**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        DC 20549**
  
 **FORM
        10-K**
 
 
 **x**
              **ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 **For
        the year ended December 31, 2005**
 
 **OR**
  **o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
 **Commission
        file number: 000-50730**
  
 
 **VIEWSONIC
        CORPORATION**
 (Exact
        Name of Registrant as Specified in Its Charter)
  **Delaware**
              **94-3177549**(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
        of principal executive offices, including zip code and telephone number,
        including area code)
 
 **Securities
        registered pursuant to Section 12(b) of the Act:**
 None
 
 **Securities
        registered pursuant to Section 12(g) of the Act:**
 Options
        to purchase common stock,
 $0.01
        par
        value per share
 
 
 Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.  Yes  ̈ No ý
 
 Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act.  Yes  ̈ No ý
 
 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, and (2) has been subject to such filing requirements
        for
        the past 90 days.  Yes  ̈ No ý
  Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein and will not be contained, to the
        best of
        registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K  ̈
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):  ̈ Large
        accelerated filer  ̈ Accelerated
        filer ý Non-accelerated
        filer
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Act). Yes  ̈ No ý
  
  The
        aggregate market value of the voting stock held by non-affiliates of the
        registrant as of June 30, 2005 was approximately $15,959,824 (based on the
        price
        per share of $0.38, as determined by the Board of Directors on May 9,
        2005). Common stock held by each current executive officer and director and
        by
        each person who is known by the registrant to own 5% or more of the outstanding
        common stock has been excluded from this computation in that such persons
        may be
        deemed to be affiliates of the registrant. Share ownership information of
        certain persons known by the registrant to own greater than 5% of the
        outstanding common stock for purposes of the preceding calculation is based
        solely on information on the registrant’s records and is as of June 30, 2005.
        This determination of affiliate status is not a conclusive determination
        for
        other purposes.
  The
        number of shares of common stock outstanding was 354,124,268 and the number
        of
        shares of Series B preferred stock outstanding was 0, each as of March 15,
        2006.
  
 
 **DOCUMENTS
        INCORPORATED BY REFERENCE**
 
 Exhibits
        previously filed as noted on the Exhibit Index.
  
  **ANNUAL
        REPORT ON FORM 10-K**
 **TABLEOF
        CONTENTS**
 
 **Page
                  No.****Part
                  I**Item
                  1.
              Business
              6Item
                  1A
              Risk
                  Factors
              10Item
                  1B
              Unresolved
                  Staff Comments
              17Item
                  2.
              Properties
              18Item
                  3.
              Legal
                  Proceedings
              18Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              18**Part
                  II**Item
                  5.
              Market
                  for Registrant’s Common Equity, Related Stockholder
                  Matters and Issuer Purchases of Equity Securities
              19Item
                  6.
              Selected
                  Financial Data
              19Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operation
              21Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              34Item
                  8.
              Financial
                  Statements and Supplementary
                  Data
              35Item
                  9.
              Changes
                  in and Disagreements With Accountants on Accounting
                  and Financial Disclosures
              56Item
                  9A.
              Controls
                  and Procedures
              56Item
                  9B.
              Other
                  Information
              56**Part
                  III**Item
                  10.
              Directors
                  and Executive Officers of the
                  Registrant
              56Item
                  11.
              Executive
                  Compensation
              59Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters
              63Item
                  13.
              Certain
                  Relationships and Related
                  Transactions
              64Item
                  14.
              Principal
                  Accounting Fees and Services
              65**Part
                  IV**Item
                  15.
              Exhibits
                  and Financial Statement
                  Schedules
              65Signatures
              67Exhibit
                  Index
              68
  4
 *Table
            of Contents*
  **FORWARD-LOOKING
        STATEMENTS**
 
 This
        report on Form 10-K 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; our ability to penetrate new markets; and future profitability.
        Discussions containing these forward-looking statements may be found in “Risk
        Factors,” “Business” and “Management’s Discussion and Analysis of Financial
        Condition and Results of Operations.” These forward-looking statements involve
        risks and uncertainties that could cause our actual results to differ materially
        from those in the forward-looking statements. We undertake no obligation
        to
        publicly release any revisions to the forward-looking statements or reflect
        events or circumstances after the date of this document. The "Risk Factors”
section, among other things, should be considered in evaluating our prospects
        and future financial performance.
  5
 *Table
            of Contents*
  **PART
        I**
  **ITEM
                  1.**
              **BUSINESS**
 
 **Overview**
 
 ViewSonic
        Corporation is a leading global provider of visual display technology products.
        We develop, market and support a broad range of award winning visual 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 display solutions. According to a
        fourth
        quarter of 2005 research report, by DisplaySearch, we ranked eighth in worldwide
        LCD monitor shipments for 2005.
 
 Through
        a
        technology integration business model, we collaborate with a network of
        industry-leading software providers, key component suppliers and contract
        manufacturers. Rather than depending upon a single proprietary technology,
        our
        business model allows us to combine industry-leading technologies into products
        marketed under the ViewSonic brands. We believe our business model shortens
        the
        time to market for our products by reducing the product development cycle.
        Our
        extensive product lines offer a wide array of display sizes, features and
        price/performance levels to meet consumer needs.
 
 Our
        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 are managed
        geographically in three regional segments: the Americas, Europe and Asia
        Pacific.
 
 We
        were
        incorporated in the State of California as an S corporation in July 1987
        and reincorporated in the State of Delaware as an S corporation in
        August 1998. In April 1999, we elected to convert from an S
        corporation to a C corporation.
 
 **Industry
        Background**
 
 According
        to a fourth quarter of 2005 research report by DisplaySearch, a unit of market
        research firm NPD Group, worldwide desktop monitor shipments are expected
        to
        increase from 154 million units in 2005 to 180 million units in 2009. In
        this
        report, DisplaySearch estimates that total LCD monitor shipments are expected
        to
        increase from 106 million units in 2005 to 168 million units in 2009, while
        total CRT monitor shipments are expected to decrease from 48 million units
        in
        2005 to 12 million in 2009. DisplaySearch also estimates that worldwide revenue
        from LCD monitors will increase from $35.2 billion in 2005 to $45.5 billion
        in
        2009, while revenue from CRT monitors will decline from $6.6 billion in 2005
        to
        $1.8 billion in 2009.
 
 *LCD
        Panel Development for Desktop Monitor Applications*
 
 The
        display industry is currently experiencing a shift from CRT technology to
        flat
        panel LCD technology in multiple applications, including desktop computing
        and
        TV products. A significant increase in LCD manufacturing capacity in various
        Asian countries has led to lower panel costs and larger panel sizes, enabling
        more affordable LCD products for both desktop monitors and TV systems. We
        believe the rapid increase in the number of LCD monitors bundled with PCs
        has
        also driven adoption.
 
 *CRT
        Monitor Trends*
 
 Although
        the demand for CRTs is projected to decrease, its price advantage over LCDs
        continues to drive strong demand in emerging markets such as China, Eastern
        Europe, and Latin America. In addition, in developed markets, CRTs are still
        favored in certain market segments such as education, which are subject to
        budget constraints, and high-end graphic design, due to the CRT's superior
        color
        performance over LCDs. Furthermore, among the available CRT technologies,
        end
        users generally favor flat screen CRTs instead of the more traditional curved
        CRTs because flat CRTs reduce glare and are viewed as a cost effective
        alternative to higher priced flat LCDs.
 
 *LCD
        Panel Development for TV and Presentation Applications*
 
 The
        newer
        and larger LCD panel fabrications allow LCD technology to be applied to TV
        applications. As LCD panels become available in larger sizes, commercial
        applications for LCD TVs are expected to grow. The commercial information
        display market is expected to transition to large screen (30"+) LCD monitors
        and
        TVs.
  6
 *Table
            of Contents*
  *TV
        Industry Trends and Opportunities* ******
 
 In
        addition to LCD TVs, plasma displays also present a high growth opportunity
        in
        the overall market. Both LCD TVs and Plasma Displays are considered "Advanced
        Televisions" due to their unique form factors. Of these key technologies,
        we
        believe LCD TVs represent the highest growth opportunity for displays less
        than
        42", while plasma displays present growth opportunities for screen sizes
        greater
        than 42". Both technologies have applications for consumer usage and commercial
        applications with growth expected to occur in both end-user
        segments.
 
 Worldwide,
        governments are supporting the growth of digital displays through a series
        of
        mandates and deadlines to convert all analog transmission to digital. In
        the
        United States, all TV stations must transmit digitally by February 2009,
        while
        worldwide deadlines for digital transmissions range from 2007 to 2015. These
        regulatory changes are being implemented to promote more efficient use of
        transmission bandwidth than is currently provided by conventional analog
        TVs,
        freeing broadcast spectrum for other purposes.
 
 *Front
        Projector Trends and Opportunities*
 
 In
        addition to traditional desktop displays, front projection technology has
        shown
        rapid growth over the past several years, replacing traditional overhead
        projectors as the presentation display of choice. Projectors offer several
        distinct advantages that include portability and versatility. Today, multimedia
        projectors deliver PC and video content for business or consumer use. In
        the
        fourth quarter of 2005, retail prices for projectors broke the sub-$800 barrier,
        making them more affordable for mainstream users.
 
 **Products**
 
 We
        offer
        a wide range of visual display technology products worldwide under the ViewSonic
        brand name. Our product categories include: desktop CRT and LCD monitors,
        LCD
        TVs, plasma displays, projectors, visual devices and peripherals such as
        TV/Video processors, keyboards, mice and speakers. Each product category
        is
        targeted at specific applications. We offer a wide array of sizes and features
        over a broad range of price and performance levels.
 
 **Product
        Categories**
 
 We
        sell
        two principal product categories: computer monitors and all other products.
        Within computer monitors, we sell and market both CRT and LCD monitors. Our
        other products include projectors, plasma displays, and peripherals, as
        described in the table below. We believe that the market for CRTs is currently
        in the mature stage of its life cycle trending towards the decline stage.
        Our
        decrease in unit shipments of CRTs over the past three years is consistent
        with
        the overall trends in the worldwide CRT market. On the other hand, we believe
        that the market for LCDs is currently in the growth stage of its life cycle
        and
        is expected to replace CRTs as the technology of choice in the display market
        for the foreseeable future. Our increase in LCD unit shipments over the
        past three years is in line with the overall trends in the worldwide LCD
        market.
        Many of our other products, specifically LCD TVs and plasma TVs, are currently
        in the growth stage of their respective product life cycles. We believe that
        the
        LCD and plasma TV categories represent opportunities for future growth. The
        following table identifies our principal product categories as of
        December 31, 2005:
  **Product
                  Type**
              **Series**
              **Size/**
                **Additional
                  Attributes**Liquid
                  Crystal Displays
              E
              15”
                  through 19”Graphics
              17”
                  through 20”X
              15”,
                  17”, 19”, 20”Pro
              17”
                  through 23”A
              15”
                  through 20”Liquid
                  Crystal Display TVs
              N
              20”
                  through 42”Cathode
                  Ray Tube Displays
              E2
              15”
                  through 19”Graphics
              17”
                  through 22”Pro
              17”
                  through 22”A
              17”,
                  19”Projectors
              —
              Under
                  3 Lbs. to 17 Lbs.Plasma
                  Displays
              VPW
              42”,
                  50”Peripherals
                  & Accessories
              KU,
                  KC, KW, MC, MU, MW, CP, CC, CW, SP, N, HD
              TV/Video
                  Processor, Keyboards, Mice, Speakers, Etc.Visual
                  Devices
              V
              10”
                  Wireless Displays
  7
 *Table
            of Contents*
  *Desktop
        LCD and CRT Monitors*
 
 ViewSonic
        desktop monitors offer both LCD flat panel technology and CRT technology.
        We
        design our products to meet the demanding requirements of sophisticated and
        quality conscious end users. There are several series of products in each
        of our
        desktop LCD and CRT monitor portfolios. Each series incorporates
        price/performance characteristics targeted at key market segments.
 
 As
        a
        percentage of our total unit shipments, LCD monitor shipments comprised of
        57.6%, 40.3% and 42.4% of our total unit shipments in 2005, 2004 and 2003,
        respectively. CRT monitor shipments comprised of 27.6%, 45.8% and 48.5% of
        our
        total unit shipments in 2005, 2004 and 2003, respectively.
 
 The
        market in which we compete is subject to technological advances with regular
        new
        product releases and intense 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, or ASP. For example, the ASP of our CRT monitors declined
        approximately 15.4% from the fourth quarter of 2004 to the fourth quarter
        of
        2005 and the ASP of our LCD monitors declined approximately 25.2% from the
        fourth quarter of 2004 to the fourth quarter of 2005.
 
 *Other
        Products*
 
 Other
        products comprised 14.8%, 13.9% and 9.2% of our total unit shipments in 2005,
        2004 and 2003, respectively.
 
 TV
        Products - We offer both plasma and LCD TV products for the digital television
        market. Our LCD TV offering includes 20", 27", 32”, 37,” 40” and 42” products.
        Our plasma products represent large size offerings (42" and 50") to support
        home
        theater usage and commercial applications, including signage.
 
 Projectors
        - We design our projectors to meet the various needs of the presentation
        market,
        which include delivering clear images and ease-of-use at competitive prices.
        Our
        projector line offers a wide range of form factors in various weight categories
        and technologies including LCD and DLP offerings. This segmentation helps
        end
        users select an appropriate model for usage on the road, in the office, or
        at
        home.
 
 Peripheral
        Products - We offer peripherals, including TV/Video processors, keyboards,
        mice
        and speakers, which are designed to complement the look and feel of ViewSonic
        display products.
 
 Visual
        Devices - Visual devices are embedded solutions, such as wireless mobile
        displays, ruggedized displays and network-enabled large screen displays that
        are
        targeted at system integrators and value-added resellers, or VARs.
 
 **Sales
        and Marketing**
 
 We
        sell
        our products through all major channel partners such as national retailers,
        distributors, direct marketers and through a variety of other reseller partners.
        We have no minimum purchase commitments or long-term contracts with any of
        these
        third party channel partners. As a result of this channel strategy, our sales
        are focused on a small number of distributors and national retailers. Our
        largest distributors are Ingram Micro Inc. and Tech Data Corporation, which
        accounted for 11% and 10%, respectively, of our net sales in 2005; 14% and
        13%,
        respectively, of our net sales in 2004; and 12% and 11%, respectively, of
        our
        net sales in 2003.
 
 *Distributors*
 
 We
        use
        distributors to ship our products to various resellers. We believe that with
        product proliferation and increasing complex technologies, resellers are
        becoming more dependent on distributors to provide additional value-added
        services. As a result, distributors increasingly are expanding their core
        competencies beyond product distribution to include offerings such as
        configuration, channel assembly, financial services, training, marketing
        services, telemarketing and electronic commerce services.
 
 *Resellers*
 
 We
        sell
        to resellers to sell to end users, such as large corporate accounts, small
        to
        mid-sized businesses and home users. We categorize our resellers as
        follows:
 
 ·
              *VARs
                  -*VARs
                  target businesses and add value by combining proprietary software
                  and/or
                  other integration support with off-the-shelf hardware and software.
 ·
              *Commercial
                  or Enterprise Resellers*-
                  Commercial or enterprise resellers target and sell to Fortune 500
                  companies and provide worldwide, national and regional information
                  technology configuration and support services.
 ·
              *Direct
                  Marketing and e-Retailers*-
                  Direct marketing and e-Retailers target and sell to businesses
                  and home
                  users via direct mail catalogs, and telemarketing and online marketing
                  and
                  services.
  8
 *Table
            of Contents*
  ·
              *Retailers*-
                  Retailers, such as computer superstore chains, consumer electronic
                  stores
                  and mass merchants, target and sell to the walk-in retail market
                  through
                  an extensive network of retail-store fronts.
 ·
              *System
                  Integrators -*System
                  integrators purchase individual components, including computer
                  display
                  products and assemble unbranded computer systems. Our system integrators'
                  value proposition is to provide low-cost technology and services
                  to a wide
                  array of their customers.
 
 Our
        sales
        force supports sales opportunities through our worldwide network of channel
        partners, corporate accounts and online stores. Our sales department is based
        in
        Walnut, California with sales offices in the Americas, Europe and Asia
        Pacific.
 
 Our
        marketing group generates demand, as well as brand positioning and awareness
        throughout all sales channels, to corporate enterprise end users, and to
        consumers. In each worldwide region, the marketing department works in
        cooperation with the sales department to foster channel development and product
        penetration.
 
 **End
        User Support and Service**
 
 We
        offer
        comprehensive service options for our customers, distributors, resellers,
        retailers, system integrators, corporations, educators, governments and
        consumers. Various support and service programs are tailored to meet each
        region’s demands. The ViewSonic support team is available to assist customers
        via phone, fax, email and regular mail. In addition to a multi-language user
        guide packed with each product, self-support is also available via a
        user-friendly online interactive web tool on our website. Support is also
        provided by professional customer service representatives, technicians and
        engineers.
 
 Various
        optional programs including extended warranties, expedited replacement, and
        advance replacement are offered for most of our products in many
        countries.
 
 **Sourcing
        and Operations**
 
 Our
        component sourcing and product development staff researches, develops and
        tests
        the latest display technologies with our component suppliers and contract
        manufacturers, and is charged with designing and developing the highest quality
        display products at selected price points. We have established relationships
        with multiple sources of display components and multiple display manufacturers,
        and qualify additional component suppliers and contract manufacturers when
        advantageous to us.
 
 **Seasonality**
 
 Our
        industry is largely focused on both the commercial and consumer product markets.
        Due to the seasonality in the markets, we typically expect to see stronger
        revenue growth in the second half of the calendar year related to the impact
        of
        the back-to-school and holiday seasons.
 
 **Manufacturing
        and Logistics**
 
 We
        source
        our products from several third parties including component manufacturers,
        component suppliers and contract manufacturers. In some instances, these
        third
        parties are different divisions of large, integrated organizations, while,
        in
        other instances, they are independent entities. 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.
 
 ViewSonic's
        global distribution centers are strategically located in the United States,
        Asia
        Pacific and Europe. From our distribution centers, we ship to our channel
        partners, which include the distribution, VAR and retail channels. Distribution
        centers are operated by ViewSonic or, where appropriate, in conjunction with
        third-party logistic partners.
  **Research
        and Product Development**
 
 Our
        product development efforts are focused on analyzing technology trends,
        designing and developing standards-based, competitively priced products that
        incorporate the technologies and features that we believe are most desired
        by
        customers today and into the future. In addition, we collaborate with the
        world's most advanced technology companies for research, development, and
        engineering to evaluate the latest display and visual solutions related
        technologies. Working with these companies, ViewSonic engineers integrate
        new
        technologies, design products and system architectures, and manage quality.
  9
 *Table
            of Contents*
  We
        believe our cooperative approach allows ViewSonic to determine the best method
        and timing for delivering new products and technologies to the market. Research
        and development expense was $1.1 million, $1.9 million, and
        $8.2 million for 2005, 2004 and 2003, respectively.
  **Competition**
 
 The
        market for our display products is highly competitive. Competitive factors
        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 competition includes established consumer electronic
        companies, personal computer manufacturers and Asian manufacturers interested
        in
        building a brand presence for their goods, including Acer Inc., BenQ
        Corporation, LG Philips LCD Ltd., NEC Display Solutions, and Samsung
        Electronics.
 
 **Intellectual
        Property**
 
 We
        rely
        on a combination of copyright, trademark, service mark and trade secret laws
        and
        contractual restrictions to protect our proprietary rights in our products.
        We
        have no patented technology. We generally enter into confidentiality and
        invention assignment agreements with our employees and contractors, and
        nondisclosure agreements with our channel partners, suppliers and appropriate
        end users to limit access to, and disclosure of, our proprietary information.
        Despite our efforts to protect our proprietary rights, unauthorized parties
        may
        attempt to copy and use our products or technology. Policing unauthorized
        use of
        our products is difficult. The steps we have taken may not prevent
        misappropriation of our technology, particularly in countries where the laws
        may
        not protect our proprietary rights as fully as in the United States.
 
 Third
        parties currently claim and have in the past claimed patent infringement
        with
        respect to our current products. We expect that additional infringement claims
        will be made against display manufacturers as the market becomes more
        competitive and mature. An infringement claim, whether meritorious or not,
        could
        be time consuming, result in costly litigation, cause delays in product
        availability or require us to utilize alternative technology, possibly of
        lower
        quality or higher cost, or to enter into royalty or licensing agreements
        with
        unfavorable terms.
 
 Our
        registered trademarks, among others, include ViewSonic®, ViewSonic's distinctive
        three-bird logo, product names such as Optiquest®, and key phrases such as See
        the Difference®. Our registered trademarks expire between April 2006 and October
        2015. We intend to continue to protect our trademarks against possible
        intellectual property infringement.
 
 In
        the
        future, it may be necessary or desirable for us to seek additional licenses
        of
        intellectual property rights held by third parties. If the availability of
        these
        third party technology licenses ceases, we may have to obtain substitute
        technology of lower quality or performance standards or at a higher cost.
        There
        can be no assurance that such licenses will continue to be available on
        favorable terms or at all.
 
 **Backlog**
 
 There
        is
        generally a short cycle between the order and shipment of our products and
        the
        majority of our orders are cancelable at our customers' discretion. Therefore,
        we do not believe that our backlog at any particular date is indicative of
        our
        future net sales.
 
 **Employees**
 
 As
        of
        December 31, 2005, we had 647 employees worldwide. None of our employees
        are represented by a labor union, and we believe that our employee relations
        are
        good.
 
 **Financial
        Information by Business Segment and Geographic Data**
  We
        operate in three segments: Americas, Europe and Asia Pacific. The information
        included in Note 13 of Notes to the Consolidated Financial Statements, is
        incorporated herein by reference from Item 8 hereof.
 
 **ITEM
                  1A****.**
              **RISK
                  FACTORS**
 
 *The
        risks described below are not exhaustive of the risks that might affect our
        business. Other risks, including those we currently deem immaterial, may
        also
        impact our business. Any of the following risks could materially and adversely
        affect our business operations, results of operations and financial
        condition.*
  10
 *Table
            of Contents*
  *Our
        revenue and profitability can fluctuate from period to period and are often
        difficult to predict for particular periods due to factors beyond our
        control.*
 
 Our
        results of operations for any quarter or year are not necessarily indicative
        of
        results to be expected in future periods. Our operating results have
        historically been, and are expected to continue to be, subject to quarterly
        and
        yearly fluctuations as a result of a number of factors, including:
 
 ·
              The
                  introduction and market acceptance of new technologies, products
                  and
                  services;
 ·
              Variations
                  in product costs and the mix of products
                  sold;
 ·
              The
                  size and timing of customer orders, which, in turn, will often
                  depend upon
                  the success of our customers, business or specific products or
                  services;
 ·
              Adverse
                  changes in the conditions in the markets for display
                  products;
 ·
              The
                  size and timing of capital expenditures by our
                  customers;
 ·
              Inventory
                  practices of our customers;
 ·
              Conditions
                  in the broader markets for information technology and
                  communications;
 ·
              Adverse
                  changes in the credit quality of our customers and
                  suppliers;
 ·
              Adverse
                  changes in the supply of components such as LCD panels, including
                  oversupply and undersupply;
 ·
              The
                  impact of acquired businesses and
                  technologies;
 ·
              Changes
                  in the pricing policies of, or the introduction of, new products
                  by us or
                  our competitors; and
 ·
              Changes
                  in the terms of our contracts with our customers or
                  suppliers.
 
 These
        trends and factors could harm our business, operating results and financial
        condition.
 
 *Our
        industry is highly competitive and such price competition may substantially
        reduce our revenues and profits.*
 
 Competitive
        factors in the display industry include product features, product quality,
        breadth and reliability, price and performance characteristics, end user
        support, marketing and channel capability as well as corporate reputation
        and
        brand strength. We believe that we compete favorably with respect to all
        of
        these factors in the monitor market. However, we are a new entrant to the
        home
        entertainment market, and, therefore, we are just beginning to establish
        our
        competitive position. Many of our competitors in our markets have significantly
        greater financial, technical, manufacturing and marketing resources than
        we
        have. We believe that competition will have the effect of continually reducing
        the ASP of our products over time. We expect price competition to increase
        in
        future periods and such price competition may substantially reduce our revenues
        and products in such periods. Our competition includes established consumer
        electronic companies, personal computer manufacturers and Asian manufacturers
        interested in building a brand presence for their goods, including Acer Inc.,
        BenQ Corporation, LG Philips LCD Ltd., NEC Display Solutions, and Samsung
        Electronics.
 
 We
        believe that over time, this competition will have the effect of reducing
        the
        ASP of our products. Some of our competitors have substantially longer operating
        histories, greater assets, and name recognition, as well as greater financial,
        marketing, technical and other resources, than we do. These advantages may
        allow
        our competitors to, among other things: undertake more extensive marketing
        initiatives, implement and sustain more aggressive pricing, obtain more
        favorable pricing, obtain more favorable allocations from suppliers or cross
        subsidize their display operations from their other operations. Consequently,
        there is no assurance that our products will remain competitive relative
        to
        those of our competitors. To the extent we are unable to effectively compete
        against our competitors for any of these reasons or otherwise, our business,
        financial conditions and results of operations would be materially adversely
        affected.
 
