periods due to factors beyond our
control.*
 
 Our
results of operations for any quarter or year are not necessarily indicative of
results to be expected in future periods. Our operating results have
historically been, and are expected to continue to be, subject to quarterly and
yearly fluctuations as a result of a number of factors, including:
 
 ·
    The
      introduction and market acceptance of new technologies, products, and
      services;
 
 ·
    Variations
      in product costs and the mix of products
sold;
 
 ·
    The
      size and timing of customer orders, which, in turn, will often depend upon
      the success of our customers business or specific products or
      services;
  ·
    Adverse
      changes in the conditions in the markets for display
    products;
 
 ·
    The
      size and timing of capital expenditures by our
  customers;
 
 ·
    Inventory
      practices of our customers;
 
 ·
    Conditions
      in the broader markets for information technology and
      communications;
 
 ·
    Adverse
      changes in the credit quality of our customers and
    suppliers;
 
 ·
    Adverse
      changes in the supply of components such as LCD panels, including
      oversupply and undersupply; and
 
 ·
    The
      impact of acquired businesses and
technologies.
 
 These
trends and factors could harm our business, operating results and financial
condition.
  20
 *Table of Contents*
  *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, price, product
quality, breadth and reliability, price/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 average selling prices of our products over time. We expect price
competition to increase in future periods and such price competition may
substantially reduce our revenues and profits in such periods. Our competitors
include:
 
 ·
    Established
      consumer electronic companies such as Mitsubishi, Matsushita Electric
      Industrial Co., Ltd., Royal Philips Electronics of the Netherlands,
      Samsung Electronics Co., Ltd., Sharp Corporation and Sony
      Corporation;
 
 ·
    Personal
      computer manufacturers such as Dell Inc., Gateway and Hewlett-Packard
      Company; and
 
 ·
    Asian
      manufacturers interested in building a U.S. brand presence for their
      goods, such as Acer, BenQ, Daewoo International Corporation, LG-Philips,
      Sampo Group (using the Syntax brand) and Chi-Mei (using the Westinghouse
      brand).
 
 *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 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;
 
 ·
    Competitive
      pressures resulting in lower than expected average selling prices; and
 
 ·
    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.
 
 *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
10.0% for the three months ended March 31, 2005 and 2004. 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.
  21
 *Table of Contents*
  *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, 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,
which is effective January 2006, requires us to take back and recycle all
products we manufacture or import into the EU at our own expense. 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 able 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.
 
 *Our
failure to anticipate changes in the supply 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.
 
 *We
order materials 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 be required to take corresponding inventory
write-downs if growth slows or if we incorrectly forecast product demand. A
reduction in demand could negatively impact our gross margins and financial
results.
  22
 *Table of Contents*
  *We
are subject to risks associated with our international operations, which
may harm our business.*
 
 We
generated 56% of our total net sales to customers outside of the United States
and other Americas in the first quarter 2005. Sales to these customers outside
of the United States and other Americas subjects us to a number of risks
associated with conducting business outside of the United States and other
Americas, including the following:
 
 ·
    International
      economic and political conditions;
 
 ·
    Unexpected
      changes in, or impositions of, legislative or regulatory requirements;
 
 ·
    Increases
      or decreases in the U.S. dollar as compared to other
      currencies;
 
 ·
    Inadequate
      local infrastructure;
 
 ·
    Delays
      resulting from difficulty in obtaining export licenses for certain
      technology, tariffs, quotas and other trade barriers and restrictions;
  ·
    Transportation
      delays;
 
 ·
    Longer
      payment cycles;
 
 ·
    Tax
      laws (including U.S. taxes on foreign
operations);
 
 ·
    Foreign
      currency exchange rates;
 
 ·
    Imposition
      of additional taxes and penalties; and
 
 ·
    The
      burdens of complying with a variety of foreign
laws.
 
 Any
one of the foregoing factors could cause our business, operating
results and financial condition to suffer.
 