 *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;
  11
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  ·
              Inability
                  to successfully develop our next-generation products;
 ·
              Competitive
                  pressures resulting in lower than expected average selling prices;
 ·
              An
                  adverse change in payment terms with our customers or our suppliers;
                  or
 ·
              New
                  product announcements or product introductions by our
                  competitors.
 
 We
        also
        may require additional capital for other purposes not presently contemplated.
        If
        we are unable to obtain sufficient capital, we could be required to curtail
        capital equipment purchases or research and development expenditures, which
        could harm our business.
 
 *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
        8.8% and 10.6% for the years ended December 31, 2005 and 2004, respectively.
        We
        expect sales, general and administrative expenses to remain relatively fixed
        or
        decrease as a percentage of net sales as we continue to improve efficiencies
        in
        all aspects of our business. Additionally, because we typically recognize
        a
        substantial portion of our revenues in the last month of each quarter, we
        may
        not be able to adjust our operating expenses in a timely manner in response
        to
        any revenue shortfalls. If we are unable to reduce operating expenses quickly
        in
        response to any revenue shortfalls, it would negatively impact our financial
        results.
  *We
        may fail to comply with the Restriction of Certain Hazardous Substances
        Directive, or RoHS, and Waste Electrical and Electronic Equipment Directive,
        or
        WEEE, which could harm our business.*
  We
        are
        subject to local laws and regulations in various regions in which we operate,
        including the European Union, or the EU.  There are two particular EU
        directives, RoHS and WEEE that may have a material impact on our business.
        RoHS
        restricts the distribution of certain substances, including lead, within
        the EU
        and is effective July 1, 2006. RoHS requires us to eliminate and/or reduce
        the
        level of specified hazardous materials from our products and requires us
        to
        maintain and publish a detailed list of all chemical substances in our products.
        WEEE, requires us to take back and recycle all products we manufacture or
        import
        into the EU at our own expense and became effective in January 2006. If we
        fail
        to comply with the EU directives our business may be harmed. For
        example,
 
 ·
              We
                  may be unable to procure appropriate RoHS compliant material in
                  sufficient
                  quantity and quality and/or be 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 or pricing of product components
        or
        customer demand may result in excess or obsolete inventory that could adversely
        affect our gross margins.*
 
 Inventory
        purchases are based upon future demand forecasts. These forecasts are based
        upon
        assumptions about future demand that might prove to be inaccurate. If there
        were
        to be a sudden and significant decrease in demand for our products, or if
        there
        were a higher incidence of inventory obsolescence because of rapidly changing
        prices of product components, rapidly changing technology and customer
        requirements or an increase in the supply of products in the marketplace,
        we
        could be required to write-down our inventory and our gross margins could
        be
        adversely affected.
 
 *We
        order components, materials and tooling in advance of anticipated customer
        demand. Therefore, we have limited ability to reduce our inventory purchase
        commitments quickly in response to any revenue shortfalls.*
  Substantially
        all of our sales are made on the basis of purchase orders rather than long-term
        agreements. As a result, we may commit to purchase products without having
        received advance purchase commitments from customers. Any inability to sell
        products to which we have devoted significant resources could harm our business.
        Additionally, because we typically need sufficient lead-time in purchasing
        our
        products, we may not be able to reduce our inventory purchase commitments
        in a
        timely manner in response to any revenue shortfalls. We could be subject
        to
        excess or obsolete inventories and under-utilized tooling and be required
        to
        take corresponding inventory write-downs or tooling write-offs if growth
        slows
        or if we incorrectly forecast product demand. A reduction in demand could
        negatively impact our gross margins and financial results.
  12
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            of Contents*
  *We
        are subject to risks associated with our international operations, which
        may harm our business.*
 
 We
        generated a majority of our total net sales to customers outside of the United
        States and other Americas during 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.
 
 *We
        rely on a limited number of wholesale distribution and national retail customers
        for most of our sales, and changes in price or purchasing patterns and failure
        to maintain or establish new distributor relationships in existing and new
        sales
        channels could lower our revenue or gross margins.*
 
 We
        sell
        our products through wholesale distributors such as Ingram Micro, Inc., Tech
        Data Corporation and Synnex Corporation and national retailers such as
        CompUSA, Inc. We expect that a majority of our net sales will continue to
        come from sales to a small number of wholesale distributors and national
        retailers for the foreseeable future. We have no minimum purchase commitments
        or
        long-term contracts with any of these customers. The wholesale distributors
        and
        retailers could decide at any time to discontinue, decrease or delay their
        purchases of our products. We must also monitor and evaluate new sales channels
        in existing markets and in new markets. If we fail to establish a presence
        in an
        important developing sales channel or market, our business could be
        harmed.
 
 In
        addition, the prices that wholesale distributors and retailers pay for our
        products are subject to negotiation and could change frequently. If any of
        our
        major wholesale distributors or retailers change their purchasing patterns
        or
        refuse to pay the prices that we set for our products, our net sales and
        operating results could be negatively impacted. If our wholesale distributors
        and retailers increase the size of their product orders without sufficient
        lead-time for us to process the order, our ability to fulfill product demands
        would be compromised. In addition, because our accounts receivable are
        concentrated within a small group of wholesale distributors and retailers,
        the
        failure of any of them to pay on a timely basis, or at all, would reduce
        our
        cash flow.
  13
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            of Contents*
  *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
        ASP of our products typically decreases rapidly over the life of the product,
        which negatively affects our gross margin.*
 
 The
        market in which we compete is subject to technological advances with yearly
        new
        product releases and price competition. As a result, the price at which we
        can
        sell our products typically declines over the life of the product. The decline
        in LCD monitors’ ASP is primarily due to increased production capacity and
        aggressive pricing by the competition. Over the recent years, the decline
        in ASP
        for LCD monitors has been faster than the decline in our product-sourcing
        costs
        and this has resulted in decreased margins.
 
 In
        order
        to sell products that have a declining ASP and still maintain our gross margins,
        we need to continually reduce our product costs and manage our inventory.
        To
        manage product-sourcing costs, we must collaborate with our contract
        manufacturers to engineer the most cost-effective design for our products.
        In
        addition, we must carefully manage the price paid for components used in
        our
        products. We must also successfully manage our freight and inventory holding
        costs to reduce overall product costs. We also need to continually introduce
        new
        products with more attractive sales prices and gross margins in order to
        maintain our overall gross margins. If we are unable to manage the cost of
        older
        products or successfully introduce new products with higher gross margins,
        our
        net sales will decrease and our gross margins will decline.
 
 *Our
        implementation of strategic initiatives may strain our operations and increase
        our operating expense or harm our net earnings.*
 
 We
        have
        been implementing strategic initiatives designed to focus our resources on
        our
        core products, to improve supply chain and logistics efficiency, to simplify
        our
        business processes to maximize operating efficiencies in all aspects of our
        business, to grow sales in regional markets and to expand core
        product **** offerings,
        among others. The undertaking of these initiatives may strain our existing
        management, information systems, employee workforce, operational capability
        and
        financial controls. The difficulties associated with implementing these
        initiatives, procedures and controls may place a significant burden on our
        management, operational and financial resources. If we fail to successfully
        implement these initiatives or encounter unexpected difficulties during the
        implementation, our business could be harmed.
 
 *We
        depend on third-party component suppliers and contract manufacturers for
        the
        manufacture of our products. If these third parties experience any delay,
        disruption or quality control problems in their operations, we could lose
        market
        share and revenues, and our reputation may be harmed.*
 
 All
        of
        our products are manufactured, assembled, tested and packaged by contract
        manufacturers. We rely on several, component suppliers and contract
        manufacturers to procure components and, in some cases, subcontract engineering
        work. Some of our products are manufactured by a single contract manufacturer.
        Our component suppliers and contract manufacturers are primarily located
        in
        mainland China, Taiwan, and Thailand and may be subject to disruption by
        earthquakes, typhoons and other natural disasters, epidemics, pandemics,
        as well
        as political, social or economic instability. We do not have any long-term
        contracts with any of these third party component suppliers and contract
        manufacturers. Product pricing is generally negotiated on an order-by-order
        basis. All of our contracts with our component suppliers and contract
        manufacturers, including those contracts containing provisions that may be
        materially favorable to us, are generally terminable for any reason and by
        either party with 90 day’s notice. If our component suppliers and contract
        manufacturers encounter financial or other business difficulties, if their
        strategic objectives change, or if they perceive us to no longer be an
        attractive customer, they may no longer assist us in our product development
        efforts, and our business could be harmed.
  14
 *Table
            of Contents*
  The
        loss
        of the services of any of our primary contract manufacturers or a change
        in
        material terms could cause a significant disruption in operations and delays
        in
        product shipments and adverse impact on cash flow. Qualifying a new contract
        manufacturer and commencing volume production is expensive and time
        consuming.
 
 Our
        reliance on third party component suppliers and contract manufacturers also
        exposes us to the following risks over which we have limited
        control:
 
 ·
              Inability
                  to procure key required components for our finished products to
                  meet our
                  customer’s demand;
 ·
              Unexpected
                  increases in manufacturing and repair
                  costs;
 ·
              Unexpected
                  reductions in payment terms;
 ·
              Interruptions
                  in shipments if one of our manufacturers is unable to complete
                  production;
 ·
              Inability
                  to control the quality of finished
                  products;
 ·
              Inability
                  to control delivery schedules;
 ·
              Inability
                  to obtain favorable pricing;
 ·
              Unpredictability
                  of manufacturing yields; and
 ·
              Potential
                  lack of adequate capacity to manufacture all or a part of the products
                  we
                  require.
  *We
        rely upon third parties for technology that is critical to our products,
        and if
        we are unable to continue to license this technology and future technology,
        our
        ability to offer competitive products could be harmed and our costs of
        production could increase.*
 
 We
        rely
        on third parties to obtain non-exclusive software license rights to technologies
        that are incorporated into and necessary for the operation and functionality
        of
        our products. Because the intellectual property we license is available from
        third parties, barriers to entry for our competitors may be lower than if
        we
        owned exclusive rights to the technology we license and use. On the other
        hand,
        if a competitor enters into an exclusive arrangement with any of our third-party
        technology providers, our ability to develop and sell products containing
        that
        technology could be severely limited. Our licenses often require royalty
        payments or other consideration to third parties. Our success will depend
        in
        part on our continued ability to have access to these technologies on
        commercially reasonable terms. If we are unable to license the necessary
        technology, we may be forced to acquire or develop alternative technology
        of
        lower quality or performance standards. This could limit and delay our ability
        to offer competitive products and increase our costs of production. As a
        result,
        our gross margins, market share, and operating results could be
        harmed.
 
 *If
        we
        are unable to provide our third-party component suppliers and contract
        manufacturers with an accurate forecast of our component and material
        requirements, we may experience delays in the manufacturing of our products
        and
        the costs of our products may increase.*
 
 We
        provide our third-party component suppliers and contract manufacturers with
        a
        rolling forecast of demand which they use to determine their material and
        component requirements. Lead times for ordering materials and components
        vary
        significantly and depend on various factors, such as the specific supplier,
        contract terms and demand and supply for a component at a given time. Some
        of
        our components have long lead times. If our forecasts are less than our actual
        requirements, our contract manufacturers may be unable to manufacture enough
        products in a timely manner. If our forecasts are too high, our component
        suppliers and contract manufacturers may be unable to use the components
        they
        have purchased. The cost of the components used in our products tends to
        drop
        rapidly as volumes increase and the technologies mature. Therefore, if our
        contract manufacturers are unable to promptly use components purchased on
        our
        behalf, our cost of producing products may be higher than that of our
        competitors, due to an over-supply of higher-priced components. Moreover,
        if
        they are unable to use certain components, we may need to reimburse them
        for any
        losses they incur.
 
 *If
        disruptions in our transportation network occur or our shipping costs
        substantially increase, our operating expense could increase and our financial
        results could be negatively impacted.*
 
 We
        are
        highly dependent upon the transportation systems we use to ship our products,
        including surface, ocean and airfreight. Our attempt to closely match our
        inventory levels to our product demand intensifies the need for our
        transportation systems to function effectively and without delay. The
        transportation network is subject to disruption from a variety of causes,
        including labor disputes or port strikes, acts of war or terrorism and natural
        disasters. If our delivery times increase unexpectedly for these or any other
        reasons, our ability to deliver products on time could result in delayed
        or lost
        revenue. In addition, if the recent increases in fuel prices were to continue,
        our transportation costs would likely increase. A prolonged transportation
        disruption or a significant increase in the cost of freight could severely
        disrupt our business and harm our operating results.
 
 *If
        we
        fail to continue to introduce new products that achieve broad market acceptance
        on a timely basis, or fail to market or sell our products in a way that receives
        broad acceptance in the market place, we will not be able to compete effectively
        and we will be unable to increase or maintain net sales and gross margin
        and our
        financial results could be negatively impacted.*
  15
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            of Contents*
  We
        operate in a highly competitive, quickly changing environment. We are dependent
        upon sufficient demand and broad market acceptance for display products,
        which
        are branded separately from the computing devices (primarily desktop PCs
        and
        laptops) to which they are attached. Our future success depends on our ability
        to develop and introduce new products and product enhancements that achieve
        broad market acceptance in the business and home markets. Our future success
        will depend in large part upon our ability to:
 
 ·
              Identify
                  demand trends in the business and home display markets and quickly
                  develop, manufacture and sell products that satisfy these
                  demands;
 ·
              Manage
                  our cost structure to enable us to bring new products to market
                  at
                  competitive prices;
 ·
              Respond
                  effectively to new product announcements from our competitors by
                  designing, competitive products, either internally or through the
                  use of
                  third parties;
 ·
              Provide
                  compatibility and interoperability of our products with products
                  offered
                  by other vendors and new technologies as they
                  emerge;
 ·
              Manage
                  our product offerings either as stand-alone, in combination with
                  other
                  products or services, or in some other manner;
                  and
 ·
              Respond
                  effectively to unexpected shifts in market demand towards display
                  and PC
                  products sold together under the same brand or away from stand-alone
                  displays.
 
 *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 expansion of our business in markets in which
        we
        currently operate, including Brazil, China, India, Russia, Eastern and Western
        Europe. In many of these markets, we face barriers in the form of long-standing
        relationships between our potential customers and their local suppliers,
        as well
        as protective regulations. In addition, pursuing international growth
        opportunities may require us to make significant investments long before
        we
        realize returns on the investments, if any. Increased investments may result
        in
        expenses growing at a faster rate than revenues. Our overseas investments
        could
        be adversely affected by:
 
 ·
              Reversals
                  or delays in the opening of foreign markets to new
                  participants;
 ·
              Exchange
                  controls;
 ·
              Restrictions
                  on foreign investment or the repatriation of profits or invested
                  capital;
 ·
              Nationalization
                  of local industry;
 ·
              Changes
                  in export or import restrictions;
 ·
              Changes
                  in the tax system or rate of taxation in the countries where we
                  do
                  business; and
 ·
              Economic,
                  social, and political risks.
 
 In
        addition, difficulties in foreign financial markets, economies and foreign
        financial institutions, particularly in emerging markets, could adversely
        affect
        demand from customers in the affected countries. Because of these factors,
        we
        may not succeed in expanding our business in international markets. This
        could
        hurt our business growth prospects and results of operations.
 
 *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.
  16
 *Table
            of Contents*
  We
        routinely receive claims regarding patent and other intellectual property
        matters. Pursuant to our agreements with our suppliers and manufacturers,
        we
        generally seek indemnification in connection with such claims. Whether or
        not
        these claims have merit, they may require significant resources to defend.
        To
        date, none of these claims has had a material impact on our business. We
        are
        currently involved in several such proceedings, none of which we believe
        are
        material to our business. If an infringement claim is successful and we are
        unable to obtain the license for the infringed technology or substitute similar
        non-infringing technology, our business could be harmed. In addition, if
        an
        infringement claim is successful or costly to defend and we are unable to
        obtain
        indemnification from our suppliers, our business could be harmed.
 
 *We
        may be subject to product liability claims that could result in significant
        direct or indirect costs to us.*
 
 There
        is
        a risk that defects may occur in our products and services. The occurrence
        of
        these defects could make us liable for damages caused by these defects,
        including consequential damages. To date, none of these claims has had a
        material impact on our business. Negative publicity concerning these problems
        could also make it more difficult to convince customers to buy our products
        and
        services. Both could hurt our business, operating results, and financial
        condition.
 
 *Expensing
        employee stock options in future periods will materially and adversely affect
        our reported operating results and could adversely affect our competitive
        position as well.*
 
 Since
        inception, we have used stock options as a fundamental component of our
        compensation packages. We believe that these incentives directly motivate
        our
        employees and, through the use of vesting, encourage our employees to remain
        with us. In December 2004, the Financial Accounting Standards Board, or FASB,
        issued SFAS No. 123(R), *Share-Based
        Payment* ,
        or SFAS
        No. 123(R), which requires the measurement and recognition of compensation
        expense for all stock-based compensation payments. In April 2005, the SEC
        delayed the effective date of SFAS No. 123(R), which is now effective for
        annual
        periods that begin after June 15, 2005. SFAS No. 123(R) requires that we
        record
        compensation expense for stock options and our employee stock purchase plan
        using the fair value of those awards. Expensing these incentives in future
        periods will materially and adversely affect our reported operating results
        as
        the stock-based compensation expense would be charged directly against our
        reported earnings.
 
 To
        the
        extent that SFAS No. 123(R) makes it more expensive to grant stock options
        or to
        continue to have an employee stock purchase program, we may decide to incur
        increased cash compensation costs. In addition, actions that we may take
        to
        reduce stock-based compensation expense that might be more severe than any
        actions our competitors may implement, could make it difficult to attract,
        retain and motivate employees, which could adversely affect our competitive
        position as well as our business and operating results.
 
 *Impairment
        of our investment portfolio could harm our net earnings.*
 
 We
        have
        an investment portfolio that includes a variety of investments. In most cases,
        we do not attempt to reduce or eliminate our market exposure on these
        investments. We could incur losses related to the impairment of these
        investments, which could result in charges to net earnings. Some of our
        investments are in public and privately held companies that are still in
        the
        start-up or development stage, which have inherent risks because the
        technologies or products they have under development are typically in the
        early
        stages and may never become successful. Furthermore, the values of our
        investments in publicly traded companies are subject to significant market
        price
        volatility. We often couple our investments in technology companies with
        a
        strategic commercial relationship. Our commercial agreements with these
        companies may not be sufficient to allow us to obtain and integrate such
        products and services into our offerings or otherwise benefit from the
        relationship, and third parties, including competitors, may subsequently
        acquire
        these companies. Economic weakness could further impact our investment
        portfolio. Our investments in privately held companies were valued at $0.1
        million as of December 31, 2005. For the years ended December 31, 2005, 2004
        and
        2003, we recorded impairments on our public and private- securities investments
        of $1.8 million, $4.3 million and $3.7 million, respectively.
 
 **ITEM
                  1B****.**
              **UNRESOLVED
                  STAFF COMMENTS**
 
 None.
  17
 *Table
            of Contents*
  **ITEM
                  2.**
              **PROPERTIES**
 
 **Americas**
 
 We
        lease
        facilities in Walnut, California of approximately 300,000 usable square feet
        that serve as our corporate headquarters as well as a warehouse, testing
        and
        after-sales service facility, under a lease that expires in June 2007. In
        addition, we have sales offices in Atlanta, Georgia, Miami, Florida and in
        Ontario, Canada.
 
 **Europe**
 
 In
        Europe, we lease facilities in Crawley, West Sussex, United Kingdom that
        serves
        as our European headquarters and provides space for our northern Europe sales
        operations and after-sales service activity. This lease expires in 2007.
        In
        addition, we lease space in Denmark, Finland, France, Germany, Norway, Russia,
        Spain, Sweden, and United Arab Emirates for marketing, sales and after-sales
        service operations.
 
 **Asia
        Pacific**
 
 In
        Asia
        Pacific, we own a main office in Taiwan and lease offices in Shanghai, Guangzhou
        and Beijing. In December 2005, we purchased an office floor in Shanghai,
        China
        and plan to occupy the space beginning in April 2006. We also lease warehouses
        in Shanghai, Beijing, Guangzhou, Chengdu and Xi’an, Taoyuan, Taiwan and own an
        additional warehouse in Taipei, Taiwan. We lease sales offices in Hong Kong,
        Kaoshiung, Taiwan, Singapore, and Australia.
 
 We
        believe our properties are adequately maintained and suitable for their intended
        use and that our facilities have adequate capacity for our current needs.
 
 **ITEM
                  3****.**
              **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 Statement of Financial Accounting Standards, or
        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 an adverse material effect on our
        consolidated financial statements.
 
 **ITEM
                  4****.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
 
 Our
        2005
        Annual Meeting was held on November 4, 2005. The following matters were voted
        upon at the meeting, and the final votes on the proposals were recorded as
        follows:
 
 1.
              To
                  elect directors to hold office until the next Annual Meeting of
                  Stockholders and until their successors are
                  elected:
 
 **Name
                  of Individual**
              
              **Votes
                  for**
              
              **Votes
                  Withheld**James
                  Chu
              
              327,997,094
              
              33,475,174Matthew
                  Massengill
              
              327,997,094
              
              33,475,174William
                  J. Miller
              
              327,997,094
              
              33,475,174Bruce
                  L. Stein
              
              327,997,094
              
              33,475,174Luc
                  H. Vanhal
              
              327,997,094
              
              33,475,174
  18
 *Table
            of Contents*
  **PART
        II**
 
 **ITEM
                  5****.**
              **MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                  PURCHASES OF EQUITY
                  SECURITIES.**
  **Market
        Information**
 
 There
        is
        no public market for our common stock, preferred stock or stock options.
 
 **Holders**
 
 As
        of
        March 15, 2006, there were 79 holders of record of our common stock and there
        was one holder of record of warrants to purchase our Series C preferred
        stock. As of March 15, 2006, we had 566 holders of stock options exercisable
        for
        shares of our common stock.
  **Dividends**
 
 We
        did
        not declare or pay cash dividends in 2005, 2004 or 2003 and we do not anticipate
        declaring cash dividends in the foreseeable future. ViewSonic America's credit
        facility with The CIT Group/Business Credit, Inc. prohibits the payment of
        dividends in excess of $250,000 per year without the consent of The CIT
        Group/Business Credit, Inc.
 
 **Recent
        Sales of Unregistered Securities**
 
 None.
  **Issuer
        Repurchases of Equity Securities**
 
 None.
  **ITEM
                  6****.**
              **SELECTED
                  FINANCIAL DATA**
 
 The
        following selected financial data should be read in conjunction with our
        consolidated financial statements and the notes thereto, and with "Management's
        Discussion and Analysis of Financial Condition and Results of Operations."
        The
        consolidated statement of operations data for the years ended December 31,
        2005, 2004 and 2003 and the consolidated balance sheet data as of
        December 31, 2005 and December 31, 2004 have been derived from, and
        should be read in conjunction with, our audited consolidated financial
        statements and the notes thereto included herein. The consolidated statement
        of
        operations data for the years ended December 31, 2002 and 2001, and the
        consolidated balance sheet data as of December 31, 2003, 2002 and 2001, is
        derived from audited consolidated financial statements and the notes thereto
        which are not included in this Form 10-K.
  19
 *Table
            of Contents*
 
 **Year
                  Ended December 31,****2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001****(in
                  thousands, except per share data)**Net
                  sales
              
              $
              1,200,190
              
              $
              1,104,333
              
              $
              1,060,691
              
              $
              876,121
              
              $
              962,359Cost
                  of sales
              
              
              1,085,011
              
              
              1,003,960
              
              
              926,201
              
              
              748,209
              
              
              874,970Gross
                  profit
              
              
              115,179
              
              
              100,373
              
              
              134,490
              
              
              127,912
              
              
              87,389Selling,
                  general and administrative expenses
              
              
              105,349
              
              
              117,338
              
              
              126,180
              
              
              99,806
              
              
              105,182Income
                  (loss) from operations
              
              
              9,830
              
              
              (16,965
              )
              
              8,310
              
              
              28,106
              
              
              (17,793
              )Other
                  (expense) income—net:Interest
                  income (expense)—net
              
              
              287
              
              
              (1,291
              )
              
              (1,464
              )
              
              (1,420
              )
              
              (7,090
              )Other
                  (expense) income—net
              
              
              (4,266
              )
              
              2,542
              
              
              2,822
              
              
              6,470
              
              
              8,455Other
                  (expense) income—net
              
              
              (3,979
              )
              
              1,251
              
              
              1,358
              
              
              5,050
              
              
              1,365Income
                  (loss) from continuing operations before income taxes
              
              
              5,851
              
              
              (15,714
              )
              
              9,668
              
              
              33,156
              
              
              (16,428
              )Provision
                  (benefit) for income taxes
              
              
              14,659
              
              
              (3,293
              )
              
              2,333
              
              
              11,500
              
              
              558(Loss)
                  income from continuing operations
              
              
              (8,808
              )
              
              (12,421
              )
              
              7,335
              
              
              21,656
              
              
              (16,986
              )(Loss)
                  from discontinued operations (1)
              
              
              —
              
              
              (5,989
              )
              
              (2,853
              )
              
              (2,465
              )
              
              (847
              )Net
                  gain on disposal of discontinued operations, net of tax
                  (1)
              
              
              475
              
              
              2,153
              
              
              —
              
              
              —
              
              
              —Net
                  (loss) income
              
              
              (8,333
              )
              
              (16,257
              )
              
              4,482
              
              
              19,191
              
              
              (17,833
              )Preferred
                  stock accretion
              
              
              (1,524
              )
              
              (1,372
              )
              
              (1,229
              )
              
              (1,078
              )
              
              (1,364
              )Net
                  (loss) income available to common stockholders
              
              $
              (9,857
              )
              $
              (17,629
              )
              $
              3,253
              
              $
              18,113
              
              $
              (19,197
              )Basic
                  (loss) earnings per shareContinuing
                  operations
              
              $
              (0.03
              )
              $
              (0.04
              )
              $
              0.02
              
              $
              0.06
              
              $
              (0.05
              )Discontinued
                  operations (1)
              
              $
              —
              
              $
              (0.02
              )
              $
              (0.01
              )
              $
              (0.01
              )
              $
              —Gain
                  on disposal of discontinued operations
              
              $
              —
              
              $
              0.01
              
              
              —
              
              $
              —
              
              $
              —Total
                  Basic (loss) earnings per share
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01
              
              $
              0.05
              
              $
              (0.05
              )Diluted
                  (loss) earnings per shareContinuing
                  operations
              
              $
              (0.03
              )
              $
              (0.04
              )
              $
              0.02
              
              $
              0.06
              
              $
              (0.05
              )Discontinued
                  operations (1)
              
              $
              —
              
              $
              (0.02
              )
              $
              (0.01
              )
              $
              (0.01
              )
              $
              —Gain
                  on disposal of discontinued operations
              
              $
              —
              
              $
              0.01
              
              $
              —
              
              $
              —
              
              $
              —Total
                  Diluted (loss) earnings per share
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01
              
              $
              0.05
              
              $
              (0.05
              )Basic
                  weighted average shares outstanding
              
              $
              353,969
              
              $
              353,917
              
              $
              353,891
              
              $
              353,322
              
              $
              342,799Diluted
                  weighted average shares outstanding
              
              $
              353,969
              
              $
              353,917
              
              $
              358,538
              
              $
              362,344
              
              $
              342,799
 
 (1)
        Two
        of our majority-owned subsidiaries were discontinued during 2004. (See Note
        16
        to the consolidated financial statements, which is incorporated herein by
        reference).
 
 **Year
                  Ended December 31,****2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001****(in
                  thousands)****Balance
                  Sheet Data:**Working
                  capital
              
              $
              72,727
              
              $
              71,404
              
              $
              81,742
              
              $
              60,061
              
              $
              31,962Total
                  assets
              
              $
              432,725
              
              $
              458,523
              
              $
              414,929
              
              $
              376,898
              
              $
              338,923Short-term
                  bank borrowings
              
              $
              4,852
              
              $
              3,529
              
              $
              1,475
              
              $
              —
              
              $
              14,752Subordinated
                  notes payable—related party
              
              $
              43,000
              
              $
              43,000
              
              $
              43,000
              
              $
              43,000
              
              $
              43,000Convertible
                  mandatorily redeemable preferred stock
              
              $
              14,952
              
              $
              13,428
              
              $
              12,056
              
              $
              10,828
              
              $
              11,242Stockholder's
                  equity
              
              $
              38,232
              
              $
              46,967
              
              $
              64,707
              
              $
              52,609
              
              $
              26,840
  20
 *Table
            of Contents*
  **ITEM
                  7.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS.**
 
 *Certain
        statements contained in this Management's Discussion and Analysis including,
        without limitation, statements containing the words "anticipate," "believe,"
        "may," "should," "will" and similar expressions constitute "forward-looking
        statements.” Persons should not place undue reliance on these forward-looking
        statements. Our actual results could differ materially from those anticipated
        in
        these forward-looking statements for many reasons, including risks described
        in
        Item 1A* — Risk *Factors
        and elsewhere in this Form 10-K. The following discussion should be read
        in
        conjunction with our consolidated financial statements and the related
        notes.*
 
 **Overview**
 
 ***Our
        Company***
  ViewSonic
        Corporation is a leading global provider of visual display products. We develop,
        market and support a broad range of award-winning visual display 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 display solutions.
  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 are managed geographically in three regional segments: the
        Americas, Europe and Asia Pacific.
  We
        were
        incorporated in the State of California as an S corporation in July 1987.
        We
        reincorporated in the State of Delaware as an S corporation in August 1998
        and,
        in April 1999, we elected to convert from an S corporation to a C corporation.
 
 ***Recent
        Trends in Our Business***
  Income
        from operations was $9.8 million in 2005, as compared with a $17.0 million
        loss
        from operations in 2004. During 2005, we began to implement many key initiatives
        that improved supply chain and logistics efficiency, simplified our business
        processes to maximize operating efficiencies in all aspects of our business,
        grew sales in regional markets and expanded core products offerings, among
        others. We believe that the successful implementation of these key initiatives
        will position us to compete favorably. However, our profit margin continued
        to
        be negatively impacted by intense competition, volatility of supply, declining
        ASPs, and fluctuating product costs.
 
 The
        ASP
        of our LCD monitors decreased 32.1% in 2005 from 2004. This decline was
        primarily due to increased production capacity and aggressive price competition.
        We expect the excess capacity situation and ASP declines to continue in the
        short run until anticipated market demand growth is realized and consumes
        the
        increased supply.
 
 We
        sold
        approximately 5.7 million visual display products in 2005 compared to
        approximately 4.5 million visual display products in 2004, representing a
        26.7%
        growth. The display industry continues to experience a shift from older
        technologies, such as CRT, to newer technologies, such as LCD, as well as
        a
        broadening of application from PC monitors to TVs and other digital media
        applications. Our sales of LCD monitors grew 83.3% to 3.3 million units in
        2005
        from 1.8 million units in 2004, while sales of CRT monitors declined 20.0%
        to
        1.6 million units in 2005 from 2.0 million units in 2004. Also, unit sales
        of
        LCD TVs grew 205.8% to 134,412 units in 2005 from 43,955 units in 2004.
 
 Our
        net
        sales increased to $1,200.2 million in 2005 from $1,104.3 million in 2004,
        an
        increase of 8.7%. This moderate sales growth, coupled with selling, general
        and
        administrative expenses savings of $12.0 million to $105.3 million, or 8.8%
        of
        net sales, in 2005, from $117.3 million, or 10.6% of net sales resulted in
        operating income of $9.8 million, an improvement of $26.8 million from the
        $17.0
        million loss from operations in 2004.
 
 ***Future
        Objectives and Challenges***
 
 There
        are
        several factors that we believe will drive and/or affect our future performance:
 
 ***Improve
        Profitability***
 
 *Component
        sourcing initiative -* We started to source a key component of LCD monitors,
        directly from the manufacturers in December 2005. This
        sourcing initiative brings us closer to the supply base so that we can keep
        abreast of recent market trends and supply cycles. In addition, this initiative
        allows us to consolidate our LCD panel purchasing power. Both advantages
        should
        enable us to secure better pricing and better allocation of LCD panels. By
        means
        of this key component sourcing initiative, we hope to be less vulnerable
        to the
        instability that is inherent in the LCD monitor industry.
  21
 *Table
            of Contents*
  *Concentrate
        on our growing core products* - We
        continue to focus our resources on our core products. We are taking various
        initiatives to grow our LCD market share. Specifically, we are reducing the
        number of product lines and the number of skus within each product line,
        utilizing a common platform on our products, and eliminating unprofitable
        products.
  *Efficient
        supply chain and logistics -* We
        continue to review and improve our entire supply chain and logistics processes.
        We are implementing initiatives to centralize our supply chain management
        to
        allow greater flexibility in responding to changes in market conditions.
        In
        addition, we are exploring other initiatives to consolidate suppliers and
        logistics providers. Furthermore, we will continue to focus on increasing
        sales
        through drop shipment arrangements and container load programs.
 
 *Cost
        structure improvements* - We
        have made efforts to improve profitability by reducing our overall operating
        expenses in response to factors affecting earnings, such as declines in sales
        price levels and changes in the product mix. Our business environment is
        being
        transformed due to intense price competition. In this environment, we believe
        that our ability to adapt to new competitive realities as early as possible
        will
        have a significant bearing on our competitiveness.
  *Expand
        sales in regional markets* - We
        continue to expand our presence in our existing regional markets, while
        exploring new geographic market opportunities, and continue to develop and
        market a broad range of display and related products that satisfy a wide
        range
        of consumer and commercial applications. In our existing regional markets,
        we
        need to continue to actively manage our relationships with our wholesale
        distributors and national retailers as the majority of our net sales are
        expected to continue to come from these sales channels. In our newer regional
        markets such as India, Russia, Latin America, and Eastern and Western Europe,
        we
        may need to make significant investments before being able to realize returns
        on
        these investments. These investments may result in expenses growing at a
        faster
        rate than revenues.
 
 *Expand
        core product offerings* - We
        continue to expand the line of LCD TV products to complement our LCD and
        CRT
        computer monitors. We believe that this product category will be an area
        of
        opportunity for growth as LCD TVs become more widely accepted in the
        marketplace. We need to continue to introduce new products that achieve broad
        market acceptance on a timely basis, in order to increase or maintain our
        net
        sales and gross margins.
 
 We
        believe 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
                  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;
 ·
                Provide
                    compatibility and interoperability of our products with products
                    offered
                    by other vendors and new technologies as they emerge;
 ·
                Manage our product offerings either as stand-alone,
                  in
                  combination with other products or services, or in some other manner;
                  and
 ·
                Respond effectively to unexpected shifts in market
                  demand towards display and PC products sold together under the
                  same brand
                  or away from stand-alone
                  displays.
  ***Manage
        Foreign Currency Fluctuations*** *.* We must
        manage the effect of foreign currency fluctuations on our operational results.
        We buy a majority of our products from our suppliers in U.S. Dollars and
        sell a
        significant amount of our products in other foreign currencies. Historically,
        sales of our products have benefited from effects of the weakness of the
        U.S.
        Dollar, which made our products more affordable in several markets. However,
        we
        need to manage our account receivables and inventory balances to limit our
        foreign currency exposure in periods of a strengthening U.S. Dollar. We are
        in
        the process of forming a foreign currency hedging strategy.
 
 ***Manage
        Relationships with Component Suppliers, Contract Manufacturers and Sales
        Channel
        Partners.*** Our
        ability to effectively manage our inventory levels depends on our ability
        to
        accurately anticipate demand from our sales channel partners and on our ability
        to secure sufficient finished products from our contract manufacturers at
        competitive prices and in a timely manner to meet our customer demands.
 
 ***Manage
        Imposition of Additional Duties and Taxes.*** Another challenge we face is the new tariff classification for LCD monitors
        that
        incorporate a digital video interface, or DVI, connector. The European Union,
        or
        EU, issued notices stating that effective January 18, 2006, LCD monitors
        with
        DVI connectors would incur a 14% import duty tax.  This change in tariff
        classification will make it more difficult for us to compete in the
        European Union and will result in a negative impact on our gross
        margins.  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 process to minimize the negative
        impacts of this new tariff.
  22
 *Table
            of Contents*
  ***Laws,
        Regulations and Directives.*** We
        are
        subject to local laws and regulations in the 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, that
        restricts the distribution of certain substances, including lead, within
        the EU
        and is effective July 1, 2006.  In addition to specifying the elimination
        and/or reduction in the level of specified hazardous materials from the
        manufacture of our products, we must take reasonable measures to ensure that
        we
        are not being supplied with products containing such restricted chemical
        substances. We are starting to receive requests from our 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 became effective January 2006,
        and requires manufacturers and importers, at their own cost, to implement
        a
        process to accept return of and to recycle all products it manufactures or
        imports into the EU. Certain EU countries adopted WEEE on August 13, 2005;
        however, the majority of EU countries into which our European region sells
        our
        products, have yet to adopt the legislation. Many of the countries that adopted
        WEEE in August 2005, have no published regulations or issued legislation
        with
        respect to a manufacturer or importer’s obligations. We are currently unable to
        assess the impact of these directives on our operations until more information
        becomes available, but at this time, we do not believe they will have a material
        impact on our business.
 
 **Results
        of Operations**
 
 *Net
        Sales*
 
 We
        generate revenues primarily from the sale of our visual display technology
        products to our channel partners, including distributors, resellers and
        retailers, as well as to end users. We sell to a geographically diversified
        customer base with 55.1% of our 2005 revenues generated outside of the Americas,
        primarily in Europe and in Asia Pacific. We extend price reductions and sales
        incentive offerings to our customers including price protection, promotions,
        other volume-based sales incentives and expected returns.
 
 Our
        largest customers are Ingram Micro Inc. and Tech Data Corporation, which
        accounted for 11% and 10%, respectively, of our net sales in 2005, and 14%
        and
        13%, respectively, of our net sales in 2004 and 12% and 11%, respectively,
        of
        our net sales in 2003.
 
 *Cost
        of Sales*
 
 Our
        cost
        of sales consists primarily of cost of inventory purchased from our contract
        manufacturers, manufacturing support costs, inventory provisions, warranty,
        shipping, warehouse and storage costs. We maintain relationships with
        third-party contract manufacturers, which we believe will be able to provide
        us
        with sufficient quantities of product during 2006. However, we expect to
        continue to face price fluctuations for our products. Fluctuations in gross
        profit as a percentage of revenue, or gross margin, primarily result from
        changes in product mix and geographic mix as well as general pricing dynamics.
 
 *Selling,
        General and Administrative Expenses*
 
 Our
        selling, general and administrative expenses consist primarily of salaries,
        commissions and bonuses, promotional tradeshow and advertising expenses,
        research and development, travel and entertainment expenses, and legal and
        accounting expenses.
  *Other
        Income (Expense)-Net*
 
 Other
        income (expense) - net primarily includes interest income, interest expense,
        gains and losses on sales of investments and transaction related foreign
        currency gains and losses.
 
 *Discontinued
        Operations*
 
 The
        net
        gain for discontinued operations in 2005 represents a gain on the sale of
        residual assets related to the closure of a majority-owned subsidiary closed
        in
        2004. The loss for discontinued operations in 2004 represents the net loss
        from
        the sale of a majority-owned subsidiary and the closure of another
        majority-owned subsidiary during 2004.
  *Preferred
        Stock Accretion*
 
 Preferred
        stock accretion represents the accretion value of our Series B convertible
        mandatorily redeemable preferred stock from its initial value to the redemption
        price.
 
 The
        following table sets forth, for the periods indicated, our consolidated
        statements of operations expressed as a percentage of net sales.
  23
 *Table
            of Contents*
 
 **Year
                  Ended December 31,****2005**
              
              **2004**
              
              **2003**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of sales
              
              
              90.4
              
              
              90.9
              
              
              87.3Gross
                  profit
              
              
              9.6
              
              
              9.1
              
              
              12.7Selling,
                  general and administrative expenses
              
              
              8.8
              
              
              10.6
              
              
              11.9Income
                  (loss) from operations
              
              
              0.8
              
              
              (1.5
              )
              
              0.8Other
                  (expense) income - net:Interest
                  income (expense)
              
              
              0.0
              
              
              (0.1
              )
              
              (0.2
              )Other
                  (expense) income—net
              
              
              (0.4
              )
              
              0.2
              
              
              0.3Other
                  (expense) income—net
              
              
              (0.4
              )
              
              0.1
              
              
              0.1Income
                  (loss) from continuing operations before income taxes
              
              
              0.4
              
              
              (1.4
              )
              
              0.9Provision
                  (benefit) for income taxes
              
              
              1.2
              
              
              (0.3
              )
              
              0.2(Loss)
                  income from continuing operations
              
              
              (0.8
              )
              
              (1.1
              )
              
              0.7Gain
                  (loss) from discontinued operations
              
              
              0.0
              
              
              (0.5
              )
              
              (0.3
              )Net
                  gain on disposal of discontinued operations, net of tax
              
              
              0.0
              
              
              0.2
              
              
              0.0Net
                  (loss) income
              
              
              (0.8
              )
              
              (1.4
              )
              
              0.4Preferred
                  stock accretion
              
              
              (0.1
              )
              
              (0.1
              )
              
              (0.1
              )Net
                  (loss) income available to common stockholders
              
              
              (0.9
              )%
              
              (1.5
              )%
              
              0.3
              %
 
 
 **Consolidated
        Results of Operations—December 31, 2005 Compared to December 31, 2004**
 
 *Net
        Sales*
 
 Net
        sales
        increased $95.9 million, or 8.7%, to $1,200.2 million in 2005 from
        $1,104.3 million in 2004. The increase was primarily due to a 26.7%
        increase in unit sales although we did experience a decline in the ASP per
        unit
        of approximately 14.9%. The decline in ASP per unit reflected the effects
        of
        competition and reduced purchase costs associated with advances in display
        technology.
 
 We
        sold
        approximately 5.7 million display products in 2005 compared to approximately
        4.5
        million display products during 2004. Of the display products sold in 2005,
        LCD
        products accounted for 57.6%, CRT products accounted for 27.6%, and other
        products accounted for 14.8% as compared to 40.3%, 45.8%, and 13.9%,
        respectively, in 2004. The increase in units sold was mainly due to continued
        expansion in China as well as stronger unit sales in Europe.
 
 Sales
        allowances decreased by $35.3 million, or 31.8%, to $75.6 million in 2005
        from
        $110.9 million in 2004. As a percentage of net sales, sales allowances decreased
        to 6.3% in 2005 from 10.0% in 2004. The decrease was primarily due to the
        LCD
        product oversupply situation in the second half of 2004, which increased
        the
        number of sales allowance programs offered in 2004 resulting in increased
        sales
        allowances as a percentage of net sales. Returns and sales incentive allowances
        charged against gross sales were $96.3 million and $126.9 million in 2005
        and
        2004, respectively.
 
 *Cost
        of Sales*
 
 Our
        consolidated cost of sales increased $81.1 million, or 8.1%, to $1,085.0
        million
        in 2005 from $1,004.0 million in 2004. The increase was primarily due to
        an 8.7%
        increase of net sales in 2005 from 2004. Overall, gross margin increased
        to 9.6%
        in 2005 from 9.1% in 2004. The increase in our gross margin was the result,
        in
        part due to higher promotional pricing incentives from our vendors of $6.4
        million in 2005 as compared to $3.9 million in 2004. In addition, during
        the
        fourth quarter of 2005, we reversed $3.2 million of accrued liabilities related
        to a contingent duty obligation on 20” and above display panels with DVI
        connectors, of which, $3.0 was accrued as of December 31, 2004. Furthermore,
        gross margin was adversely impacted during the latter half of 2004 by rapidly
        decreasing selling prices of LCD monitors. The adverse impact was partially
        offset by the forgiveness of a software royalty commitment of $1.7 million
        in
        the fourth quarter of 2004 and higher inventory write-downs of $11.5 million
        in
        2005 as compared to $9.8 million in 2004.
 
 *Selling,
        General and Administrative Expenses*
 
 Selling,
        general and administrative expenses decreased $12.0 million, or 10.2%, to
        $105.3 million in 2005 from $117.3 million in 2004. The decrease was
        due to lower advertising and marketing expense of $5.8 million, lower
        professional fees primarily relating to patent infringement lawsuits of $3.1
        million, lower personnel costs predominately resulting from headcount reduction
        in the Americas of $2.7 million and the effect from converting expenses incurred
        in the Europe region into U.S. dollars, as a result of the strengthening
        U.S.
        dollar. The decrease was partially offset by the impact of adopting Statement
        of
        Financial Accounting Standards No. 123, *Accounting
        for Stock-Based Compensation,* or
        SFAS
        No. 123, in 2005 that resulted in non-cash compensation expense of $0.5 million
        in addition to $1.1 million non-cash compensation expense due to the stock
        option re-pricing in the second quarter of 2005.
  24
 *Table
            of Contents*
  *Other
        (Expense) Income - Net*
 
 Other
        (expense) income - net, decreased to an expense of $4.0 million in 2005 from
        income of $1.3 million in 2004. The primary reason for the decrease was due
        to
        foreign currency transaction losses of $4.7 million in 2005 as compared to
        foreign currency transaction gains of $5.3 million in 2004. The decrease
        was
        partially offset by net interest income of $0.3 million in 2005 as compared
        to
        net interest expense of $1.3 million in 2004 as a result of lower bank
        borrowings in Asia Pacific and higher interest income on surplus cash. In
        addition, we had a net investment loss of $2.8 million in 2004. In 2005,
        we had
        a $1.8 million gain on sale of long-term investments, which was offset by
        a
        comparable amount of recorded impairment losses.
 
 *Provision
        for Income Taxes*
 
 Our
        provision for income taxes was $14.7 million in 2005 compared to a benefit
        for
        income taxes of $3.3 million in 2004. During the year ended December 31,
        2005,
        we recorded a non-cash charge of $12.3 million to establish a valuation
        allowance against the net deferred income tax assets in the United States.
        The
        valuation allowance has been calculated pursuant to SFAS No. 109, *Accounting
        for Income Taxes* ,
        or SFAS
        No. 109, which requires an assessment of both positive and negative evidence
        when measuring the need for a valuation allowance. Such evidence includes
        our
        past and projected future performance, the market environment in which we
        operate, the utilization of past tax credits, and the length of carry-back
        and
        carry-forward periods of net operating losses. In determining that a valuation
        allowance is required, we placed added weight on the operating results of
        the
        past two years and the projected operating results for 2006. We intend to
        maintain a valuation allowance until sufficient positive evidence, as
        contemplated in SFAS No. 109, exists to support its reversal. We do not expect
        to recognize any domestic income tax benefits in future periods, until an
        appropriate level of profitability is achieved.
 
 *Discontinued
        Operations*
  The
        net
        gain for discontinued operations in 2005 represents a gain on the sale of
        residual assets related to the closure of a majority-owned subsidiary closed
        in
        2004. The loss for discontinued operations in 2004 represents the net loss
        from
        the sale of a majority-owned subsidiary and the closure of another
        majority-owned subsidiary during 2004. See Note 16 of our Consolidated Financial
        Statements under Item 8 for more information.
 
 **Consolidated
        Results of Operations—December 31, 2004 Compared to December 31, 2003**
 
 *Net
        Sales*
 
 Net
        sales
        increased $43.6 million, or 4.1%, to $1,104.3 million in 2004 from
        $1,060.7 million in 2003. The increase was primarily due to an increase in
        unit sales although we did experience a decline in the average selling price
        per
        unit of approximately 2.8% in 2004. The decline in average selling price
        per
        unit reflects the effects of competition, our pricing initiatives to compensate
        for the oversupply of LCD panels **** and
        reduced purchase costs associated with advances in display technology.
 
 We
        sold
        approximately 4.5 million display products in 2004 compared to
        approximately 4.0 million display products in 2003. The increase in units
        sold was mainly due to continued expansion in China as well stronger unit
        sales
        in Europe. Of the display products sold in 2004, CRT products accounted for
        45.8%, LCD products accounted for 40.3%, and other products accounted for
        13.9%
        as compared to 48.5%, 42.4%, and 9.2%, respectively, in 2003. Although unit
        sales increased, the increase in net sales was partially offset by higher
        sales
        allowances in 2004 of $110.9 million compared to $81.7 million in 2003 due
        to
        aggressive promotions to meet competition. Due to the LCD product oversupply
        situation in the second half of 2004, we increased the number of sales allowance
        programs offered resulting in increased sales allowances as a percentage
        of net
        sales from 2003 to 2004. Returns and sales incentive allowances charged against
        gross sales were $126.9 million and $110.1 million in 2004 and 2003,
        respectively. As a percentage of net sales, sales allowances increased to
        10.0%
        in 2004 from 7.7% in 2003 largely due to the increase in the number of sales
        allowances offered during the LCD product oversupply period.
  25
 *Table
            of Contents*
 
 *Cost
        of Sales*
 
 Our
        consolidated cost of sales increased $77.8 million, or 8.4%, to
        $1,004.0 million in 2004 from $926.2 million in 2003. As a percentage of
        net sales, cost of sales increased to 90.9% in 2004 from 87.3% in 2003, in
        part
        due to (a) rapidly decreasing average selling prices on higher cost inventory
        of
        LCD panel displays in the third and fourth quarters of 2004, (b) additional
        duty
        on 20” and above LCD monitors with DVI connectors in the Europe region in 2004,
        and inventory write-downs of $9.8 million in 2004 as compared to
        $9.5 million in 2003. The increase was partially offset by $3.9 million of
        promotional pricing incentives from our vendors and the forgiveness of a
        software royalty commitment of $1.7 million in the fourth quarter of 2004.
        The
        inventory write-downs in 2004 were related to LCD products that experienced
        a
        drastic drop in product costs in the third and fourth quarters of 2004. The
        written-down inventory in 2004 and 2003 were either sold or abandoned within
        two
        or three months. In the subsequent periods after the write-downs, the average
        product margins were reduced only slightly due to little or no margin being
        earned on these written-down inventories. Overall, gross margin declined
        to 9.1%
        in 2004 from 12.7% in 2003.
 