 *If we
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.
  23
 *Table of Contents*
  *We
rely on a limited number of wholesale distributors and national retailers for
most of our sales, and changes in price or purchasing patterns could lower our
revenue or gross margins.*
 
 We sell
our products through wholesale distributors such as Ingram Micro, Tech Data
Corporation and Synnex Corporation and national retailers such as Comp
USA, 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. 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.
 
 *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.
 
 *The
average selling price of our products typically decreases rapidly over the life
of the product, which negatively affects our gross margins.*
 
 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 price at
which a product may be sold is generally referred to as the average selling
price. For example, the average selling price of our CRT monitors declined
approximately 11.4% from first quarter 2004 to first quarter 2005 and the
average selling price of our LCD monitors decreased approximately 32.4% from
first quarter 2004 to first quarter 2005 primarily due to relative oversupply of
LCD panels and aggressive pricing competition. Of the total product units sold
in the first quarter 2005, CRT monitors accounted for 30.6%, LCD monitors
accounted for 53.0%, and other products accounted for 16.4% as compared to
51.1%, 37.4%, and 11.5%, respectively, for first quarter 2004. In order to sell
products that have a declining average selling price and still maintain our
gross margins, we need to continually reduce our product costs. 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
higher 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.
  24
 *Table of Contents*
  *We
depend on third-party contract manufacturers to manufacture our products. If
these contract manufacturers 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 contract manufacturers to procure components
and, in some cases, subcontract engineering work. Some of our products are
manufactured by a single contract manufacturer. Our contract manufacturers are
primarily located in mainland China, Taiwan, and Thailand and may be subject to
disruption by earthquakes, typhoons and other natural disasters, as well as
political, social or economic instability. We do not have any long-term
contracts with any of our third-party contract manufacturers. All of our
contracts with our contract manufacturers are terminable by either party with
90 days notice for any reason or no reason. Our four largest contract
manufacturers for the three-month period ended March 31, 2005 were Techview
International Technology Inc., Delta Electronics, Inc, Jean Co. Ltd. and
Coretronic Corporation. The loss of the services of any of our primary contract
manufacturers could cause a significant disruption in operations and delays in
product shipments. Qualifying a new contract manufacturer and commencing volume
production is expensive and time consuming.
 
 Our
reliance on 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;
 
 ·
    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;
 
 ·
    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.
  25
 *Table of Contents*
  *If we
are unable to provide our third-party 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 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 products in a timely manner. If our
forecasts are too high, our contract manufacturers will 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 our
competitors due to an over-supply of higher-priced components. Moreover, if they
are unable to use certain components, we may need to reimburse them for any
losses they incur.
 
 *If
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 air freight. 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.
 
 *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
margins.*
 
 We
operate in a highly competitive, quickly changing environment, and 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 by our competitors by designing,
      either internally or through third parties, competitive products;
      and
  ·
    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.
  26
 *Table of Contents*
  *We
depend on our officers, and if we are not able to retain them, our business will
suffer.*
 
 We are
highly dependent on James Chu, our Chairman of the Board and Chief Executive
Officer and majority stockholder, and other officers. Due to the specialized
knowledge each of our officers possesses with respect to our business and our
operations, the loss of service of any of our officers could adversely affect
our business. We do not carry key man life insurance on our
officers.
 
 Each of
our officers may terminate their employment without notice and without cause or
good reason. We currently are not aware that any officer is planning to leave or
retire. ****
 
 *If we
do not succeed in executing our growth strategies within our markets, our
revenues may not increase.*
 
 Our
strategies include further expanding our business in markets in which we
currently operate, including China, 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.
 
 *Intellectual
property litigation and infringement claims could cause us to incur significant
expenses or prevent us from selling our products.*
 
 Many of
our products are designed to include software or other intellectual property
licenses from third parties. Competitors’ protected technology may be
unavailable to us or be made available to us only on unfavorable terms and
conditions. While it may be necessary in the future to seek or renew licenses
relating to various aspects of our products, we believe that, based upon past
experience and standard industry practice, these licenses generally can be
obtained on commercially reasonable terms. There can be no assurances, however,
that we will be able to obtain, on commercially reasonable terms or at all, from
third parties the licenses that we will need. Due to the existence of a large
number of patents in our field and the rapid rate of issuance of new patents, it
is not practical to determine in advance whether a product or any of its
components infringe the patent rights of others.
 