 *Selling,
        General and Administrative Expenses*
 
 Selling,
        general and administrative expenses decreased $8.8 million, or 7.0%, to
        $117.3 million in 2004 from $126.1 million in 2003. The decrease was
        primarily due to lower product development expenses of $5.2 million and lower
        bad debt expense of $1.5 million due to a bad debt recovery of $1.1 million
        in
        2004. In addition, in the fourth quarter of 2003, we incurred a charge of
        $9.8 million due to the transfer of nine million shares by James Chu, our
        Chairman of the Board and Chief Executive Officer and our majority stockholder,
        to certain other stockholders in connection with the settlement of a stockholder
        complaint. The decrease was partially offset by higher professional fees
        for
        patent infringement lawsuits of $3.9 million and higher personnel costs of
        $6.1
        million to support regional and product expansion and expenses related to
        the
        currency conversion effects of the strengthening of the Euro against the
        U.S.
        dollar in the Europe region.
 
 *Other
        Income - Net*
 
 Other
        income - net was $1.3 million for 2004 compared to $1.4 million in 2003.
        The
        primary reason for the decrease was due to lower foreign currency transaction
        gains of $5.3 million in 2004 as compared to $6.0 million in 2003,
        foreign currency option and forward contracts gains of $0 in 2004 as compared
        to
        $200,000 in 2003, and interest expense as a result of higher bank borrowings
        in
        Asia Pacific to fund operations of $2.5 million in 2004 as compared to $2.3
        million in 2003. The foreign currency option contracts expired during 2003.
        In
        addition, investment losses of $2.8 million in 2004 were lower as compared
        to losses of $3.7 million in 2003.
 
 *Provision
        for Income Taxes*
 
 Our
        benefit for income taxes was $3.3 million for 2004 compared to a provision
        for
        income taxes of $2.3 million for 2003. Our effective tax rate decreased
        from a 24.1% provision for 2003 to a 20.9% benefit for 2004. The decrease
        in the
        provision for income taxes and the effective tax rate in the current year
        were
        primarily driven by the significant decrease in pre-tax income in 2004 compared
        to 2003. The change in the mix of domestic and foreign earnings also contributed
        to the year-to-year variance in the effective tax rate.
 
 *Discontinued
        Operations*
 
 The
        loss
        from discontinued operations represents the gain on sale of a majority-owned
        subsidiary in the third quarter of 2004 and the closure of another
        majority-owned subsidiary during late 2004. See Note 16 of our Consolidated
        Financial Statements under Item 8 for more information.
 
 **Segment
        Information**
 
 Our
        management evaluates and monitors segment performance primarily through net
        sales and income (loss) from operations. Management believes that this segment
        information provides useful information for analyzing the underlying business
        results.
  26
 *Table
            of Contents*
  **Year
                  Ended December 31,****2005**
              
              **Percentage**
                **Increase/**
                **(Decrease)**
              
              **2004**
              
              **Percentage**
                **Increase/**
                **(Decrease)**
              
              **2003****(in
                  thousands)**Net
                  sales:Americas
              
              $
              538,813
              
              
              (11.8
              )%
              $
              610,644
              
              
              (8.2
              )%
              $
              665,450Europe
              
              
              297,549
              
              
              25.2
              %
              
              237,727
              
              
              32.1
              %
              
              179,909Asia
                  Pacific
              
              
              363,828
              
              
              42.1
              %
              
              255,962
              
              
              18.8
              %
              
              215,332$
              1,200,190
              
              
              8.7
              %
              $
              1,104,333
              
              
              4.1
              %
              $
              1,060,691Income
                  (loss) from operations:Americas
              
              $
              1,049
              
              
              111.0
              %
              $
              (9,510
              )
              
              (250.4
              )%
              $
              6,320Europe
              
              
              3,575
              
              
              812.2
              %
              
              (502
              )
              
              (105.5
              )%
              
              9,010Asia
                  Pacific
              
              
              5,206
              
              
              174.9
              %
              
              (6,953
              )
              
              (349.2
              )%
              
              2,790Stockholders'
                  complaint settlement
              
              
              —
              
              
              —
              
              
              —
              
              
              100
              %
              
              (9,810
              )$
              9,830
              
              
              157.9
              %
              $
              (16,965
              )
              
              (304.1
              )%
              $
              8,310
  **December 31,
        2005 Compared to December 31, 2004**
 
 **Americas**
 
 *Net
        Sales*
 
 The
        decrease in net sales in the Americas was primarily due to lower per unit
        ASPs
        reflecting the effects of competition and reduced selling price associated
        with
        advances in display technology.
 
 *Income
        (loss) from Operations*
 
 The
        increase in income from operations in the Americas was partially due to higher
        gross margin in 2005 largely attributable to the decrease in the number of
        sales
        allowances offered during 2005 as compared to the LCD product oversupply
        period
        in 2004 and higher promotional pricing incentives from our vendors in 2005
        as
        compared to the promotional pricing incentives in 2004. In addition, selling,
        general and administrative expenses decreased in 2005 primarily due to lower
        advertising and marketing expenses, and lower personnel costs resulting from
        headcount reductions.
 
 **Europe**
 
 *Net
        Sales*
 
 The
        increase in net sales in Europe was primarily due to the region’s expansion in
        sales to Russia, Ukraine, Middle East and Eastern Europe partially offset
        by the
        effects of a decrease in net sales in the Mediterranean and the strengthening
        of
        the U.S. dollar against the Euro reducing net sales. In addition, net sales
        increased due to the shift in the product mix to larger screen sizes,
        significant growth in the units sold and a shift in the ratio of sales from
        CRT
        to LCD products.
 
 *Income
        (loss) from Operations*
 
 The
        increase in income from operations in Europe was primarily due to increased
        net
        sales. In addition, the region’s gross margin as a percentage of net sales
        increased in 2005 as compared to 2004, largely due to the decrease in sales
        allowances offered during 2005 compared to a period of LCD product oversupply
        in
        2004. Another factor contributing to this increase was the release of the
        $3.2
        million duty provision on 20” and above LCD panel displays with DVI connectors
        in the fourth quarter of 2005, of which $3.0 million was accrued for in the
        fourth quarter of 2004. Selling, general and administrative expenses increased
        to support the regional and product expansion offset by the currency conversion
        effects of the strengthening of the U.S. dollar against the
        Euro.
  27
 *Table
            of Contents*
 
 **Asia
        Pacific**
 
 *Net
        Sales*
 
 The
        primary reason for the increase in net sales in Asia Pacific was our continued
        expansion into the China market. Net sales also increased due to higher unit
        sales in Taiwan and emerging markets such as Southeast Asia. The increase
        in
        unit sales was a result of expanding our customer base in all
        markets.
 
 *Income
        (loss) from Operations*
 
 The
        increase in income from operations in Asia Pacific was primarily due to
        increased net sales. In addition, the region’s gross margin as a percentage of
        net sales increased in 2005 as compared to 2004, largely due to the decrease
        in
        the number of sales allowances offered during 2005 as compared to the LCD
        product oversupply period in 2004. Selling, general and administrative expenses
        increased due to higher advertising and marketing expenses and higher
        personnel-related costs to support the increasing marketing efforts in China
        and
        increased staffing levels.
 
 **December 31,
        2004 Compared to December 31, 2003**
 
 **Americas**
 
 *Net
        Sales*
 
 The
        decrease in net sales in the Americas was primarily due to lower unit sales
        across the LCD and CRT products combined with rapidly declining ASPs in the
        second half of 2004 and the weakening of demand. Net sales in the Americas
        were
        also negatively impacted by higher sales allowances in 2004 compared to 2003
        due
        to aggressive promotions to meet the competition. The decrease was partially
        offset by lower product returns in 2004 compared to 2003.
  *Income
        (loss) from Operations*
 
 The
        decrease in income from operations in the Americas was partially due to rapidly
        decreasing ASPs as we sold our higher cost inventory of LCD panel displays
        in
        the third and fourth quarters of 2004, and higher personnel-related expenses
        in
        support of our marketing and operational efforts to increase current markets
        and
        expand into new product categories. This decrease was partially offset by
        lower
        advertising and marketing expenses, the recovery of a bad debt and promotional
        pricing incentives from our vendors in 2004.
 
 **Europe**
 
 *Net
        Sales*
 
 The
        increase in net sales in Europe was primarily due to the region's continued
        expansion in the United Kingdom, France, Benelux and Russia partially offset
        by
        a decrease in net sales in Eastern Europe, the Middle East and the
        Mediterranean. In addition, the strengthening of the Euro against the U.S.
        dollar was a major contributor to the overall increase in net sales. In
        addition, net sales increased due to the shift in the product mix to larger
        screen sizes and from the shift in the ratio of sales from CRT to LCD products.
        However, net sales were partially offset by higher sales allowance and product
        returns in 2004 compared to 2003 due to aggressive promotion to meet the
        competition.
 
 *Income
        (loss) from Operations*
 
 The
        decrease in income from operations in Europe was partially due to higher
        inventory write-downs in 2004 compared to 2003, higher warranty expense in
        2004
        compared to 2003, and the additional duty on monitors larger than 20” with DVI
        connectors in 2004. The decrease was partially offset by the effects of the
        improvements in the Euro against the U.S. dollar resulting in higher Euro
        list
        prices relative to cost of goods sold in the U.S. dollar, and promotional
        pricing incentives from our vendors recorded in 2004. Selling, general and
        administrative expenses increased in 2004 from 2003 primarily as a result
        of the
        strengthening of the Euro against the U.S. dollar and from higher advertising
        and marketing expenses and higher personnel-related expenses to support
        increased marketing efforts in additional markets.
  28
 *Table
            of Contents*
 
 **Asia
        Pacific**
 
 *Net
        Sales*
 
 The
        primary reason for the increase in net sales in Asia Pacific was our continued
        expansion into the China market. Net sales also increased due to higher unit
        sales in Taiwan and emerging markets such as Australia, New Zealand and
        Southeast Asia. The increase in unit sales was a result of expanding our
        customer base. However, net sales were partially offset by higher sales
        allowance in 2004 compared to 2003 due to aggressive promotion to meet the
        competition.
 
 *Income
        (loss) from Operations*
 
 The
        decrease in income from operations in Asia Pacific was partially due to rapidly
        decreasing average selling prices as we sold our higher cost inventory of
        LCD
        panel displays in the third and fourth quarters of 2004 and higher inventory
        write-downs. The decrease is also due to higher advertising and marketing
        expenses and higher personnel-related costs related to supporting the increasing
        marketing efforts in China and increased staffing levels. The decrease was
        partially offset by promotional pricing incentives from our vendors recorded
        in
        2004.
 
 **Liquidity
        and Capital Resources**
 
 **Year
                  Ended December 31,****2005**
              
              **2004**
              
              **2003****(in
                  thousands)**Net
                  cash (used in) provided by operating activities
              
              $
              (8,330
              )
              $
              9,778
              
              $
              21,199Net
                  cash provided by (used in) investing activities
              
              $
              1,228
              
              $
              1,154
              
              $
              (2,148
              )Net
                  cash provided by financing activities
              
              $
              1,435
              
              $
              2,099
              
              $
              1,488Net
                  cash (used in) provided by discontinued operations
              
              $
              (1,284
              )
              $
              755
              
              $
              578Net
                  (decrease) increase in cash and cash equivalents
              
              $
              (6,951
              )
              $
              13,786
              
              $
              21,117
  Since
        our
        inception, we have financed our growth and cash needs largely through cash
        from
        operations, issuance of stock and borrowings. As of December 31, 2005, we
        had cash, cash equivalents and short-term investments of $94.0 million. Our
        cash balances are held in numerous locations throughout the world. Most of
        the
        amounts held outside the U.S. could be repatriated to the U.S., but, under
        current law, would be subject to U.S. federal income taxes, less applicable
        foreign tax credits. In certain countries, foreign exchange limitations limit
        the amount of cash that can be repatriated. We have accounted for the U.S.
        federal tax liability on these amounts for financial statement purposes except
        for foreign earnings that are considered indefinitely reinvested outside
        the
        U.S. 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 our 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.
 
 *Operating
        Activities*
 
 Cash
        flow
        used by operating activities was $8.3 million in 2005 compared to cash flow
        provided by operations of $9.8 million in 2004 and $21.2 million in 2003.
        The increase in net cash used by operations in 2005 compared to 2004 resulted
        from decreases in accounts payable, an increase in inventory and a decrease
        in
        accrued promotional and other expenses, partially offset by a decrease in
        accounts receivable—net and an increase in accrued warranty expense. The
        decrease in net cash provided by operations in 2004 compared to 2003 is
        primarily a result of the loss from continuing operations incurred of $12.4
        million in 2004 compared to income from continuing operations of $7.3 million
        in
        2003, as well as an increase in inventory partially offset by a large increase
        in accounts payable and accrued promotional expenses.
 
 Accounts
        receivable decreased $7.2 million to $146.0 million at December 31, 2005,
        from
        $153.2 million at December 31, 2004 due to improved days sales outstanding,
        to
        45 days at December 31, 2005 compared to 46 days at December 31, 2004, partially
        offset by an 8.7% increase in net sales over 2004. Accounts receivable increased
        $22.4 million to $153.2 million at December 31, 2004 from $130.8
        million at December 31, 2003 due to a 4.1% increase in net sales over 2003
        and days sales outstanding increased to 46 days at December 31, 2004
        compared to 41 days at December 31, 2003. As of December 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 2003 and 2005.
  29
 *Table
            of Contents*
  Inventories
        increased $7.2 million to $155.4 million at December 31, 2005 compared to
        $148.2
        million at December 31, 2004. The increase was primarily due to the build
        up of
        inventory to meet our higher level of sales in 2006. As a result, our inventory
        turns stayed constant at seven times during 2005 and 2004. Inventories increased
        $22.4 million to $148.2 million at December 31, 2004 compared to
        $125.8 million at December 31, 2003. The increase was primarily due to
        the build up of inventory to meet our higher level of sales in 2004 compared
        to
        2003, as well as selling through higher cost inventory. As a result, our
        inventory turns decreased to seven times during 2004 from eight times during
        2003.
 
 Accounts
        payable decreased approximately $14.7 million to $266.9 million at December
        31,
        2005 compared to $281.6 million at December 31, 2004. The decrease was largely
        due to the timing of our payments to our suppliers. Accounts payable increased
        approximately $47.6 million to $281.6 million at December 31, 2004
        compared to $234.0 million at December 31, 2003. The increase was
        largely due to the increase in inventory balances and timing of our payments
        to
        our suppliers.
 
 *Investing
        Activities*
 
 Cash
        flows provided by investing activities were $1.2 million in both 2005 and
        2004,
        respectively compared to cash flow used in investing activities of $2.1 million
        in 2003. The primary reason for the variance between periods was the timing
        of
        sales and purchases of investments.
 
 *Financing
        Activities*
 
 Cash
        flows provided by financing activities were $1.4 million, $2.1 million and
        $1.5 million in 2005, 2004 and 2003, respectively. The primary reason for
        the
        variance between 2005 and 2004 was lower net bank borrowings to fund operations
        in Asia Pacific in 2005 compared to 2004. The primary reason for the variance
        between 2004 and 2003 was the higher increase of net bank borrowings to fund
        operations in Asia Pacific in 2004 compared to 2003.
 
 *Discontinued
        Operations*
 
 Cash
        flows used in operating activities from discontinued operations were $1.3
        million and $3.3 million in 2005 and 2003, respectively, and the cash flow
        provided by operating activities from discontinued operations was
        $0.9 million in 2004. The primary reason for the variance between 2005 and
        2004 was the payment of trade accounts payable and accrued expenses in 2005.
        The
        primary reason for the variance between 2004 and 2003 was the decrease of 
inventories in 2004 compared to 2003.
 
 Cash
        flows provided by investing activities from discontinued operations were
        $0.0
        million and $4.7 million in 2005 and 2004, respectively, and the cash flow
        used
        in investing activities from discontinued operations was $1.0 million in
        2003. During 2004, the Company received proceeds from sale of a
        majority-owned subsidiary in 2004.
  There
        was
        no financing activity from discontinued operations in 2005. The Company borrowed
        $4.9 million in 2003 and repaid the balance in 2004.
 
 **Contractual
        Obligations and Commitments**
 
 At
        December 31, 2005, we had contractual obligations and commercial
        commitments of $69.9 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 (1)
              
              $
              3,175
              
              $
              2,246
              
              $
              929
              
              $
              —
              
              $
              —Bank
                  borrowings
              
              
              4,852
              
              
              4,852
              
              
              —
              
              
              —
              
              
              —Subordinated
                  notes payable - related party (2)
              
              
              46,896
              
              
              1,707
              
              
              45,189
              
              
              —
              
              
              —Preferred
                  stock mandatory redemption (3)
              
              
              15,000
              
              
              15,000
              
              
              —
              
              
              —
              
              
              —Total
              
              $
              69,923
              
              $
              23,805
              
              $
              46,118
              
              $
              —
              
              $
              —
  30
 *Table
            of Contents*
  (1)
              The
                  amounts referenced above include our current lease commitments
                  under
                  outstanding leases; however, we do have the ability under the terms
                  of our
                  leases to extend them and may elect to do so in the future.  Amounts
                  due under any such lease extensions are not included in the amounts
                  referenced above.
 (2)
              Includes
                  interest payable of $1.7 million and $2.2 million for the respective
                  periods presented above.
 (3)
              On
                  January 10, 2006, we redeemed all 7,500,000 outstanding shares
                  of Series B
                  Preferred Stock for aggregate cash consideration of $15.0 million,
                  representing the full redemption price of the Series B Preferred
                  Stock.
 
 **Credit
        Facilities**
 
 We
        have a
        $60.0 million credit line that expires in March 2008. Advances bear interest
        at
        the prime rate plus 0.50% (7.75% at December 31, 2005) with interest
        payable monthly. As of December 31, 2005 and 2004, there was no outstanding
        balance on the line-of-credit. All advances under the agreement are
        collateralized by substantially all of the assets of ViewSonic Americas.
         Under the agreement we are subject to various restrictive covenants,
        which, among other things, limit dividends (not to exceed $250,000 per year
        without the consent of the financial institution), capital expenditures and
        executive compensation and require us to maintain a minimum earnings before
        interest, taxes, depreciation and amortization amount. We are not required
        to
        comply with the restrictive covenants when borrowing capacity exceeds $15.0
        million.
 
 In
        June
        2004, ViewSonic Europe Limited entered into a $20.0 million line-of-credit
        facility with a financial institution. This line-of-credit is secured by
        trade receivables and inventory of ViewSonic Europe Limited. Advances bear
        interest at Libor plus a margin. There were no borrowings against this facility
        as of December 31, 2005.
 
 Certain
        of our other international subsidiaries also have line-of-credit facilities
        with
        various financial institutions that are secured by certain of their assets.
        These credit facilities allow cash advances, letters of credit and bank
        guarantees. During the year 2005, the cash advances bore interest at rates
        ranging from 1.6% to 5.3%. At December 31, 2005 and 2004, there were
        outstanding cash advances of approximately $4.9 million and $3.5 million,
        respectively. At December 31, 2005, the borrowing limit was approximately
        $23.4 million.
 
 As
        of
        December 31, 2005, the Company was in compliance with the covenants of all
        its
        various borrowing arrangements.
 
 **Off-Balance
        Sheet Arrangements**
 
 At
        December 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 by large
        wholesale distribution partners and retailers attributable to the holiday
        season
        in the Americas. For the years 2003 through 2005, the average range of decline
        in net sales from the first quarter to the second quarter has been 5.9%.
        Our
        seasonality is moderated through slightly different seasonal variations in
        the
        three regions.
 
 **Operating
        Capital and Capital Expenditure Requirements**
 
 We
        believe that our existing cash balances, credit facilities and anticipated
        cash
        flows from operations will be sufficient to meet our operating, acquisition
        and
        capital requirements for at least the next 12 months. However, there is no
        assurance that we will not need to raise additional equity or debt financing
        within this time frame. 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;
 ·
              An
                  adverse change in payment terms with our customers or our suppliers;
                  or
 ·
              New
                  product announcements or product introductions by our
                  competitors.
  31
 *Table
            of Contents*
  **Critical
        Accounting Policies and Estimates**
 
 *General*
 
 Management's
        Discussion and Analysis of Financial Condition and Results of Operations
        is
        based on our consolidated financial statements, which have been prepared
        in
        accordance with the accounting principles generally accepted 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. Management has discussed the development, selection and
        disclosure of these estimates with the Audit Committee of our Board of
        Directors. Actual results may differ from these estimates under different
        assumptions or conditions.
 
 An
        accounting policy is deemed to be critical if it requires an accounting estimate
        to be made based on assumptions about matters that are highly uncertain at
        the
        time the estimate is made, and if different estimates that reasonably could
        have
        been used, or changes in the accounting estimates that are reasonably likely
        to
        occur periodically, could materially impact the financial statements. Management
        believes the following critical accounting policies reflect its more significant
        estimates and assumptions used in the preparation of the consolidated financial
        statements.
 
 *Revenue
        Recognition and Promotional Expenses*
 
 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. We extend rights of return to our customers,
        which are accrued for based on estimated future returns determined by using
        estimates and historical experience.
 
 We
        record
        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 us 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 us to estimate, based on historical experience, the number of customers
        who will actually redeem the incentive.
 
 In
        accordance with EITF 01-9, *Accounting
        for Consideration Given by a Vendor to a Customer (Including a Reseller of
        the
        Vendor's Products* ),
        we
        estimate our promotions based on our historical experience and consider these
        sales allowances reasonably estimable and as such we record these sales
        allowances as a reduction of our revenue in our statement of operations.
        We
        offer sales allowance programs, which can generally be categorized as rebates,
        price protection and other "meet the competition" discounts ( *i.e.,* discounts offered to meet our competition's prices on comparable products).
        We
        consider these sales incentives to be an adjustment of the selling price
        to our
        customers. In accordance with EITF 01-9, we recognize the maximum potential
        liability for our sales promotions in our statement of operations unless
        the
        estimated liability can be reduced based on relevant historical experience.
        We
        monitor our various sales incentive programs by customer on a monthly basis
        and
        assess the adequacy of our accruals for such programs as necessary. Over
        the
        past three years, such programs have averaged 7.9% of our net sales per year.
        Therefore, if our estimates were understated by 1% of our net sales for 2005,
        the negative impact to our net sales would approximate $12.0 million. As a
        percentage of net sales, sales allowances decreased by 3.7% to 6.3% in 2005
        from
        10.0% in 2004 largely due to a reduction in the number of sales allowances
        offered during 2005 compared to 2004 due to oversupply in the market of LCD
        products.
 
 We
        estimate returns allowances based upon our historical experience. With regard
        to
        returns, the primary factors affecting our estimates include the estimated
        return rate and the number of units shipped that still have a specified right
        of
        return as of the balance sheet date. During the last three years, our customer
        returns have approximated 1.9% of net sales.
 
 *Allowance
        for Doubtful Accounts*
 
 Our
        allowance for doubtful accounts is determined using an analysis to determine
        whether the balance of the account sufficiently adjusts the accounts receivable
        balance to its net realizable value. The analysis consists of applying a
        historical write-off percentage against the accounts receivable aging balance
        to
        determine whether the allowance for doubtful accounts balance is sufficient
        to
        cover expected future write-offs. We maintain an allowance for all customers
        based on a variety of factors, including the length of time receivables are
        past
        due, trends in overall rating of the total portfolio, macroeconomic conditions,
        significant one-time events and historical experience. Also, we record an
        additional allowance for individual accounts when we become aware of a
        customer's inability to meet its financial obligations to us, such as in
        the
        case of bankruptcy filings or deterioration in the customer's operating results
        or financial position. If circumstances related to customers change, our
        estimates of the recoverability of receivables would be further adjusted.
        If our
        estimates for future bad debts are higher than recorded, this could result
        in
        higher bad debt expenses.
  32
 *Table
            of Contents*
  Historically
        our allowance for doubtful accounts has represented less than 4.0% of our
        gross
        receivables and the only significant past losses or write-offs have resulted
        from customer bankruptcies. We monitor customer credit limits on a monthly
        basis
        and review historical payment history. As of December 31, 2005, we had
        $146.0 million in net accounts receivable.
 
 *Inventory
        Valuation*
 
 Our
        inventory is stated at the lower of cost or market. Adjustments to inventory
        are
        made via specific identification for estimated excess, obsolete or impaired
        balances, to reflect inventory at the lower of cost or market. Factors
        influencing these adjustments include: changes in demand, rapid technological
        changes, product life cycle and development plans, component cost trends,
        product pricing, physical deterioration and quality issues. Revisions to
        these
        adjustments would be required if any of these factors differ from our estimates.
 
 If
        we are
        unable to properly monitor and manage our sales channel inventory and maintain
        an appropriate level and mix of products with our customers, we may experience
        inventory losses. On a monthly basis, we review the amount of inventory in
        the
        various sales channels, sales forecasts, and historical trends such as sell
        through activity as well as price trends and other relevant data. Based upon
        this market information, we adjust our related inventory values. Major changes
        in inventory values usually relate to technological changes and market
        acceptance of new products, which are difficult to predict. Our inventory
        write-downs as a percentage of cost of sales have averaged approximately
        1% for
        the years ended December 31, 2005, 2004 and 2003.
 
 *Promotional
        Pricing Incentives from our Vendors*
 
 We
        receive promotional pricing incentives from several of our product vendors.
        The
        amount of the pricing incentives is based on the market competition 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. We record the reimbursement from our vendors for these promotional
        pricing incentives when we are released of the legal liability for the payment
        of the product purchases by our vendors.
 
 *Warranty
        Provision*
 
 We
        provide 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. We accrue 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),
        defective rates, and total number of products under warranty. If our estimates
        for net cost of repair and defective rates are higher than recorded, this
        could
        result in higher future warranty expenses.
 
 *Patent
        Litigation Expenses*
 
 There
        are
        certain claims against us that are related to patent infringement cases.
        We
        accrue for these claims whenever we determine an unfavorable outcome is
        probable. The amount of the accrual is estimated based on each individual
        claim,
        including past history with the vendor and type of claim.
  *Long-Term
        Investments*
 
 For
        our
        publicly traded investments, we follow SFAS No. 115, *Accounting
        for Certain Investments in Debt and Equity Securities* ,
        and
        account for such investments as available for sale. Unrealized gains (losses)
        are recorded in other comprehensive income, net of tax. Any realized gains
        (losses) are recorded in other income (expense) and cost is determined by
        specific identification.
 
 We
        account for our investments in privately held companies under the cost method.
        Our investment in privately held companies was valued at $0.1 million, $2.4
        million and $4.7 million as of December 31, 2005, 2004 and 2003, respectively.
        We are under no contractual obligation to provide additional funding to these
        privately held companies and do not exercise significant influence over
        them.
 
 When
        events dictate, we perform an impairment analysis to determine whether the
        loss,
        if any, is other than temporary.
 
 Private
        and public securities investment impairments totaled $1.8 million, $4.3 million
        and $3.6 million in 2005, 2004 and 2003, respectively. In determining whether
        an
        impairment exists, our impairment policy is to evaluate the latest financial
        operating results of the investment, review projections on a discounted cash
        flow model and perform an overall analysis of our original cost. The actual
        amount of impairment is based on the difference between the discounted cash
        flows versus the recorded value.
  33
 *Table
            of Contents*
  *Income
        Taxes*
 
 Deferred
        income tax assets and liabilities are computed annually for differences between
        the financial statement and income tax bases of assets and liabilities. Such
        deferred income tax asset and liability computations are based on enacted
        tax
        laws and rates applicable to periods in which the differences are expected
        to
        reverse. If necessary, a valuation allowance is established to reduce deferred
        income tax assets in accordance with SFAS No. 109, *Accounting
        for Income Taxes* .
 
 The
        establishment of a valuation allowance requires the assessment of both positive
        and negative evidence. This evidence includes our past and projected future
        performance, the market environment in which we operate, the utilization
        of past
        tax credits and the length of the carry-back and carry-forward periods of
        net
        operating losses. As of December 31, 2005, we have a valuation allowance
        of
        $17.3 million of which $15.5 million was against domestic net deferred income
        tax assets. In addition, a valuation allowance has been established against
        deferred income tax assets in all jurisdictions with the exception of our
        subsidiary in Taiwan.
 
 Pursuant
        to APB No. 23, *Accounting
        for Income Taxes-Special Areas* ,
        we do
        not provide for federal income taxes or tax benefits on the undistributed
        earnings associated with the non-U.S. operations. In the event some or all
        of
        the earnings were distributed to the U.S. entity, some portion of the
        distribution would be subject to both U.S. income taxes and foreign withholding
        taxes. However, foreign tax credits may become available to reduce or eliminate
        the U.S. income tax liability.
 
 **New
        Accounting Pronouncements**
 
 In
        December 2004, FASB, issued SFAS No. 123(R), which revises SFAS No. 123,
        and
        supersedes APB Opinion No. 25, *Accounting
        for Stock Issued to Employees,* or
        APB
        Opinion No. 25. SFAS 123(R) requires fair value recognition of stock option
        grants in the income statement as an expense and it became effective beginning
        January 1, 2006. We are in the process of evaluating the impact of this
        pronouncement on the financial statements and how it may change the way we
        provide incentive compensation to our employees in the future.
 
 On
        May 9,
        2005, we re-priced all outstanding stock options held by our employees,
        executive officers and members of our Board of Directors of record on March
        2,
        2005. As a result, the exercise price of our outstanding stock options subject
        to re-pricing was lowered to $0.38 per share, resulting in stock option expense
        of $1.1 million. The re-pricing was implemented in order to realign the cash
        and
        equity components of our compensation programs for employees, executive officers
        and directors.  During the second quarter of 2005, we elected to adopt the
        fair value based employee stock-based compensation expense recognition
        provisions of SFAS No. 123, using the modified prospective method. We previously
        applied the intrinsic value based expense recognition provisions set forth
        in
        APB Opinion No. 25. Had we not adopted SFAS 123, the stock options that were
        re-priced in the second quarter of 2005 would have been subject to variable
        accounting with changes in the fair value of the stock options being recorded
        in
        our Statements of Operations. We elected not to early adopt SFAS 123(R).
        Among
        other differences, SFAS 123(R) includes an estimate of volatility. SFAS 123
        does
        not require the use of volatility for privately held companies in estimating
        the
        fair value of stock options. Management believes that use of the fair value
        based method to record employee stock-based compensation expense is consistent
        with the accounting for all other forms of compensation. The adoption of
        the
        fair value based recognition provision decreased net income by $1.6 million
        for
        the year ended December 31, 2005.
 
 In
        May
        2005, the FASB issued SFAS No. 154, *Accounting
        Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting
        Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial
        Statements* ,”
or
        SFAS No. 154. SFAS No. 154 changes the requirements for accounting for, and
        reporting of, a change in accounting principle. Previously, most voluntary
        changes in accounting principles were required to be recognized by way of
        a
        cumulative effect adjustment within net income during the period of the change.
        SFAS No. 154 generally requires retrospective application to prior periods’
financial statements of voluntary changes in accounting principles. SFAS
        No. 154
        is effective for accounting changes made in fiscal years beginning after
        December 15, 2005; however, SFAS No. 154 does not change the transition
        provisions of any existing accounting pronouncements. We do not believe SFAS
        No.
        154 will have a material effect on our consolidated statements of operations
        or
        balance sheets.
 
 **Subsequent
        Events**
 
 On
        January 10, 2006, we redeemed all 7,500,000 outstanding shares of Series
        B
        Preferred Stock for aggregate cash consideration of $15.0 million, representing
        the full redemption price of the Series B Preferred Stock.
 
 **ITEM
                  7A.**
              **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 and certain other Asian currencies. 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.
  34
 *Table
            of Contents*
  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 2005, the Euro-to-U.S. Dollar foreign
        currency exchange rate weakened against the U.S. Dollar decreasing 11.3%
        on an
        average annual basis compared to the average in 2004. The weakening of the
        Euro
        negatively impacted our 2005 net sales and income from operations by
        $9.3 million and $6.2 million, respectively, assuming all other
        factors remain constant. Historically, sales of our products have benefited
        from
        effects of the weakening U.S. Dollar, which make our products more affordable
        in
        several markets. However, in periods of a strengthening U.S. dollar, our
        revenues measured in U.S. dollars are negatively impacted, while our cost
        of
        sales remains fairly constant, resulting in lower gross profit. We need to
        manage our account receivables and inventory balances in order to limit our
        foreign currency exposure to a strengthening U.S. Dollar. We are in the process
        of forming a foreign currency hedging strategy. We currently estimate that
        a 10%
        fall in the Euro from €1.20 to €1.08 in December 2006 may result in a $17.5
        million reduction in net sales. The ultimate impact of future changes to
        these
        and other currency exchange rates on 2006 net sales, income from operations,
        net
        income, equity, and comprehensive income is not determinable at this time.
 
 We
        have a
        portfolio of investments that includes marketable securities classified as
        available-for-sale long-term investments. To the extent that these investments
        continue to have strategic value, we typically do not attempt to reduce or
        eliminate our market exposure. For those securities that are no longer
        considered strategic, management will evaluate market and economic factors
        in
        its decision on the timing of disposal. Our investments are generally in
        companies in the high-technology industry.
 
 **ITEM
                  8****.**
              **FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY
                  DATA**
  35
 *Table
            of Contents*
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors and Stockholders of
 ViewSonic
        Corporation
 Walnut,
        California
 
 We
        have
        audited the accompanying consolidated balance sheets of ViewSonic Corporation
        and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the
        related consolidated statements of operations, stockholders’ equity, and cash
        flows for each of the three years in the period ended December 31, 2005.
        Our
        audits also included the financial statement schedule listed in the Index
        at
        Item 15. These financial statements and the financial statement schedule
        are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on the financial statements and financial statement schedule based
        on
        our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audits included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, such consolidated financial statements present fairly, in all material
        respects, the financial position of ViewSonic Corporation and subsidiaries
        as of
        December 31, 2005 and 2004, and the results of their operations and their
        cash
        flows for each of the three years in the period ended December 31, 2005,
        in
        conformity with accounting principles generally accepted in the United States
        of
        America. Also, in our opinion, such financial statement schedule, when
        considered in relation to the basic consolidated financial statement taken
        as a
        whole, presents fairly in all material respects the information set forth
        therein.
 
 As
        discussed in Note 2 to the consolidated financial statements, in 2005 the
        Company changed its method of accounting for stock-based compensation to
        conform
        to Statement of Financial Accounting Standards, No. 123, *Accounting
        for Stock-Based Compensation.*
 
 As
        discussed in Note 2 to the consolidated financial statements, in 2005, the
        Company changed the presentation of its consolidated statements of cash flows
        to
        present separate disclosure of the cash flows from operating, investing,
        and
        financing activities of discontinued operations and retroactively revised
        the
        consolidated statements of cash flows for the years ended December 31, 2004
        and 2003, for the change.
 
 
 DELOITTE
        & TOUCHE LLP
 Los
        Angeles, California
 March
        31,
        2006
  36
 *Table
            of Contents*
  **VIEWSONIC
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **DECEMBER
        31, 2005 AND 2004**
 **(Amounts
        in thousands, except share information)**
 
 
 **ASSETS**
              
              **2005**
              
              **2004**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              93,998
              
              $
              100,497Short-term
                  investments
              
              
              —
              
              
              2,268Trade
                  receivables—net
              
              
              145,982
              
              
              153,159Other
                  receivables
              
              
              7,013
              
              
              7,296Inventories
              
              
              155,389
              
              
              148,224Deferred
                  income taxes
              
              
              3,194
              
              
              9,665Prepaids
                  and other current assets
              
              
              2,736
              
              
              3,095Income
                  taxes receivable
              
              
              761
              
              
              559Current
                  assets of discontinued operations
              
              
              195
              
              
              1,769Total
                  current assets
              
              
              409,268
              
              
              426,532PROPERTY,
                  PLANT AND EQUIPMENT—Net
              
              
              12,929
              
              
              15,163LONG-TERM
                  INVESTMENTS
              
              
              2,676
              
              
              7,072GOODWILL
              
              
              1,347
              
              
              1,347OTHER
                  ASSETS—Net
              
              
              6,505
              
              
              8,369NON-CURRENT
                  ASSETS OF DISCONTINUED OPERATIONS
              
              
              
              
              
              40TOTAL
              
              $
              432,725
              
              $
              458,523**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**CURRENT
                  LIABILITIES:Bank
                  borrowings
              
              $
              4,852
              
              $
              3,529Accounts
                  payable
              
              
              266,867
              
              
              281,609Accrued
                  promotional expenses
              
              
              22,663
              
              
              30,267Accrued
                  warranty expense
              
              
              21,350
              
              
              17,365Other
                  accrued expenses
              
              
              20,614
              
              
              18,702Current
                  liabilities of discontinued operations
              
              
              195
              
              
              3,656Total
                  current liabilities
              
              
              336,541
              
              
              355,128SUBORDINATED
                  NOTES PAYABLE—Related party
              
              
              43,000
              
              
              43,000CONVERTIBLE
                  MANDATORILY REDEEMABLE PREFERRED STOCK
              
              
              14,952
              
              
              13,428STOCKHOLDERS'
                  EQUITY:Common
                  stock, $.01 par value:Authorized—600,000,000
                  shares at December 31, 2005 and 2004Outstanding—
                  353,974,268 and 353,959,176 shares at December31, 2005 and
                  2004.
              
              
              3,540
              
              
              3,540Additional
                  paid-in capital
              
              
              93,716
              
              
              92,149Accumulated
                  deficit
              
              
              (55,611
              )
              
              (45,754
              )Accumulated
                  other comprehensive loss
              
              
              (3,413
              )
              
              (2,968
              )Total
                  stockholders' equity
              
              
              38,232
              
              
              46,967TOTAL
              
              $
              432,725
              
              $
              458,523
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  37
 *Table
            of Contents*
  **VIEWSONIC
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **YEARS
        ENDED DECEMBER 31, 2005, 2004 AND 2003**
 **(Amounts
        in thousands, except per share information)**
  **2005**
              
              **2004**
              
              **2003**Net
                  sales
              
              $
              1,200,190
              
              $
              1,104,333
              
              $
              1,060,691Cost
                  of sales
              
              
              1,085,011
              
              
              1,003,960
              
              
              926,201Gross
                  profit
              
              
              115,179
              
              
              100,373
              
              
              134,490Selling,
                  general and administrative expenses
              
              
              105,349
              
              
              117,338
              
              
              126,180Income
                  (loss) from operations
              
              
              9,830
              
              
              (16,965
              )
              
              8,310Other
                  (expense) income—net:Interest
                  income (expense)—net
              
              
              287
              
              
              (1,291
              )
              
              (1,464
              )Other
                  (expense) income—net
              
              
              (4,266
              )
              
              2,542
              
              
              2,822Other
                  (expense) income—net
              
              
              (3,979
              )
              
              1,251
              
              
              1,358Income
                  (loss) from continuing operations before income taxes
              
              
              5,851
              
              
              (15,714
              )
              
              9,668Provision
                  (benefit) for income taxes
              
              
              14,659
              
              
              (3,293
              )
              
              2,333(Loss)
                  income from continuing operations
              
              
              (8,808
              )
              
              (12,421
              )
              
              7,335(Loss)
                  from discontinued operations
              
              
              —
              
              
              (5,989
              )
              
              (2,853
              )Net
                  gain on disposal of discontinued operations, net of tax
              
              
              475
              
              
              2,153
              
              
              —Net
                  (loss) income
              
              
              (8,333
              )
              
              (16,257
              )
              
              4,482Preferred
                  stock accretion
              
              
              (1,524
              )
              
              (1,372
              )
              
              (1,229
              )Net
                  (loss) income available to common stockholders
              
              $
              (9,857
              )
              $
              (17,629
              )
              $
              3,253Basic
                  (loss) earnings per share:Continuing
                  operations
              
              $
              (0.03
              )
              $
              (0.04
              )
              $
              0.02Discontinued
                  operations
              
              $
              —
              
              $
              (0.02
              )
              $
              (0.01
              )Gain
                  on disposal of discontinued operations
              
              $
              —
              
              $
              0.01
              
              $
              —Total
                  basic (loss) earnings per share
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01Diluted
                  (loss) earnings per shareContinuing
                  operations
              
              $
              (0.03
              )
              $
              (0.04
              )
              $
              0.02Discontinued
                  operations
              
              $
              —
              
              $
              (0.02
              )
              $
              (0.01
              )Gain
                  on disposal of discontinued operations
              
              $
              —
              
              $
              0.01
              
              $
              —Total
                  diluted (loss) earnings per share
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01Basic
                  weighted average shares outstanding
              
              
              353,969
              
              
              353,917
              
              
              353,891Diluted
                  weighted average shares outstanding
              
              
              353,969
              
              
              353,917
              
              
              358,538
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  38
 *Table
            of Contents*
 
 **VIEWSONIC
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **YEARS
        ENDED DECEMBER 31, 2005, 2004 AND 2003**
 **(Amounts
        in thousands, except share information)**
 
 **Common
                  Stock**
              
              **Additional**
                **Paid-In**
              
              **Accumulated**
              
              **Other**
                **Comprehensive**
              
              **Accumulated**
                **Total**
                **Stockholders’**
              
              **Comprehensive**
                **Income****Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Income
                  (Loss)**
              
              **Equity**
              
              **(Loss)**BALANCE—January
                  1, 2003
              
              
              353,885,825
              
              $
              3,539
              
              $
              82,282
              
              $
              (31,378
              )
              $
              (1,834
              )
              $
              52,609Comprehensive
                  income (loss):
              
              
              
              
              
              
              
              
              
              
              
              4,482
              
              
              
              
              
              4,482
              
              $
              4,482Net
                  incomeOther
                  comprehensive loss—net of tax:
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              223
              
              
              223
              
              
              223Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,201
              )
              
              (1,201
              )
              
              (1,201
              )Unrealized
                  holding losses on marketable securities—less realized
                  gains
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              3,504Comprehensive
                  income
              
              
              
              
              
              
              
              
              9,810
              
              
              
              
              
              
              
              
              9,810Preferred
                  stock accretion
              
              
              
              
              
              
              
              
              
              
              
              (1,229
              )
              
              
              
              
              (1,229
              )Issuance
                  of common stock and warrants
              
              
              11,924
              
              
              —
              
              
              13
              
              
              —
              
              
              —
              
              
              13BALANCE—December
                  31, 2003
              
              
              353,897,749
              
              
              3,539
              
              
              92,105
              
              
              (28,125
              )
              
              (2,812
              )
              
              64,707Comprehensive
                  loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              (16,257
              )
              
              
              
              
              (16,257
              )
              $
              (16,257
              )Other
                  comprehensive income (loss)—net of tax:Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              706
              
              
              706
              
              
              706Unrealized
                  holding losses on marketable securities—less realized
                  gains
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (862
              )
              
              (862
              )
              
              (862
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (16,413
              )Preferred
                  stock accretion
              
              
              
              
              
              
              
              
              
              
              
              (1,372
              )
              
              
              
              
              (1,372
              )Issuance
                  of common stock
              
              
              76,595
              
              
              1
              
              
              44
              
              
              
              
              
              
              
              
              45Rescission
                  of common stock (Note 16)
              
              
              (15,168
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE—December
                  31, 2004
              
              
              353,959,176
              
              
              3,540
              
              
              92,149
              
              
              (45,754
              )
              
              (2,968
              )
              
              46,967Comprehensive
                  loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              (8,333
              )
              
              
              
              
              (8,333
              )
              
              (8,333
              )Other
                  comprehensive income (loss)—net of tax:Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              178
              
              
              178
              
              
              178Unrealized
                  holding losses on marketable securities—less realized
                  gains
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (623
              )
              
              (623
              )
              
              (623
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (8,778
              )Preferred
                  stock accretion
              
              
              
              
              
              
              
              
              
              
              
              (1,524
              )
              
              
              
              
              (1,524
              )Issuance
                  of common stock
              
              
              15,092
              
              
              —
              
              
              11
              
              
              —
              
              
              —
              
              
              11Stock-based
                  compensation expense
              
              
              —
              
              
              —
              
              
              1,556
              
              
              —
              
              
              —
              
              
              1,556BALANCE—December
                  31, 2005
              
              
              353,974,268
              
              $
              3,540
              
              
              93,716
              
              $
              (55,611
              )
              $
              (3,413
              )
              $
              38,232
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  39
 *Table
            of Contents*
  **VIEWSONIC
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **YEARS
        ENDED DECEMBER 31, 2005, 2004 AND 2003**
 **(Amounts
        in thousands)**
 
 **2005**
              
              **2004**
                **(Revised)**
              
              **2003**
                **(Revised)****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**(Loss)
                  income from continuing operations
              
              $
              (8,808
              )
              $
              (12,421
              )
              $
              7,335Adjustments
                  to reconcile (loss) income from continuing operations to net cash
                  provided
                  by operating activities:Depreciation
                  and amortization
              
              
              3,107
              
              
              3,555
              
              
              3,463Loss
                  on disposal of property, plant and equipment
              
              
              22
              
              
              75
              
              
              103Provision
                  for doubtful accounts
              
              
              603
              
              
              (257
              )
              
              1,228Loss
                  on sale and impairment of long-term investments
              
              
              190
              
              
              2,773
              
              
              3,666Deferred
                  income taxes
              
              
              12,481
              
              
              (3,235
              )
              
              (735
              )Stockholders'
                  complaint settlement
              
              
              —
              
              
              —
              
              
              9,810Stock-based
                  compensation expense
              
              
              1,556
              
              
              —
              
              
              —CHANGES
                  IN OPERATING ASSETS AND LIABILITIES:Trade
                  receivables
              
              
              6,094
              
              
              (22,215
              )
              
              (22,913
              )Other
                  receivables
              
              
              316
              
              
              (1,858
              )
              
              1,832Inventories
              
              
              (7,263
              )
              
              (22,567
              )
              
              (7,509
              )Prepaids
                  and other current assets
              
              
              296
              
              
              1,112
              
              
              1,800Accounts
                  payable
              
              
              (14,434
              )
              
              47,516
              
              
              17,715Accrued
                  promotional and other expenses
              
              
              (8,356
              )
              
              16,540
              
              
              1,080Accrued
                  warranty expense
              
              
              4,005
              
              
              2,833
              
              
              388Income
                  taxes payable/receivable
              
              
              1,861
              
              
              (2,073
              )
              
              3,936Net
                  cash (used in) provided by operating activities
              
              
              (8,330
              )
              
              9,778
              
              
              21,199**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Net
                  purchase of property, plant and equipment
              
              
              (1,282
              )
              
              (2,981
              )
              
              (2,751
              )Proceeds
                  from sale of property and equipment
              
              
              38
              
              
              —
              
              
              —Purchases
                  of long-term investments
              
              
              —
              
              
              —
              
              
              (214
              )Proceeds
                  on sale of long-term investments
              
              
              3,168
              
              
              2,716
              
              
              4,504(Purchases)
                  sales of short-term investments
              
              
              2,242
              
              
              1,419
              
              
              (3,687
              )Change
                  in other assets
              
              
              (2,938
              )Net
                  cash provided by (used in) investing activities
              
              
              1,228
              
              
              1,154
              
              
              (2,148
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from bank borrowings
              
              
              5,398
              
              
              38,932
              
              
              30,551Payments
                  on bank borrowings
              
              
              (3,974
              )
              
              (36,878
              )
              
              (29,076
              )Proceeds
                  from issuance of common stock
              
              
              11
              
              
              45
              
              
              13Net
                  cash provided by financing activities
              
              
              1,435
              
              
              2,099
              
              
              1,488**CASH
                  FLOW FROM DISCONTINUED OPERATIONS**Cash
                  flow from operating activities
              
              
              (1,324
              )
              
              935
              
              
              (3,329
              )Cash
                  flow from investing activities
              
              
              40
              
              
              4,687
              
              
              (960
              )Cash
                  flow from financing activities
              
              
              —
              
              
              (4,867
              )
              
              4,867Net
                  cash (used in) provided by discontinued operations
              
              
              (1,284
              )
              
              755
              
              
              578NET
                  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              (6,951
              )
              
              13,786
              
              
              21,117CASH
                  AND CASH EQUIVALENTS—beginning
                  of year
              
              
              100,497
              
              
              86,828
              
              
              65,641EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
              
              
              452
              
              
              (117
              )
              
              70**CASH
                  AND CASH EQUIVALENTS—End of year**
              
              $
              93,998
              
              $
              100,497
              
              $
              86,828SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION—Cash paid (refund)
                  for:Interest
              
              $
              2,097
              
              $
              2,234
              
              $
              2,034Income
                  taxes
              
              $
              2,362
              
              $
              2,365
              
              $
              (1,887
              )SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH INVESTING ACTIVITY— Unrealized holding (losses)
                  gains in 2005, 2004 and 2003 for investments available for sale,
                  net of
                  tax of $(104), $(625), and $(801), respectively
              
              $
              (156
              )
              $
              (2,159
              )
              $
              (623
              )
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  40
 *Table
            of Contents*
  **VIEWSONIC
        CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED DECEMBER 31, 2005, 2004 AND 2003**
 
 **1.**
              **Organization
                  and Business**
 
 ViewSonic
        Corporation, a Delaware corporation, and subsidiaries (the “Company”), was
        incorporated in 1987. The Company is a leading global provider of visual
        display
        technology, including CRT monitors, LCD displays, projectors, plasma displays,
        HDTV technology and the latest in mobile products including wireless display
        solutions.
 
 Headquartered
        in Walnut, California, the Company has subsidiaries with operations in the
        United States, Taiwan, China, Singapore, Hong Kong, Australia, the United
        Kingdom, France and Germany.
 
 **2.**
              **Summary
                  of Significant Accounting Policies**
 
 ***Principles
        of Consolidation*** —
The
        Company's consolidated financial statements include the accounts of the Company
        and its majority-owned subsidiaries and elimination of all significant
        intercompany accounts and transactions.
 
 ***Use
        of Estimates*** —
The
        preparation of the consolidated financial statements in conformity with
        accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and the disclosure of contingent assets
        and
        liabilities at the date of the consolidated financial statements and the
        reported amounts of revenues and expenses during the reporting periods. Actual
        results could differ from those estimates.
 
 ***Cash,
        Cash Equivalents and Short-Term Investments*** —
Cash
        and cash equivalents include currency on hand and time deposits with original
        maturities of less than three months.
 
 Short-term
        investments represent time deposits with original maturities of more than
        three
        months but less than one year.
 
 ***Trade
        Receivables-Net*** —
Trade
        receivables, net include an allowance for doubtful accounts of approximately
        $4,975,000, $5,327,000 and $4,192,000 as of December 31, 2005, 2004 and
        2003, respectively. The allowance amount is determined by specific review
        of the
        receivable aging balances.
 