 We
routinely receive claims regarding patent and other intellectual property
matters. Pursuant to our agreements with our suppliers, we generally seek
indemnification from our suppliers 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. Also, 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.
  27
 *Table of Contents*
  *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.
 
 *We
rely on our contract manufacturers for assistance in new product development,
and our new product introduction efforts could be harmed by any adverse change
in these relationships.*
 
 We work
with our contract manufacturers to develop and/or incorporate new technologies
and products. Our contract manufacturers design the electronic and mechanical
systems of a display product around our choice of major components and our
specific industrial design. Aside from these major specifications mandated by
us, the contract manufacturers choose electronic and mechanical solutions of
standard design to reduce the development time, engineering cost and procurement
risk associated with more customized designs. Our relationships with these
contract manufacturers generally do not include a long-term commitment on behalf
of either party. If our 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. Our business could be harmed if we were unable to
continue one or more of our contract manufacturing relationships.
 
 *Impairment
of our investment portfolio could harm our net earnings.*
 
 We have
an investment portfolio that includes a variety of investments. In most cases,
we do not attempt to reduce or eliminate our market exposure on these
investments. We could incur losses related to the impairment of these
investments, which could result in charges to net earnings. Some of our
investments are in public and privately-held companies that are still in the
start-up or development stage, which have inherent risks because the
technologies or products they have under development are typically in the early
stages and may never become successful. Furthermore, the values of our
investments in publicly-traded companies are subject to significant market price
volatility. We often couple our investments in technology companies with a
strategic commercial relationship. Our commercial agreements with these
companies may not be sufficient to allow us to obtain and integrate such
products and services into our offerings or otherwise benefit from the
relationship, and third parties, including competitors, may subsequently acquire
these companies. Economic weakness could further impact our investment
portfolio.
   28
 *Table of Contents*
  **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 (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.
 
 Based on
their evaluation as of March 31, 2005, 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 over Financial Reporting*
 
 There
were no changes in our internal control over financial reporting during the
first quarter of 2005 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
 
 29
 *Table of Contents*
  **PART
II** **- OTHER INFORMATION**
 
  **ITEM 1** **.LEGAL PROCEEDINGS**
 
 In the
ordinary course of business, we are involved in lawsuits, claims,
investigations, proceedings, and threats of litigation consisting of
intellectual property, commercial, employment and other matters. In accordance
with SFAS No. 5, *Accounting
for Contingencies,* we make
a provision for a liability when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably estimated. These
provisions are reviewed at least quarterly and adjusted to reflect the impacts
of negotiations, settlements, rulings, advice of legal counsel and other
information and events pertaining to a particular case. Litigation is inherently
unpredictable. However, we believe that we have valid defenses with respect to
the legal matters pending against us, as well as adequate provisions for any
probable and estimable losses. While the outcome of these proceedings and claims
cannot be predicted with certainty, management does not believe that the outcome
of any pending legal matters will have a material adverse effect on our
consolidated condensed balance sheets, although statements of operations or cash
flows could be affected in a particular period.
 
 
 **ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS**
 
 Not
applicable.
 
 
 **ITEM 3.DEFAULTS UPON SENIOR SECURITIES**
 
 Not
applicable.
 
 
 **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
HOLDERS**
 
 Not
applicable.
  30
 *Table of Contents*
  **ITEM 5.OTHER INFORMATION**
 
 Effective
as of March 16, 2005, we renewed our $50.0 million line of credit with CIT
Group/Business Credit, Inc. with a new $60.0 million credit line that expires in
March 2008. Advances bear interest at the prime rate plus 0.75% (5.9% at
December 31, 2004) with interest payable monthly.
 
 
 **ITEM 6. EXHIBITS**
 
 (a)
    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.
   31
 *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 May 13, 2005.
  **ViewSonic
      Corporation**By:
    /s/ James A. MorlanJames A.
      MorlanChiefFinancialOfficer
      (Principal
      Financial and Accounting Officer)
  32