 ***Other
        Receivables*** —
This
        balance includes related party receivables (see Note 9) and other
        receivables.
 
 ***Inventories*** —
        Inventories consist primarily of finished goods and are stated at the lower
        of
        cost or market. Cost is determined using the first-in, first-out method of
        accounting. The Company writes down its inventory for estimated lower of
        cost or
        market, obsolescence or unmarketable inventory equal to the difference between
        the cost of inventory and the net realizable value based upon assumptions
        about
        future demand and market conditions. Other factors influencing these write
        downs
        include: rapid technological changes, product life cycle and product pricing.
        The Company evaluates its inventory on a monthly basis and makes necessary
        adjustments. Inventory write-downs totaled $11,529,000, $9,800,000 and
        $9,500,000 in 2005, 2004 and 2003, respectively.
 
 ***Property,
        Plant and Equipment-Net*** —
        Depreciation is provided for on the straight-line method over the estimated
        useful lives of the assets, 3 to 30 years. Amortization of leasehold
        improvements is over the lesser of the lease term or useful life of the
        improvement.
 
 The
        Company's property, plant and equipment are recorded at cost and include
        significant expenditures that increase the asset lives. Ordinary maintenance
        and
        repairs are charged to operations as incurred. When assets are sold or otherwise
        disposed of, the recorded cost and related accumulated depreciation or
        amortization are removed from the accounts and any resulting gain or loss
        is
        recognized.
 
 ***Long-Term
        Investments*** —
The
        Company's long-term investments include both publicly traded and privately
        held
        companies. None of the Company's investments represent ownership of more
        than
        20% in the various companies. For the Company's publicly traded investments,
        the
        Company follows Statement of Financial Accounting Standards No. 115, *Accounting
        for Certain Investments in Debt and Equity Securities* ,
        or SFAS
        No. 115, and accounts for such investments as available for sale. Unrealized
        holding gains/losses are recorded in other comprehensive income/loss, net
        of
        tax. Any realized gains/losses are recorded in other income/expense and cost
        is
        determined by specific identification. The Company accounts for its privately
        held company investments under the cost method. When events dictate, the
        Company
        performs an impairment analysis to determine whether the loss, if any, is
        other
        than temporary. Private and public securities investment impairments totaled
        $1,808,000, $4,310,000 and $3,631,000 in 2005, 2004 and 2003, respectively.
        In
        determining if an impairment exists, the Company's impairment policy is to
        consider the latest actual financial operating results, and review projections
        on a discounted cash flow model, if available.
  41
 *Table
            of Contents*
  ***Income
        Taxes*** —
        Deferred income tax assets and liabilities are computed annually for differences
        between the financial statement and income tax bases of assets and liabilities.
        Such deferred income tax asset and liability computations are based on enacted
        tax laws and rates applicable to periods in which the difference are expected
        to
        reverse. If necessary, a valuation allowance is established to reduce deferred
        income tax assets in accordance with SFAS No. 109, *Accounting
        for Income Taxes* .
 
 Pursuant
        to APB Opinion No. 23, *Accounting
        for Income Taxes-Special Areas* ,
        (“APB
        No. 23”), the Company does not provide for income tax on the undistributed
        earnings associated with the non-U.S. operations. In the event some or all
        of
        the earnings were distributed to the Company, some portion of the distribution
        would be subject to both U.S. income taxes and foreign withholding taxes.
        However, foreign tax credits may become available to reduce or eliminate
        the
        U.S. income tax liability.
 
 ***Promotional
        Pricing Incentives from Vendors*** —
The
        Company receives promotional pricing incentives from several of its product
        vendors. The amount of the pricing incentives is based on the market competition
        and the quantity of historical purchases of these components from such vendors.
        The Company records the reimbursement from its vendors for these promotional
        pricing incentives when the Company is released of its legal liability.
        Promotional pricing incentives from its vendors totaled $6,411,000, $3,900,000
        and $0 in 2005, 2004 and 2003, respectively.
  ***Patent
        Litigation Expenses*** —
There
        are certain claims against the Company related to patent infringement cases.
        The
        Company accrues for these claims whenever it determines an unfavorable outcome
        is probable and the amount is reasonably estimable. The amount of the accrual
        is
        estimated based on each individual claim, including past history with the
        vendor
        and nature of the claim.
 
 ***Revenue
        Recognition, Warranty and Promotions*** —
        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 provides a variety of warranty programs worldwide, and each program
        is
        based on the specific products and geographic locations. Accruals are provided
        for such estimated future costs at the time the product is sold, and such
        amounts are based upon historical experience (see Note 14).
 
 The
        Company offers promotions such as rebates, price protection and other incentives
        to customers in the normal course of business. Accruals for these promotions
        are
        provided for based on estimates and historical experience. The costs of these
        promotions are netted against sales.
 
 The
        Company occasionally requests that its contract manufacturers ship finished
        goods directly to its customers. However, the Company's primary business
        practice is to have finished goods delivered from its contract manufacturers
        directly to the Company's regional warehouses, where it is stored for eventual
        shipment to its customers. For vendor drop shipment sales, the Company retains
        title to the shipment from the time it leaves the contract manufacturer's
        port
        of choice, until the time title passes to the customer. The Company's vendor
        drop shipment revenue was $101,836,000, $19,628,000 and $18,300,000 in 2005,
        2004, and 2003, respectively.
 
 ***Advertising*** —
        Advertising costs, which include cooperative advertising, media advertising
        and
        production costs, are recorded as selling, general and administrative expenses
        in the period in which the advertising first takes place. Advertising costs
        were
        $23,740,000, $27,599,000 and $27,944,000 for the years ended December 31,
        2005, 2004 and 2003, respectively.
 
 ***Research
        and Development*** —
        Research and development expenses are recorded as selling, general and
        administrative expenses and were $1,099,000, $1,852,000 and $8,158,000 for
        the
        years ended December 31, 2005, 2004 and 2003, respectively.
 
 ***Other
        Income-Net*** —
The
        other income, net account consists primarily of realized investment gains
        (losses), foreign currency transaction gains (losses) and other miscellaneous
        income. See Note 4 for realized investment gains (losses), and for
        transaction gains (losses), see below for more information.
 
 ***Foreign
        Currency Translation and Transaction Gain (Loss)*** —
The
        assets and liabilities of subsidiaries whose functional currency is other
        than
        the U.S. dollar are translated at the exchange rates applicable at the end
        of
        the reporting year. The statements of operations and cash flows of such
        subsidiaries are translated at the average exchange rates during the year.
        Translation gains or losses are accumulated as a separate component of
        stockholders' equity.
 
 The
        Company's net transaction losses were $4,686,000 for the year ended December
        31,
        2005 and the Company’s net transaction gains were $5,295,000 and $5,988,000 for
        the years ended December 31, 2004 and 2003, respectively.
  42
 *Table
            of Contents*
  ***Stock-Based
        Compensation*** —
On
        May
        9, 2005, the Company re-priced 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 the Company’s
        outstanding stock options subject to the re-pricing was lowered to $0.38
        per
        share, the estimated fair value on that date, resulting in stock option expenses
        of $1,100,000. The re-pricing was implemented in order to realign the cash
        and
        equity components of the Company’s compensation programs for employees,
        executive officers and directors.
 
 In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
        123(R), *Share-Based
        Payment* (“SFAS
        No. 123(R)”), 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. The Company adopted SFAS 123(R) effective January
        1,
        2006, and 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.
 
 During
        the second quarter of 2005, the Company elected to adopt the fair value based
        employee stock-based compensation expense recognition provisions of SFAS
        No.
        123, *Accounting
        for Stock-Based Compensation* (“SFAS
        123”), using the modified prospective method. The Company previously applied
        the
        intrinsic value based expense recognition provisions set forth in Accounting
        Principles Board (“APB”) Opinion No. 25, *Accounting
        for Stock Issued to Employees* (“APB
        25”). Had the Company not adopted SFAS 123, the stock options that were
        re-priced would have been subject to variable accounting with changes in
        the
        fair value of the stock options being recorded in the Statements of Operations.
        The Company elected not to early adopt SFAS 123(R). Among other differences,
        SFAS 123(R) includes an estimate of volatility. SFAS 123 does not require
        the
        use of volatility for privately held companies in estimating the fair value
        of
        stock options. Management believes that use of the fair value based method
        to
        record employee stock-based compensation expense is consistent with the
        accounting for all other forms of compensation. The adoption of the fair
        value
        based recognition provision decreased net income by $456,000 for the year
        ended
        December 31, 2005.
 
 Under
        the
        modified prospective method, compensation cost recognized in 2005 is the
        same as
        that which would have been recognized had the recognition provisions of SFAS
        123
        been applied from its original effective date. Results for prior years have
        not
        been restated. The following table illustrates the effect on net income and
        earnings per share if the fair value based method had been applied to all
        outstanding and unvested awards in 2004 and 2003.
 
 **Year
                  Ended December 31,****2005**
              
              **2004**
              
              **2003**Net
                  (loss) income, as reported
              
              $
              (8,333
              )
              $
              (16,257
              )
              $
              4,482Add:
                  Stock-based employee compensation expense included in reported
                  net income,
                  net of related tax effects
              
              
              1,556
              
              
              —
              
              
              —Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards, net of related tax
                  effects
              
              
              (1,556
              )
              
              (168
              )
              
              (247
              )Pro
                  forma net (loss) income
              
              $
              (8,333
              )
              $
              (16,425
              )
              $
              4,235(Loss)
                  earnings per share:Basic—as
                  reported
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01Basic—pro
                  forma
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01Diluted—as
                  reported
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01Diluted—pro
                  forma
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01
 
 The
        fair
        value of each option grant was estimated on the date of grant using the
        Black-Scholes option-pricing model with the following weighted-average
        assumptions. There are no assumptions for 2004 because there were no options
        granted in 2004.
  **2005**
              
              **2004**
              
              **2003**Dividend
                  yield
              
              
              0
              %
              
              —
              
              
              0
              %Expected
                  volatility
              
              
              0
              %
              
              —
              
              
              0
              %Risk-free
                  interest rates
              
              
              3.88
              %
              
              —
              
              
              4.01
              %Expected
                  lives
              
              
              4
                  years
              
              
              —
              
              
              4
                  yearsWeighted-average
                  fair value of options granted
              
              $
              0.06
              
              
              —
              
              $
              0.06
  43
 *Table
            of Contents*
  ***Foreign
        Component Suppliers and Assemblers and Regulations*** —
A
        significant number of products distributed by the Company are manufactured
        in
        China, Taiwan and Thailand. The purchase of goods manufactured in foreign
        countries is subject to a number of risks, including economic disruptions,
        transportation delays and interruptions, foreign exchange rate fluctuations,
        imposition of tariffs, import and export controls, and changes in governmental
        policies, any of which could have a material effect on the Company's business,
        results of operations and financial condition. While the Company does not
        believe that any of these factors impact its business significantly at present,
        there can be no assurance that these factors will not have a material effect
        on
        the Company in the future. Any significant disruption in the delivery of
        merchandise from the Company's component suppliers, substantially all of
        whom
        are foreign, would also have a material impact on the Company's business,
        results of operations and financial condition. Currently, the majority of
        purchases are made in U.S. dollars.
 
 ***Fair
        Value of Financial Instruments*** —
The
        Company's financial instruments recorded on the consolidated balance sheets
        include cash and cash equivalents, short-term investments, trade receivables,
        net, other receivables, accounts payable, bank borrowings, subordinated notes
        payable and convertible mandatorily redeemable preferred stock. Management
        believes that the recorded value of such financial instruments is a reasonable
        estimate of their fair value, except for the fair value of subordinated notes
        payable, which, due to its related party nature, is not determinable.
 
 ***Concentration
        of Credit Risk and Major Customers/Suppliers*** —
Trade
        receivables, net are unsecured, and the Company is at risk to the extent
        such
        amounts become uncollectible. The Company performs credit evaluations of
        each of
        its customers and maintains allowances for potential credit losses as needed.
 
 Two
        customers accounted for approximately 21%, 28% and 23% of total net sales
        for
        the years ended December 31, 2005, 2004 and 2003, respectively. These
        customers accounted for approximately 18% and 26% of trade receivables, net
        at
        December 31, 2005 and 2004, respectively.
 
 Four
        suppliers accounted for approximately 47%, 53% and 57% of total purchases
        for
        the years ended December 31, 2005, 2004 and 2003, respectively. These
        suppliers accounted for approximately 64% and 56% of accounts payable at
        December 31, 2005 and 2004, respectively.
 
 ***Expense
        Classifications*** — In
        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 expense were $8,783,000 and $7,640,000 for the years ended
        December 31, 2004 and 2003, respectively.
 
 ***Derivatives*** — The
        Company entered into a foreign currency option contract on June 2, 2005 to
        minimize the impact of foreign currency fluctuations on its business in Europe.
        The foreign currency option contract allowed the Company to sell 2,000,000
        Euros
        per month for an eight to twelve month term ending on June 28, 2006 at specific
        rates based on the spot rate in the market. This contract was not accounted
        for
        as a hedge under the SFAS No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* .
        Pursuant to the terms of the contract, the foreign currency option was
        terminated on November 7, 2005. Gains related to the foreign currency options
        were $720,000 in 2005 and are recorded in other (expense)
        income-net.
 
 ***New
        Accounting Pronouncement*** —
In
        May
        2005, the FASB issued SFAS No. 154, *Accounting
        Changes and Error Corrections* ,
        a
        replacement of APB Opinion No. 20, *Accounting
        Changes* ,
        and
        Statement No. 3, *Reporting
        Accounting Changes in Interim Financial Statements* ,
        or SFAS
        No. 154. SFAS No. 154 changes the requirements for the accounting for, and
        reporting of, a change in accounting principle. Previously, most voluntary
        changes in accounting principles were required to be recognized by way of
        a
        cumulative effect adjustment within net income during the period of the change.
        SFAS No. 154 generally requires retrospective application to prior periods’
financial statements of voluntary changes in accounting principles. SFAS
        No. 154
        is effective for accounting changes made in fiscal years beginning after
        December 15, 2005; however, SFAS No. 154 does not change the transition
        provisions of any existing accounting pronouncements. The Company does not
        believe SFAS No. 154 will have a material effect on its consolidated statements
        of operations or balance sheets.
 
 ***Statements
        of Cash Flows*** —
        Subsequent to the issuance of its consolidated financial statements for the
        year
        ended December 31, 2004, management of the Company determined that the cash
        flows associated with discontinued operations should not have been presented
        as
        a single line item within investing activities in the Consolidated Statements
        of
        Cash Flows. As a result, during 2005, the Company changed the presentation
        of
        cash flows from discontinued operations to present separate disclosure of
        the
        cash flows from operating, investing, and financing activities.
 
 ***Reclassifications*** —
        Interest expense and interest income have been shown net in the 2004 and
        2003
        consolidated financial statements to conform to the 2005
        presentation.
  44
 *Table
            of Contents*
  **3.**
              **Property,
                  Plant and Equipment**
 
 Property,
        plant and equipment, net consist of the following at December 31 (in
        thousands):
 
 **Useful
                  Lives**
              
              **2005**
              
              **2004**Land
              
              
              
              $4,426
              
              $4,579Building
              
              
              30
                  years
              
              
              5,437
              
              
              5,306Office
                  equipment
              
              
              3-5
                  years
              
              
              21,595
              
              
              20,724Furniture
                  and fixtures
              
              
              4-5
                  years
              
              
              5,086
              
              
              5,160Leasehold
                  improvements
              
              
              5-15
                  years
              
              
              5,585
              
              
              5,863Construction
                  in progress
              
              
              
              
              
              27
              
              
              1442,156
              
              
              41,646Accumulated
                  depreciation and amortization
              
              
              
              
              
              (29,227
              )
              
              (26,483
              )$
              12,929
              
              $
              15,163
 
 The
        total
        depreciation and amortization expense for the years ended December 31,
        2005, 2004 and 2003 was approximately $3,107,000, $3,555,000 and $3,463,000,
        respectively.
 
 **4.**
              **Long-Term
                  Investments**
 
 The
        Company’s investment activity in other comprehensive income, net of tax, is as
        follows at December 31 (in thousands):
 
 **2005**
              
              **2004**
              
              **2003**Beginning
                  balance—unrealized (loss) gain
              
              $
              (52
              )
              $
              810
              
              $
              2,011Unrealized
                  holding gains (losses)
              
              
              (156
              )
              
              (2,159
              )
              
              (623
              )Reclassification
                  for realized (gains) losses
              
              
              (467
              )
              
              1,297
              
              
              (578
              )Ending
                  balance—unrealized (loss) gain
              
              $
              (675
              )
              $
              (52
              )
              $
              810
 
 The
        Company's long-term investments are summarized as follows at December 31
        (in thousands):
 
 **2005**
                **Market/**
                **Carrying**
                **Value**
              
              **Realized**
                **Gain
                  (Loss)**
              
              **2004**
                **Market/**
                **Carrying**
                **Value**
              
              **Realized**
                **Gain
                  (Loss)**Private
                  securities—at cost
              
              $
              110
              
              $
              (797
              )
              $
              2,407
              
              $
              (612
              )Available-for-sale
                  equity securities—public
              
              
              2,566
              
              
              776
              
              
              4,665
              
              
              (2,161
              )$
              2,676
              
              $
              (21
              )
              $
              7,072
              
              $
              (2,773
              )
 
 **2005**
                **Market/**
                **Carrying**
                **Value**
              
              **Unrealized**
                **Holding**
                **Gain
                  (Loss)**
              
              **2004**
                **Market/**
                **Carrying**
                **Value**
              
              **Unrealized**
                **Holding**
                **Gain
                  (Loss)**Available-for-sale
                  equity securities—unrealized gains
              
              $
              831
              
              $
              62
              
              $
              3,127
              
              $
              913Available-for-sale
                  equity securities—unrealized (losses)
              
              
              1,735
              
              
              (1,188
              )
              
              1,538
              
              
              (1,000
              )$
              2,566
              
              $
              (1,126
              )
              $
              4,665
              
              $
              (87
              )
  45
 *Table
            of Contents*
 
 **More
                  Than****Less
                  Than 12 months**
              
              **12
                  months or Greater****Market/**
                **Carrying**
                **Value**
              
              **Unrealized**
                **Holding
                  Loss**
              
              **Market/**
                **Carrying**
                **Value**
              
              **Unrealized**
                **Holding**
                **Loss**Available-for-sale
                  equity securities—unrealizedlosses
              
              $
              195
              
              $
              (427
              )
              $
              1,540
              
              $
              (761
              )
 
 The
        unrealized losses that exceed more than 12 months or greater of $761,000
        were
        due to market-price movements. Management does not believe that any of the
        unrealized losses represented an other-than-temporary impairment based on
        its
        evaluation of available evidence as of December 31, 2005, except for the
        $1,808,000 impairment recorded in 2005.
 
 **5.**
              **Bank
                  Borrowings**
 
 The
        Company has a $60,000,000 credit line that expires in March 2008. Advances
        bear
        interest at the prime rate plus 0.50% (7.75% at December 31, 2005) with interest
        payable monthly. As of December 31, 2005 and 2004, there was no outstanding
        balance on the line-of-credit. Under the agreement, all advances have, as
        collateral, a substantial amount of all ViewSonic Americas’ assets. Under the
        agreement, the Company is subject to various restrictive covenants, which,
        among
        other things, limit dividends (not to exceed $250,000 per year without the
        consent of the financial institution), capital expenditures and executive
        compensation and require the Company to maintain a minimum earnings before
        interest, taxes, depreciation and amortization amount. The Company is not
        required to comply with the restrictive covenants when borrowing capacity
        exceeds $15,000,000.
 
 In
        June
        2004, ViewSonic Europe Limited entered into a $20,000,000 line-of-credit
        facility with a financial institution. This line-of-credit is secured by
        trade
        receivables and inventory of ViewSonic Europe Limited. Advances bear interest
        at
        Libor plus a margin. There were no borrowings against this facility as of
        December 31, 2005 and 2004.
 
 Certain
        of the Company’s other international subsidiaries also have line-of-credit
        facilities with various financial institutions that are secured by certain
        of
        their assets. These credit facilities allow cash advances, letters of credit
        and
        bank guarantees. During the year 2005, the cash advances bore interest at
        rates
        ranging from 1.6% to 5.3%. At December 31, 2005 and 2004, there were outstanding
        cash advances of approximately $4,852,000 and $3,529,000 respectively. At
        December 31, 2005, the borrowing limit was approximately
        $23,400,000.
 
 As
        of
        December 31, 2005, the Company is in compliance with the covenants on all
        of its
        various borrowing arrangements.
 
 **6.**
              **Income
                  Taxes**
 
 The
        provision (benefit) for income taxes consists of the following for the years
        ended December 31 (in thousands):
 
 **2005**
              
              **2004**
              
              **2003**Current:Federal
              
              $
              (582
              )
              $
              (92
              )
              $
              921State
              
              
              377
              
              
              (83
              )
              
              760Foreign
              
              
              2,383
              
              
              117
              
              
              1,010Total
                  current
              
              
              2,178
              
              
              (58
              )
              
              2,691Deferred:Federal
              
              
              9,906
              
              
              (2,131
              )
              
              (1,237
              )State
              
              
              2,972
              
              
              (310
              )
              
              102Foreign
              
              
              (397
              )
              
              (794
              )
              
              777Total
                  deferred
              
              
              12,481
              
              
              (3,235
              )
              
              (358
              )$
              14,659
              
              $
              (3,293
              )
              $
              2,333
  46
 *Table
            of Contents*
 
 The
        components of deferred tax assets (liabilities) are as follows at
        December 31 (in thousands):
 
 **2005**
              
              **2004****Deferred
                  tax assets**Current:Accounts
                  receivable, inventory, and warranty allowances
              
              $
              8,129
              
              $
              8,448Accruals
              
              
              1,842
              
              
              1,858State
                  taxes
              
              
              21
              
              
              18Unrealized
                  foreign exchange gains
              
              
              (204
              )
              
              (420
              )Other
              
              
              214
              
              
              241Sub-Total
              
              
              10,002
              
              
              10,145Valuation
                  Allowance
              
              
              (6,808
              )
              
              (480
              )Total
                  current
              
              
              3,194
              
              
              9,665Non-current:Net
                  operating loss carry-forwards
              
              
              7,180
              
              
              7,944Depreciation
                  and amortization
              
              
              1,328
              
              
              790Foreign
                  tax credit carry-forwards
              
              
              2,472
              
              
              1,811Unrealized
                  loss on securities
              
              
              1,081
              
              
              35Other
              
              
              219
              
              
              2Subtotal
              
              
              12,280
              
              
              10,582Valuation
                  allowance
              
              
              (10,470
              )
              
              (3,217
              )Total
                  non-current
              
              
              1,810
              
              
              7,365Net
                  deferred tax assets
              
              $
              5,004
              
              $
              17,030
 
 The
        net
        deferred tax assets are reflected on the December 31, 2005 and 2004 consolidated
        balance sheets as a separately stated current asset of $3,194,000 and
        $9,665,000, respectively, and a non-current asset (included within other
        assets)
        of $1,810,000 and $7,365,000, respectively.
 
 The
        valuation allowance of $3,697,000 as of December 31, 2004 related to net
        deferred income tax assets in subsidiaries located outside of the United
        States.
        During the second quarter of 2005, the Company recorded a valuation allowance
        against its U.S. entities net deferred income tax assets. The valuation
        allowance was calculated pursuant to SFAS No. 109, which requires an assessment
        of both positive and negative evidence when measuring the need for a valuation
        allowance. Such evidence includes the Company’s past and projected future
        performance, the market environment in which the Company operates, the
        utilization of past tax credits and the length of the carry-back and
        carry-forward periods of net operating losses. In determining that a valuation
        allowance was required, the Company placed added weight on the operating
        results
        of the past two years and the projected results for 2005. The Company intends
        to
        maintain a valuation allowance until sufficient positive evidence, as
        contemplated by SFAS No. 109, exists in future periods to support its reversal.
        As of December 31, 2005, the Company has valuation allowances against its
        deferred income tax assets in all jurisdictions except for deferred income
        tax
        assets relating to its subsidiary in Taiwan. The total allowance of $17,278,000
        consisted of $15,476,000 against domestic net deferred income tax assets
        and
        $1,802,000 against the foreign net deferred income tax assets.
 
 For
        federal income tax purposes, the Company has a net operating loss carry-forward
        of $12,162,000 at December 31, 2005. This net operating loss carry-forward
        will
        begin to expire in 2025, if not utilized. The Company also had net operating
        loss carry-forwards in various states totaling $15,113,000 at December 31,
        2005, which results in a deferred tax asset of $905,000. These net operating
        loss carry-forwards begin to expire in 2010. In addition, the Company had
        approximately $7,635,000 of non-U.S. net operating loss carry-forwards at
        December 31, 2005. The majority of the non-U.S. net operating loss
        carry-forwards relate to operations of subsidiaries in countries permitting
        indefinite carry-forward of losses. As discussed above, a valuation allowance
        has been provided against the net operating loss carry-forwards and other
        deferred income tax assets.
 
 Income
        (loss) before taxes attributable to foreign operations was $5,451,000,
        $(4,527,000) and $17,940,000 for the years ended December 31, 2005, 2004
        and 2003, respectively.
 
 A
        reconciliation of the Company's provision (benefit) for income taxes to the
        U.S.
        federal statutory rate is as follows for the years ended December 31 (in
        thousands):
  47
 *Table
            of Contents*
 
 **2005**
                **Amount**
              
              **%**
              
              **2004**
                **Amount**
              
              **%**
              
              **2003**
                **Amount**
              
              **%**Provision
                  (benefit) for income taxes at statutory rate
              
              $
              2,047
              
              
              35.0
              %
              $
              (5,500
              )
              
              (35.0
              )%
              $
              3,383
              
              
              35.0
              %Nondeductible
                  items
              
              
              381
              
              
              6.5
              
              
              222
              
              
              1.4
              
              
              3,434
              
              
              35.5Change
                  in valuation allowance
              
              
              13,582
              
              
              232.1
              
              
              673
              
              
              4.3
              
              
              (4,289
              )
              
              (44.4
              )State
                  taxes—net of federal benefit
              
              
              245
              
              
              4.2
              
              
              (256
              )
              
              (1.6
              )
              
              560
              
              
              5.8Permanent
                  and other items, including foreign income taxed at different
                  rates
              
              
              (1,596
              )
              
              (27.3
              )
              
              1,568
              
              
              10.0
              
              
              (755
              )
              
              (7.8
              )$
              14,659
              
              
              250.5
              %
              $
              (3,293
              )
              
              (20.9
              )%
              $
              2,333
              
              
              24.1
              %
 
 **7.**
              **Convertible
                  Mandatorily Redeemable Preferred Stock**
 
 ***Series A
        Stock*** —
On
        April 14, 2000, the Company entered into a Series A Preferred Stock
        and Warrant Purchase Agreement (the "Agreement") with a U.S.-based high-tech
        company (the "Investor") providing for an investment of up to $50,000,000
        in the
        Company by the Investor in exchange for 18,382,353 shares of Series A
        convertible mandatorily redeemable preferred stock and warrants. The $50,000,000
        would be paid to the Company based on the achievement of certain milestones
        as
        defined in the Agreement.
 
 On
        April 14, 2000, all conditions were met for the first closing and, in
        exchange for $10,000,000, the Company issued 3,676,471 shares of Series A
        convertible mandatorily redeemable convertible preferred stock, par value
        of
        $0.001 per share (the "Series A Stock"). Each share of Series A Stock
        could be converted into one share of common stock or redeemed for cash on
        the
        redemption dates. In connection with such issuance, the Company granted to
        the
        Investor warrants (collectively, the "warrants") to purchase an additional
        18,382,353 shares of Series A Stock with an exercise price of $2.72 per
        share. The warrants were immediately exercisable. The Company recorded these
        warrants at their estimated fair market value of $987,000.
 
 The
        redemption price for each share of Series A Stock was an amount in cash
        equal to $3.81 (as adjusted for any stock splits, stock dividends,
        recapitalizations and similar transactions) plus all declared but unpaid
        dividends on the Series A Stock for a portion of the shares on
        March 31, 2003 and the remaining shares on March 31, 2004.
        Accordingly, the Company was accreting the value of the Series A Stock from
        its initial value of $9,013,000 to the redemption price $14,007,000.
 
 As
        the
        milestones were not achieved, the Investor was not obligated to purchase
        additional shares of Series A Stock and, upon execution of the Series B
        Preferred Stock Exchange and Warrant Purchase Agreement, the obligations
        of the
        parties under the Agreement were extinguished.
 
 ***Series B
        and C Stock*** —
On
        January 10, 2002, the Company entered into a Series B Preferred Stock
        Exchange and Warrant Purchase Agreement (the "Exchange Agreement") with the
        Investor. Under the Exchange Agreement, the Investor contributed an additional
        $5,000,000, bringing the total cash contributed to $15,000,000. The exchange
        was
        made for the 3,676,471 shares of Series A Stock originally issued and the
        related warrants. As consideration for the exchange, the Company issued to
        the
        Investor 7,500,000 shares of Series B convertible mandatorily redeemable
        convertible preferred stock, par value of $.001 per share (the "Series B
        Stock"). Each share of Series B Stock was convertible into one share of
        common stock or redeemable for cash for $2.00 per share on January 10,
        2006. In connection with such issuance, the Company granted to the Investor
        3,300,000 Interest Warrants and 7,500,000 Valuation Warrants to purchase
        Series C non-redeemable convertible preferred stock (par value of $.001 per
        share). The Interest Warrants vested on January 10, 2006, have an exercise
        price of $.01 per share and expire on July 10, 2006. The Valuation Warrants
        were
        immediately vested, have an exercise price of $2.00 per share, and expire
        on
        July 10, 2006. As of December 31, 2005 and 2004, a total of 18,000,000
        shares of Series C preferred stock were authorized, and no shares were
        issued or outstanding.
 
 In
        accordance with applicable accounting guidance, the exchange was accounted
        for
        as an extinguishment of the Series A Stock and related warrants. The
        exchange resulted in no gain or loss, as the fair value of the consideration
        provided to the Investor was equal to the carrying value of the extinguished
        instruments. The Series B Stock was recorded at its fair value of
        $9,750,000, and the Interest and Valuation Warrants were valued at $7,479,000.
        The Company accreted the value of the Series B Stock from its initial value
        of $9,750,000 to the redemption price of $15,000,000. Such accretion totaled
        $1,524,000, $1,372,000 and $1,229,000 for the years ended December 31,
        2005, 2004 and 2003, respectively.
 
 The
        Investor was entitled to dividends payable when and if declared by the Board.
        The dividends would be cumulative and would be paid prior to payment of any
        dividend with respect to the common stock. No dividends were declared for
        the
        years ended December 31, 2005, 2004 and 2003,
        respectively.
  48
 *Table
            of Contents*
  The
        following is a summary of the Series B Stock as of December 31 (in
        thousands):
 
 **2005**
              
              **2004**Series
                  B convertible mandatorily redeemable preferred stock:Authorized—12,500,000
                  shares at December 31, 2005 and 2004Issued
                  and outstanding—7,500,000 shares at December 31, 2005 and 2004
                  (liquidation preference of $2.60 per share)
              
              $
              14,952
              
              $
              13,428
 
 On
        January 10, 2006, the Company redeemed the outstanding series B convertible
        mandatorily redeemably preferred stock for $15,000,000, representing the
        full
        redemption price of the series B preferred stock.
 
 **8.**
              **Stockholders'
                  Equity**
 
 A
        portion
        of the Company's retained earnings is restricted based on certain regulations
        governing a subsidiary in Taiwan. The total amount of restricted retained
        earnings was approximately $2,792,000 and $2,640,000 at December 31, 2005
        and 2004, respectively.
 
 **9.**
              **Related
                  Party Transactions**
 
 The
        Company sells inventory to several related parties, which include a company
        where an officer is related to the principal stockholder. Net sales to these
        related parties were approximately $22,372,000, $24,692,000 and $28,808,000
        for
        the years ended December 31, 2005, 2004 and 2003, respectively. The Company
        had receivables of approximately $1,471,000 and $1,531,000 from these related
        parties at December 31, 2005 and 2004, respectively, which are included in
        other receivables.
 
 At
        December 31, 2005, the Company had subordinated notes payable to its
        principal stockholder and related entities. The subordinated notes payable
        is
        not callable until the expiration date, April 12, 2008. The amounts
        outstanding at December 31, 2005 and 2004 are $43,000,000. The interest
        rates on the subordinated notes payable was 3.97% for the years ended
        December 31, 2005, 2004 and 2003, respectively. Interest expense related to
        this amount totaled $1,707,000, $1,712,000 and $1,707,000 for the years ended
        December 31, 2005, 2004 and 2003, respectively.
 
 **10.**
              **Commitments
                  and Contingencies**
 
 ***Lease
        Commitments*** —
The
        Company leases certain facilities under lease agreements that expire at various
        dates through 2008. One lease provides for a five-year renewal option with
        accompanying cost-of-living rent increases. Commitments under the lease
        agreements also provide for the payment of property taxes, insurance, utilities
        and maintenance costs. The following is a schedule of future minimum lease
        payments required under these operating leases (in thousands):
 
 **Year
                  Ending December 31**2006
              
              $
              2,2462007
              
              
              9052008
              
              
              24$
              3,175
 
 Total
        rental expense for the years ended December 31, 2005, 2004, and 2003 was
        approximately $3,042,000, $2,819,000
        and $2,788,000, respectively.
 
 ***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 consolidated financial statements.
 
 During
        the fourth quarter of 2003, the Company in conjunction with the principal
        stockholder settled a complaint through the transfer of 9,000,000 shares
        from
        the principal stockholder to certain other stockholders. The value of the
        shares
        transferred was $9,810,000, and it has been reflected as a selling, general
        and
        administrative expense and a capital contribution by the principal stockholder.
 
 ***Manage
        Imposition of Additional Duties and Taxes*** —
The
        European Union, or EU, issued notices stating that effective January 18,
        2006,
        LCD monitors with a digital video interface (“DVI”) connector, would incur a 14%
        import duty tax.  To date, this change in classification has been applied
        prospectively.  However, the Company believes it is possible that the
        tariff could be applied retroactively; however, the Company will continue
        to
        monitor this situation and work to change the Company’s business processes to
        minimize any negative impact resulting from this new tariff.
  49
 *Table
            of Contents*
  ***Laws,
        Regulations and Directives*** —
The
        Company is subject to local laws and regulations in the various regions in
        which
        the Company operates, including the EU.  There are two particular EU
        directives that may have a material impact on the Company’s business.  The
        first is the Restriction of Certain Hazardous Substances Directive (“RoHS”) that
        restricts the distribution of certain substances, including lead, within
        the EU
        and is effective July 1, 2006.  In addition to specifying the elimination
        and/or reduction in the level of specified hazardous materials from the
        manufacture of the Company’s products, the Company must take reasonable measures
        to ensure that it is not being supplied with products containing the restricted
        chemical substances. The Company is starting to receive requests from its
        customers for RoHS-compliant products. The Company is in the process of
        compiling RoHS-compliant information on the Company’s products as well as
        procuring RoHS-compliant material and information from the Company’s suppliers.
        The second directive is the Waste Electrical and Electronic Equipment Directive
        (“WEEE”) that became effective on August 13, 2005, and requires manufacturers or
        importers to provide a process of recycling all of its
        manufactured products or imports into the EU. Certain EU countries adopted
        WEEE
        on August 13, 2005; however, the majority of EU countries into which the
        Company’s European region sells its products, have yet to adopt the legislation.
        Many of those countries, which adopted WEEE in August 2005, have not published
        regulations nor have issued legislation with respect to a manufacturer or
        importer’s obligations. The Company is currently unable to assess the impact of
        these directives on the Company’s operations until more information becomes
        available, but at this time, the Company does not believe that these regulations
        will have a material impact on the Company’s business.
 
 ***Income
        Tax Contingencies***  — The
        Company has recorded a $3,097,000 liability related to certain tax
        positions.  The resolution of such income tax contingencies is not expected
        to have an adverse material effect on the consolidated financial
        statements.
 
 **11.**
              **Retirement
                  Plan****s**
 
 The
        Company has a 401(k) plan (the domestic “401(k) Plan”) for its eligible domestic
        employees. The Company also has similar plans for its eligible foreign employees
        in certain of its foreign offices. Employer contributions made to the domestic
        401(k) Plan and all other foreign plans during the years ended December 31,
        2005, 2004 and 2003 were $1,019,000, $1,011,000 and $958,000,
        respectively.
 
 **12.**
              **Stock
                  Options**
 
 In
        April 1999, the Company established a stock option plan (the “Plan”). Under
        terms of the Plan, officers, members of the Board of Directors and certain
        other
        employees may be granted options to purchase the Company's common stock at
        the
        estimated market price on the date the option is granted. Options granted
        through April 30, 2002 vest over four years. Options granted on or after
        May 1, 2002 vest over three years. All options may be exercised for up to
        10 years from the date of grant. The fair market value was determined by
        the Board of Directors based in part on valuations performed by an independent
        appraiser in connection with the issuance of the options.
 
 In
        June
        2004, the Company established a 2004 Equity Incentive Plan (the “2004 EIP”).
        Under terms of the 2004 EIP, officers, members of the Board and certain
        other employees may be granted options to purchase the Company’s common stock at
        the estimated fair market value on the date the option is granted. The options
        granted under the 2004 EIP will vest over three or four years.  All options
        may be exercised for up to 10 years from the date of grant. As of December
        31,
        2005, the Company has 15,381,091 options available for future grants. In
        view of
        the fact that the Company's common stock is not publicly traded, the fair
        market
        value will be determined by the Board of Directors based upon various factors
        and information including valuations, which may be performed from time to
        time,
        by an independent appraiser.
  50
 *Table
            of Contents*
 
 Presented
        below is a summary of the stock option activity for all years presented:
 
 **Options**
              
              **Weighted-**
                **Average**
                **Price**
              
              **Weighted-**
                **Average**
                **Options**
                **Exercisable**
              
              **Exercise**
                **Price**Balance—December
                  31, 2002
              
              
              26,119,691
              
              $
              1.07
              
              
              15,368,651
              
              $
              1.04Granted
              
              
              12,080,206
              
              
              1.09Exercised
              
              
              (11,924
              )
              
              1.03Canceled
              
              
              (5,924,970
              )
              
              1.05Balance—December
                  31, 2003
              
              
              32,263,003
              
              $
              1.08
              
              
              18,221,149
              
              $
              1.05Granted
              
              
              —
              
              
              0.00Exercised
              
              
              (76,595
              )
              
              1.04Canceled
              
              
              (4,296,915
              )
              
              1.07Balance—December
                  31, 2004
              
              
              27,889,493
              
              $
              1.08
              
              
              20,196,260
              
              $
              1.06Granted
              
              
              8,442,273
              
              
              0.38Exercised
              
              
              (15,092
              )
              
              0.86Cancelled
              
              
              (8,691,078
              )
              
              0.38Balance—December
                  31, 2005
              
              
              27,625,596
              
              $
              0.38
              
              
              21,281,575
              
              $
              0.38
 
 On
        May 9,
        2005, the Company re-priced 23,775,611 options to $0.38 per option, representing
        all outstanding options of current directors, officers and employees of record
        on March 2, 2005.
 
 The
        following table summarizes information for options outstanding at
        December 31, 2005:
 
 **Range
                  of**
                **Prices**
              
              **Option**
                **Outstanding**
              
              **Weighted-**
                **Average**
                **Remaining**
                **Life
                  (Years)**
              
              **Weighted-**
                **Average**
                **Exercise**
                **Price**
              
              **Options**
                **Exercisable**$0.38
              
              
              27,106,596
              
              
              6.18
              
              $
              0.38
              
              
              21,139,325$0.45
              
              
              519,000
              
              
              9.96
              
              $
              0.45
              
              
              142,250
  **13.**
              **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 major products—visual displays (CRT and LCD
        computer monitors) and other products. Both products are sold to all of its
        markets. In the aggregate, the Company's other products make-up 14.8% of
        units
        shipped in 2005, 13.9% in 2004 and 9.2% in 2003.
  51
 *Table
            of Contents*
 
 The
        following segment financial information is for the years ended December 31
        (in thousands):
 
 **2005**
              
              **2004**
              
              **2003**Net
                  sales:Americas
              
              $
              538,813
              
              $
              610,644
              
              $
              665,450Europe
              
              
              297,549
              
              
              237,727
              
              
              179,909Asia
                  Pacific
              
              
              363,828
              
              
              255,962
              
              
              215,332$
              1,200,190
              
              $
              1,104,333
              
              $
              1,060,691Income
                  (loss) from operations:Americas
              
              $
              1,049
              
              $
              (9,510
              )
              $
              6,320Europe
              
              
              3,575
              
              
              (502
              )
              
              9,010Asia
                  Pacific
              
              
              5,206
              
              
              (6,953
              )
              
              2,790Stockholders'
                  complaint settlement (Note 10)
              
              
              —
              
              
              —
              
              
              (9,810
              )$
              9,830
              
              $
              (16,965
              )
              $
              8,310Assets:Americas
              
              $
              204,302
              
              $
              244,954
              
              $
              255,956Europe
              
              
              120,109
              
              
              101,194
              
              
              73,621Asia
                  Pacific
              
              
              108,119
              
              
              110,566
              
              
              71,995Assets
                  held for sale
              
              
              195
              
              
              1,809
              
              
              13,357$
              432,725
              
              $
              458,523
              
              $
              414,929Depreciation
                  and amortization:Americas
              
              $
              1,917
              
              $
              2,111
              
              $
              2,146Europe
              
              
              268
              
              
              265
              
              
              351Asia
                  Pacific
              
              
              922
              
              
              1,179
              
              
              966$
              3,107
              
              $
              3,555
              
              $
              3,463Capital
                  additions:Americas
              
              $
              826
              
              $
              2,344
              
              $
              1,984Europe
              
              
              122
              
              
              307
              
              
              147Asia
                  Pacific
              
              
              334
              
              
              571
              
              
              799$
              1,282
              
              $
              3,222
              
              $
              2,930
  The
        Company's goodwill is recorded in the United States. The inter-geographical
        sales were immaterial for the years ended December 31, 2005, 2004 and 2003.
        The following table summarizes the Company's net sales and long-lived assets
        in
        different geographical locations for the years ended December 31 (in
        thousands):
  52
 *Table
            of Contents*
 
 **2005**
              
              **2004**
              
              **2003**Net
                  sales:United
                  States
              
              $
              425,555
              
              $
              533,992
              
              $
              586,204Taiwan
              
              
              95,215
              
              
              137,280
              
              
              91,237China
              
              
              202,389
              
              
              118,593
              
              
              89,370Others
              
              
              477,031
              
              
              314,468
              
              
              293,880$
              1,200,190
              
              
              1,104,333
              
              
              1,060,691Long-lived
                  assets:United
                  States
              
              $
              4,069
              
              $
              5,323
              
              $
              5,100Taiwan
              
              
              8,975
              
              
              9,816
              
              
              9,961China
              
              
              440
              
              
              617
              
              
              498Others
              
              
              792
              
              
              754
              
              
              719$
              14,276
              
              $
              16,510
              
              $
              16,278
 
 **14.**
              **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 liability 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 years shown (in thousands):
 
 **Beginning**
                **Accrued**
                **Warranty**
                **Liability**
              
              **Payments**
                **for
                  Units**
                **Returned**
              
              **Additional**
                **Warranty**
                **Expense**
                **for
                  Units**
                **Sold**
              
              **Adjustments**
              
              **Ending**
                **Accrued**
                **Warranty**
                **Liability**December
                  31, 2003
              
              $
              14,179
              
              $
              (11,038
              )
              $
              10,206
              
              $
              1,220
              
              $
              14,567December
                  31, 2004
              
              $
              14,567
              
              $
              (11,290
              )
              $
              13,688
              
              $
              400
              
              $
              17,365December
                  31, 2005
              
              $
              17,365
              
              $
              (13,392
              )
              $
              16,696
              
              $
              681
              
              $
              21,350
 
 **15.**
              **Earnings
                  Per Share**
 
 The
        Company presents both basic and diluted (loss) earnings per share ("EPS")
        amounts. Basic EPS is calculated by dividing net (loss) income by the
        weighted-average number of common shares outstanding during the year. Diluted
        EPS amounts are based upon the weighted-average number of common and potential
        common shares, including options and warrants outstanding during the year.
 
 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 2005
        and
        2004, due to the loss incurred by the Company with respect to its continuing
        operations, all options were excluded because they were anti-dilutive.  For
        2003, options for 4,795,000 shares were excluded from the diluted (loss)
        earnings per common share calculation because they were anti-dilutive.
 
 The
        basic
        and diluted EPS was calculated using EITF 03-06, *Participating
        Securities and the Two Class Method under SFAS No. 128* (“EITF
        03-06”). The following is a reconciliation of the numerators and denominators of
        the basic and diluted net (loss) income per share computations for the periods
        presented (amounts in thousands, except share and per share information).
        Amounts are for the years ended December 31 (amounts in thousands, except
        per share information).
  53
 *Table
            of Contents*
 
 **2005**
              
              **2004**
              
              **2003**Basic
                  EPS:Numerator:(Loss)
                  income from continuing operations (1)
              
              $
              (10,332
              )
              $
              (13,793
              )
              $
              6,132Loss
                  discontinued operations
              
              
              —
              
              
              (5,989
              )
              
              (2,853
              )Gain
                  on disposal of discontinued operations
              
              
              475
              
              
              2,153
              
              
              —Denominator—weighted-average
                  shares outstanding
              
              
              353,969
              
              
              353,917
              
              
              353,891Basic
                  EPSContinuing
                  operations
              
              
              (0.03
              )
              
              (0.04
              )
              
              0.02Discontinued
                  operations
              
              
              —
              
              
              (0.02
              )
              
              (0.01
              )Gain
                  on discontinued operations
              
              
              —
              
              
              0.01
              
              
              0.00Total
                  Basic EPS
              
              
              (0.03
              )
              
              (0.05
              )
              
              0.01Diluted
                  EPS:Numerator:(Loss)
                  income from continuing operations (1)
              
              
              (10,332
              )
              
              (13,793
              )
              
              6,132(Loss)
                  from discontinued operations
              
              
              —
              
              
              (5,989
              )
              
              (2,853
              )Gain
                  on disposal of discontinued operations
              
              
              475
              
              
              2,153
              
              
              —Denominator:Weighted-average
                  shares outstanding
              
              
              353,969
              
              
              353,917
              
              
              353,891Stock
                  options (2)
              
              
              —
              
              
              —
              
              
              1,373Interest
                  warrants (3)
              
              
              —
              
              
              —
              
              
              3,275Total
                  shares
              
              
              353,969
              
              
              353,917
              
              
              358,538Diluted
                  EPSContinuing
                  operations
              
              
              (0.03
              )
              
              (0.04
              )
              
              0.02Discontinued
                  operations
              
              
              —
              
              
              (0.02
              )
              
              (0.01
              )Gain
                  on discontinued operations
              
              
              —
              
              
              0.01
              
              
              0.00Total
                  Diluted EPS
              
              $
              (0.03
              )
              $
              (0.05
              )
              $
              0.01
  (1)
              Prepared
                  in accordance to EITF 03-06. The EPS calculation allocated income
                  from
                  continuing operations between common stock and the convertible
                  mandatorily
                  redeemable preferred stock. Losses from continuing operations are
                  not
                  allocated to convertible mandatorily redeemable preferred
                  stock.
 
 (2)
              For
                  2005 and 2004, due to the loss incurred by the Company with respect
                  to its
                  continuing operations, all options were excluded because they were
                  anti-dilutive.  For 2003, options for 4,795,000 shares, were excluded
                  from the diluted earnings per common share calculation because
                  they were
                  anti-dilutive.
 
 (3)
              For
                  the year ended December 31, 2005 and 2004, Series C Preferred Stock
                  issuable upon the exercise of outstanding warrants of 3,300,000
                  and
                  3,300,000 shares, respectively, were excluded from the diluted
                  earnings
                  per share calculation because they were
                  anti-dilutive.
 
 **1****6.**
              **Discontinued
                  Operations**
 
 On
        July
        30, 2004, the Company completed the sale of Advanced Digital Optics, Inc.,
        or
        ADO, a majority-owned subsidiary and recorded a $3,257,000 gain, net of tax
        expense of $1,127,000. The cost basis of its investment in ADO was $4,100,000.
        The Company also incurred $307,000 of expenses associated with the
        sale.
 
 During
        the fourth quarter of 2004, the Company made the decision to dispose of
        VisionBank, one of its majority-owned subsidiaries. As of December 31, 2005
        and
        2004, the net liabilities of VisionBank were $0 and $1,847,000, respectively.
        VisionBank recorded a $475,000 gain on the sale of its residual assets during
        the year ended December 31, 2005. The loss from discontinued operations of
        $3.8
        million in 2004 represents the gain on the sale of a majority-owned subsidiary
        in the third quarter of 2004, which was offset by the loss from the closure
        of
        another subsidiary.
 
 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):
  54
 *Table
            of Contents*
 
 **Discontinued
                  Operations**
              
              **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**
              
              **December
                  31,**
                **2003**Net
                  Sales
              
              $
              —
              
              $
              10,616
              
              $
              13,993(Loss)
                  from discontinued operations (no tax benefit)
              
              $
              —
              
              $
              (5,989
              )
              $
              (2,853
              )Net
                  gain on disposal of discontinued operations, net of tax $0, ($1,127,000),
                  and $0, respectively.
              
              $
              475
              
              $
              2,153
              
              $
              —
 
 **December
                  31,**
                **2005**
              
              **December
                  31,**
                **2004**Current
                  assets
              
              $
              195
              
              $
              1,769Other
                  assets
              
              
              —
              
              
              40Total
                  assets
              
              
              195
              
              
              1,809Accounts
                  payable and accrued expenses
              
              
              195
              
              
              3,656Net
                  (liabilities)/assets of discontinued operations
              
              $
              —
              
              $
              (1,847
              )
 **17****.**
                **Quarterly
                    Information**
 
 The
        following table sets forth for the periods indicated selected unaudited
        quarterly financial information for 2005 and 2004.
 
 **Quarter
                  Ended****2005**
              
              **2004****Mar.
                  31**
              
              **Jun.
                  30**
              
              **Sep.
                  30**
              
              **Dec.
                  31(3)**
              
              **Mar.
                  31**
              
              **Jun.
                  30**
              
              **Sep.
                  30**
              
              **Dec.
                  31****(in
                  thousands, except per share amounts)**Net
                  sales
              
              $
              273,912
              
              $
              284,617
              
              $
              316,678
              
              $
              324,983
              
              $
              292,605
              
              $
              260,812
              
              $
              249,020
              
              $
              301,896Cost
                  of sales
              
              
              245,843
              
              
              257,502
              
              
              288,482
              
              
              293,184
              
              
              250,096
              
              
              231,061
              
              
              250,475
              
              
              272,328Gross
                  profit
              
              
              28,069
              
              
              27,115
              
              
              28,196
              
              
              31,799
              
              
              42,509
              
              
              29,751
              
              
              (1,455
              )
              
              29,568Income
                  (loss) from continuing operations before income taxes
              
              
              (714
              )
              
              (2,897
              )
              
              3,037
              
              
              6,425
              
              
              14,045
              
              
              (1,084
              )
              
              (31,440
              )
              
              2,765Provision
                  (benefit) for income taxes
              
              
              (200
              )
              
              13,396
              
              
              1,021
              
              
              442
              
              
              3,369
              
              
              (92
              )
              
              (7,757
              )
              
              1,187Income
                  (loss) from continuing operations
              
              
              (514
              )
              
              (16,293
              )
              
              2,016
              
              
              5,983
              
              
              10,676
              
              
              (992
              )
              
              (23,683
              )
              
              1,578Income
                  (loss) from discontinued operations(2)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,031
              )
              
              (1,295
              )
              
              (196
              )
              
              (3,467
              )(Loss)
                  gain on disposal of discontinued operations(2)
              
              
              (70
              )
              
              780
              
              
              (115
              )
              
              (120
              )
              
              —
              
              
              —
              
              
              3,257
              
              
              (1,104
              )Net
                  income (loss)
              
              $
              (584
              )
              
              (15,513
              )
              
              1,901
              
              
              5,863
              
              
              9,645
              
              
              (2,287
              )
              
              (20,622
              )
              
              (2,993
              )Preferred
                  stock accretion
              
              $
              361
              
              
              375
              
              
              389
              
              
              399
              
              
              327
              
              
              337
              
              
              349
              
              
              359Net
                  income (loss) available to common stockholders
              
              $
              (945
              )
              $
              (15,888
              )
              $
              1,512
              
              $
              5,464
              
              $
              9,318
              
              $
              (2,624
              )
              $
              (20,971
              )
              $
              (3,352
              )Basic
                  earnings (loss) per share(1)
              
              $
              (0.00
              )
              $
              (0.05
              )
              $
              0.00
              
              $
              0.02
              
              $
              0.03
              
              $
              0.00
              
              $
              (0.06
              )
              $
              (0.01
              )Diluted
                  earnings (loss) per share(1)
              
              $
              (0.00
              )
              $
              (0.05
              )
              $
              0.00
              
              $
              0.02
              
              $
              0.03
              
              $
              0.00
              
              $
              (0.06
              )
              $
              (0.01
              )
 
 (1)
              Basic
                  and diluted earnings per share are net of continuing and discontinued
                  operations.
 (2)
              Two
                  of the Company’s majority-owned subsidiaries were discontinued during
                  2004.
 (3)
              During
                  the fourth quarter of 2005, as a result of developments related
                  to the
                  tariff classification for certain LCD monitors, the Company recorded
                  an
                  adjustment of $3.2 million to reduce its accrual for potential
                  duty taxes
                  payable.
 
 
 **18.**
              **Subsequent
                  Events**
 
 On
        January 10, 2006, the redemption date, the Company redeemed all 7,500,000
        outstanding shares of Series B Preferred Stock for aggregate cash consideration
        of $15,000,000, representing the full redemption price of the Series B Preferred
        Stock.
  55
 *Table
            of Contents*
 
 **ITEM9****.**
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURES.**
  Not
        applicable.
 
 **ITEM
                  9A****.**
              **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 December 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 Annual Report on Form 10-K was recorded, processed, summarized
        and
        reported within the time periods specified in Securities and Exchange Commission
        rules and forms. ****
 
 *Changes
        in Internal Controls*
 
 There
        were no changes in our internal controls over financial reporting during
        the
        three months ended December 31, 2005 that have materially affected, or are
        reasonably likely to materially affect our internal controls over financial
        reporting.
 
 **ITEM
                  9B****.**
              **OTHER
                  INFORMATION**
 
 We
        entered into employment agreements with Jan Jensen, the President and Managing
        Director of ViewSonic Europe, dated January 10, 2006 with ViewSonic SARL,
        ViewSonic Netherlands and ViewSonic Europe Limited, respectively, or the
        Jensen
        Employment Agreements. The Jensen Employment Agreements supersede Mr. Jensen’s
        employment agreement with us dated September 3, 2004 (the “Prior Jensen
        Agreement”). The purpose of the separate agreements with each of these
        subsidiaries is to denominate the salary payable by each respective subsidiary
        to Mr. Jensen. In the aggregate under the terms of the Jensen Employment
        Agreements, Mr. Jensen has an annualized base salary of Euro 247,000 and
        is
        entitled to a variable compensation bonus that is targeted at Euro 120,000,
        if
        Mr. Jensen achieves goals related to the bonus as determined by the Board
        of
        Directors. Mr. Jensen is also given a car allowance of Euro 27,600 per calendar
        month. Under the Jensen Employment Agreements, Mr. Jensen is entitled to
        six
        months notice of termination of his employment unless he is over 65 years
        of
        age, he has committed a material or persistent breach of his employment
        relationship with us, including, but not limited to, causing us a financial
        loss, or he has been given three months notice in connection with any illness
        or
        disability that has incapacitated him from performing his duties to us for
        a
        period of 180 days or more, in the preceding twelve months. Mr. Jensen also
        receives a pension under the Jensen Employment Agreements equal to 10% of
        his
        base salary. In connection with the Prior Jensen Agreement, Mr. Jensen was
        granted an option to purchase 500,000 shares of our common stock at the current
        fair market value of our shares at the time of grant. The option vests 25%
        on
        the date of grant and the remainder vests on a pro rata basis over 3 years,
        such
        that on the third anniversary of the grant date of the option grant, the
        shares
        shall be fully vested.
 
 **PART
        III**
 
 **ITEM
                  10****.**
              **DIRECTORS
                  AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT**
 
 **Executive
        Officers and Directors**
  The
        following table sets forth the name, age as of March 15, 2006 and position
        of
        each person who serves as a ViewSonic executive officer and/or
        director:
  56
 *Table
            of Contents*
 
 **Name****Executive
                  Officers:**
              **Age**
              **Position**James
                  Chu
              48
              Chairman
                  of the Board and Chief Executive OfficerJames
                  A. Morlan
              57
              Chief
                  Financial OfficerRobert
                  J. Ranucci
              41
              Vice
                  President, General Counsel and SecretaryMatthew
                  W. Milne
              38
              President,
                  ViewSonic AmericasH.C.
                  Ho
              52
              President,
                  Global Products GroupMichael
                  Holstein
              53
              Vice
                  President, Advanced Solutions & Emerging TechnologyJan
                  Jensen
              43
              President
                  & Managing Director, ViewSonic Europe**Directors:**Matthew
                  E. Massengill
              44
              DirectorWilliam
                  J. Miller
              60
              DirectorBruce
                  L. Stein
              51
              DirectorLuc
                  H. Vanhal
              45
              Director
 
 *James
        Chu* founded
        ViewSonic and has served as our Chairman of the Board and Chief Executive
        Officer since our inception in 1987. From September 1986 to June 1987,
        Mr. Chu served as President of U.S. Operations of Behavior Tech Computer
        Corporation, a Taiwanese keyboard manufacturer.
 
 *James
        A. Morlan* has
        served as our Chief Financial Officer since June 2000. From
        January 1997 to June 2000, Mr. Morlan served as Vice President of
        Finance of Golden Valley Foods, an operating company of ConAgra
        Foods, Inc., a packaged food company. Mr. Morlan holds a B.S. in
        Electrical Engineering from the University of Iowa.
 
 *Robert
        J. Ranucci* has
        served as our Vice President, General Counsel and Secretary since
        July 2003. From June 2000 to June 2003, Mr. Ranucci served
        as our General Counsel and Secretary. Mr. Ranucci holds a B.A in Economics
        from Claremont McKenna College, and an M.A. in Economics and a J.D. from
        the
        University of Southern California.
 
 *Matthew
        W. Milne* has
        served as our President of ViewSonic Americas since February 2005. From February
        2005 to September 2005, Mr. Milne served as our Senior Vice President of
        Business Development and Strategy. From December 2002 to September 2004,
        Mr.
        Milne served as Senior Vice President and General Manager of Gateway Inc.'s
        Consumer Electronics, a computer manufacturer. From March 2000 to December
        2002,
        Mr. Milne was President of Cameo Technologies, Inc., a spin-off company from
        Western Digital Corporation. From June 1992 to March 2000, Mr. Milne held
        various senior-level positions at Western Digital Corporation. Mr. Milne
        holds a
        B.A. in Finance from California State University, Fullerton and an M.B.A.
        from
        California Polytechnic State University, Pomona.
 
 *Heng-Chun
        (“HC”) Ho* has
        served as our President, Global Products Group since February 2005. From
        November of 2001 to October of 2004, Mr. Ho served as President and Chief
        Executive Officer of Sampo Corporation and Sampo Group, a consumer electronics
        and appliance manufacturer. From November of 1999 to November of 2001,
        Mr. Ho served as Vice Chairman and Chief Executive Officer of Sampo
        Technology Corporation. From July of 1993 to October of 1999, Mr. Ho
        served as Senior Vice President and General Manager of Primax Electronics
        Corporation. From June of 1991 to July of 1993, Mr. Ho served as Plant
        Manager at Qume ITT at Hsinchu Science Based Industrial Park. Mr. Ho holds
        a
        B.S. in Physics from Cultural University in Taipei.
  *Michael
        Holstein* has
        served as our Vice President of Advanced Solutions and Emerging Technology
        (ASET) since January 2005. From October 2003 to December 2004, Mr. Holstein
        served as our Vice President of the Visual Solutions Group. In June 2002
        through September 2003, Mr. Holstein served as our Director of Supply
        Base Management, and from October 2001 to May 2002, he served as our
        Director of Product Engineering, Mobile and Wireless. From November 2000 to
        September 2001, Mr. Holstein served as the Vice President of
        Development Technology for Gateway, Inc., a computer manufacturer, and from
        November 1996 to October 2000, he served as Gateway's Director of
        Consumer Products.
 
 *Jan
        Jensen* has
        served as our President and Managing Director of ViewSonic Europe since October
        18, 2004. From February 2003 to October 2004, Mr. Jensen served as Vice
        President Worldwide Sales Channels for Proxim  Corporation, a networking
        equipment company. From October 2001 to January 2003, Mr. Jensen served as
        Deputy Chief Operating Officer for Metro International, a global media company.
        From June 1999 to September 2001, Mr. Jensen served as Vice President Business
        to Business for Gateway, Inc., in Europe, the Middle
        East and Africa. From August 1996 to May 1999, Mr. Jensen was Director of
        International Channel Management at Siemens Computer Systems Worldwide
        Headquarters, a German company.  Mr. Jensen has a M.S. from Aarhus School
        of Business Administration.
 
 *Matthew
        E. Massengill* has
        served as a member of our Board of Directors since December 2003. He has
        been Chairman of the Board of Directors of Western Digital Corporation, a
        company that designs, develops, manufactures and sells hard disk drives,
        since
        November 2001. Mr. Massengill was Chief Executive Officer of Western Digital
        from January 2000 to October 2005; and President from January 2000 to December
        2003. He previously served for more than five years in various executive
        capacities within Western Digital. He has been a director of Microsemi
        Corporation, a semiconductor manufacturer specializing in system-engineered
        integrated circuits and high reliability discrete devices, since February
        2006.
        Mr. Massengill holds a B.S. in Engineering from Purdue
        University.
  57
 *Table
            of Contents*
  *William
        J. Miller* has
        served as a member of our Board of Directors since December 2003.
        Mr. Miller has acted as an independent consultant to several technology
        companies since October 1999. From April 1996 to October 1999,
        Mr. Miller was Chairman of the Board of Directors and Chief Executive
        Officer of Avid Technology, Inc., a provider of digital tools for
        multimedia. Mr. Miller also served as President of Avid Technology from
        September 1996 through October 1999. Mr. Miller serves as a
        director of NVIDIA Corporation, a visual computing technology company, Waters
        Corporation, a scientific instrument manufacturing company, and Digimarc
        Corporation, a developer and provider of secure identification products and
        digital watermarking technology. Mr. Miller holds a B.A. and a J.D. from
        the University of Minnesota.
 
 *Bruce
        L. Stein* has
        served as a member of our Board of Directors since June 2003. Since April
        2003, Mr. Stein has served as the Co-Chief Executive Officer of The Hatchery
        LLC, which creates and develops family and kids oriented consumer products
        and
        entertainment. From September 2001 to April 2003, Mr. Stein served as a
        consultant and director of Avalon Digital Systems, Inc. From October 1999
        to
        September 2001, Mr. Stein served as Chief Executive Officer and a director
        for Radical Communications, Inc., a messaging solution provider, which was
        acquired by Avalon Digital Systems, Inc. Mr. Stein served in various
        positions at Mattel, Inc., a manufacturer of toy products, from
        August 1996 to March 1999, including President, Mattel Worldwide,
        Chief Operating Officer and as a director. From August 1995 to
        August 1996, Mr. Stein was Chief Executive Officer of Sony Interactive
        Entertainment Inc., a subsidiary of Sony Computer Entertainment
        America Inc. At various times between January 1995 and June 1998,
        Mr. Stein was a consultant to DreamWorks SKG, a motion picture company,
        Warner Bros. Entertainment, an entertainment company, and Mandalay
        Entertainment, a film production company. From January 1987 through 1994
        Mr.
        Stein served as President of Kenner Products, Inc. Mr. Stein holds a B.A.
        from Pitzer College in Claremont and an M.B.A. from the University of
        Chicago.
  *Luc
        H. Vanhal* has
        served as a member of our Board of Directors since June 2003. Since July
        2005, Mr. Vanhal has served as Chief Financial Officer of Guthy-Renker, a
        worldwide leader in direct marketing. From August 2004 to July 2005, Mr.
        Vanhal
        served in a similar capacity at Belkin Corporation, a connectivity provider.
        From January 2001 to April 2004, Mr. Vanhal served as President
        and Chief Operating Officer of Vivendi Universal Games, Inc., a global
        developer, publisher and distributor of multi-platform interactive
        entertainment. Mr. Vanhal also served as Chief Financial Officer from
        February 1999 to January 2001. From June 1990 to
        February 1999, Mr. Vanhal held several positions at The Walt Disney
        Company, including Chief Financial Officer for the Worldwide Consumer Products
        Division from 1997 to 1999. Mr. Vanhal holds a B.A. and an M.B.A. from the
        University of Leuven, Belgium.
  There
        are
        no family relationships among any ViewSonic executive officers or
        directors.
 
 **Identification
        of Audit Committee and Financial Expert**
 
 We
        maintain an Audit Committee consisting of directors Messrs. Massengill,
        Miller, Stein and Vanhal. Mr. Vanhal serves as the Audit Committee Chairperson.
        All members of our Audit Committee are independent (as independence is currently
        defined in Rule 4350(d)(2)(A)(i) and (ii) of the NASDAQ listing standards
        and
        under applicable Securities Exchange Commission, or SEC, rules and regulations).
        SEC regulations require us to disclose whether our Board of Directors has
        determined that a director qualifying as a "financial expert" serves on our
        Audit Committee. Our Board of Directors has determined that Mr. Miller qualifies
        as a "financial expert" within the meaning of such regulations.
 
 **Board
        of Director Nomination Procedures**
 
 Stockholders
        who wish to communicate with the Board may do so by sending written
        communications addressed to the Secretary of ViewSonic Corporation at 381
        Brea
        Canyon Road, Walnut, CA 91789. All communications will be compiled by our
        Secretary and submitted to the Board or the individual directors on a periodic
        basis.
 
 **Section 16(a)
        Beneficial Ownership Reporting Compliance**
 
 Section 16(a)
        of the Exchange Act requires our directors, executive officers and greater
        than
        ten percent beneficial owners of our stock to file reports of ownership and
        changes in ownership with the SEC. Directors, executive officers and greater
        than ten percent stockholders are required by SEC regulations to furnish
        ViewSonic with copies of all Section 16(a) reports they file.
 
 To
        our
        knowledge, based solely a review of the copies of such reports furnished
        to us
        and written representations that no other reports were required, during the
        year
        ended December 31, 2005, all Section 16(a) filing requirements applicable
        to our
        officers, directors and greater than ten percent beneficial owners were complied
        with except: (a) Mr. Ho filed one late Form 3; (b) Mr. Ho filed one late
        Form 4
        reflecting one previous stock option grant for an aggregate of 1,000,000
        shares
        of common stock; (c) Mr. Jensen filed one late Form 4 reflecting one previous
        stock option grant for an aggregate of 500,000 shares of common stock; (d)
        Mr.
        Milne filed one late Form 3; and (e) Mr. Milne filed one late Form 4 reflecting
        two previous stock option grants for an aggregate of 1,250,000 shares of
        common
        stock.
  58
 *Table
            of Contents*
  **Code
        of Ethics**
 
 We
        have
        adopted a Code of Ethics and Business Conduct, or the Code, applicable to
        all of
        our Board members, employees and executive officers, including our Chief
        Executive Officer (Principal Executive Officer) and Chief Financial Officer
        (Principal Financial and Accounting Officer). We have made the Code available
        on
        our website at www.viewsonic.com/companyinfo/governance.htm .
  We
        intend
        to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding
        (1) any amendments to the Code, or (2) any waivers under the Code
        relating to our Chief Executive Officer and Chief Financial Officer by posting
        such information on our website at www.viewsonic.com/companyinfo/governance.htm.
 
 **ITEM
                  11****.**
              **EXECUTIVE
                  COMPENSATION**
 
 **Executive
        Officer Compensation**
 
 The
        following table sets forth the compensation information for our Chief Executive
        Officer and four most highly compensated executive officers whose salary
        and
        bonus for 2005 were in excess of $100,000 plus one former executive officer,
        who
        are collectively referred to as the “Named Executive Officers.”
 
 **SUMMARY
        COMPENSATION TABLE**
 
 **Annual
                  Compensation**
              
              **Long
                  Term**
                **Compensation**
                **Awards****Name
                  and Principal Position**
              
              **Year**
              
              **Salary**
                **($)**
              
              **Bonus**
                **($)**
              
              **Other
                  Annual**
                **Compensation**
                **($)**
              
              **Securities**
                **Underlying**
                **Options**
              
              **All
                  Other**
                **Compensation**
                **($)**James
                  ChuChairman
                  of the Board and
              
              
              2005
              
              
              305,038
              (1)
              
              42,404
              
              
              —
              
              
              —
              
              
              240
              (2)Chief
                  Executive Officer
              
              
              2004
              
              
              304,694
              (3)
              
              47,213
              
              
              —
              
              
              —
              
              
              240
              (4)Matthew
                  Milne(5)
              
              
              2005
              
              
              323,670
              (6)
              
              56,196
              
              
              —
              
              
              1,250,000
              
              
              240
              (7)President,
                  ViewSonic Americas
              
              
              2004
              
              
              76,731
              (8)
              
              25,000
              
              
              —
              
              
              —
              
              
              80
              (9)Jan
                  Jensen(10)
              
              
              2005
              
              
              305,300
              
              
              75,743
              (11)
              
              59,226
              (12)
              
              500,000
              
              
              68,015
              (13)President,
                  ViewSonic Europe Ltd.
              
              
              2004
              
              
              59,661
              
              
              18,165
              
              
              11,833
              (14)
              
              —
              
              
              18,251
              (15)James
                  A. Morlan
              
              
              2005
              
              
              271,469
              (16)
              
              20,951
              
              
              —
              
              
              1,350,000
              (17)
              
              240
              (18)Chief
                  Financial Officer
              
              
              2004
              
              
              261,471
              (19)
              
              43,280
              
              
              —
              
              
              —
              
              
              240
              (20)Heng-Chun
                  Ho(21)
              
              
              2005
              
              
              224,127
              
              
              14,024
              (22)
              
              75,587
              (23)
              
              1,000,000
              
              
              —President,
                  Global Products Group
              
              
              2004
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Christopher
                  M. Franey(24)
              
              
              2005
              
              
              100,825
              (25)
              
              —
              
              
              44,168
              (26)
              
              —
              
              
              230,017
              (27)Former
                  President, ViewSonic Americas
              
              
              2004
              
              
              273,799
              (28)
              
              162,063
              
              
              917,506
              (29)
              
              —
              
              
              15,368
              (30)
  (1)
              Includes
                  $300,000 salary and $5,038 discretionary contributions made to
                  a 401(k)
                  Savings Plan.
 (2)
              Reflects
                  insurance-related benefits.
 (3)
              Includes
                  $300,000 salary and $4,694 discretionary contributions made to
                  a 401(k)
                  Savings Plan.
 (4)
              Reflects
                  insurance-related benefits.
 (5)
              Mr.
                  Milne commenced employment with us in September
                  2004.
 (6)
              Includes
                  $316,670 salary and $7,000 discretionary contributions made to
                  a 401(k)
                  Savings Plan.
 (7)
              Reflects
                  insurance-related benefits.
 (8)
              Includes
                  $75,000 salary and $1,731 discretionary contributions made to a
                  401(k)
                  Savings Plan.
 (9)
              Reflects
                  insurance-related benefits.
  59
 *Table
            of Contents*
 
 (10)
              Mr.
                  Jensen commenced employment with us in October 2004. The foreign
                  currency
                  exchange rate of $0.5502 U.S. dollars, which reflects an average
                  conversion rate for 2005 based on a 365-day year, and $0.574072
                  U.S. dollars, which reflects an average conversion rate for 2004
                  based on
                  a 365-day year,were used to calculated Mr. Jensen’s British pound denominated
                  compensation.
 (11)
              Mr.
                  Jensen’s actual bonus is accurately reported in the table above as
                  compared to the $56,214 previously
                  reported.
 (12)
              Reflects
                  a car allowance of$34,340 and travel allowance of
                  $24,885.
 (13)
              Reflects
                  a pension allowance.
 (14)
              Reflects
                  a car allowance of $6,861and travel allowance of $4,972.
 (15)
              Reflects
                  a pension allowance.
 (16)
              Includes
                  $265,020 salary and $6,449 discretionary contributions made to
                  a 401(k)
                  Savings Plan.
 (17)
              Includes
                  an option to purchase 750,000 shares of common stock granted on
                  June 19,
                  2000 with an exercise price of $1.00 per share and an option to
                  purchase
                  600,000 shares of common stock granted on May 1, 2003 with an exercise
                  price of $1.09 per share. Each of these options were re-priced
                  by our
                  Board of Directors on May 9, 2005 with a new exercise price of
                  $0.38 per
                  share.
 (18)
              Reflects
                  insurance-related benefits.
 (19)
              Includes
                  $254,038 salary and $7,433 discretionary contributions made to
                  a 401(k)
                  Savings Plan.
 (20)
              Reflects
                  insurance-related benefits.
 (21)
              Mr.
                  Ho commenced employment with us in February of 2005. The foreign
                  currency
                  exchange rate of $33.1114 U.S. dollars, which reflects an average
                  conversion rate for 2005 based on a 365-day year, was used to calculate
                  Mr. Ho’s Taiwanese denominated
                  compensation.
 (22)
              Mr.
                  Ho’s actual bonus is accurately reported in the table above as compared
                  to
                  the $16,444 previously reported.
 (23)
              Includes
                  a car allowance of $52,664, gas allowance of $1,661, a housing
                  allowance
                  of $19,933 and mobile phone allowance of
                  $1,329.
 (24)
              Mr.
                  Franey resigned as President, ViewSonic Americas in February
                  2005.
 (25)
              Includes
                  $98,492 salary and $2,333 discretionary contributions made to a
                  401(k)
                  Savings Plan.
 (26)
              Includes
                  $44,168 related to income tax paid on behalf of Mr. Franey. Mr.
                  Franey has
                  repaid $80,000 in 2006 for income tax paid on his
                  behalf.
 (27)
              Includes
                  $40 for insurance-related benefits, $198,874 as severance and $31,103
                  as
                  accrued vacation.******
 (28)
              Includes
                  $269,129 salary and $4,670 discretionary contributions made to
                  a 401(k)
                  Savings Plan.
 (29)
              Includes
                  $93,385 of relocation expenses, a car allowance of $5,400, a housing
                  allowance of $144,325 and a tax gross up of $674,396 related to
                  income
                  earned by Mr. Franey in 2004, but paid to Mr. Franey in
                  2005.
 (30)
              Includes
                  $204 for insurance-related benefits and $15,164 in connection with
                  tax
                  preparation.
 
 **Director
        Compensation**
 
 Our
        policy is to compensate our non-employee directors on an annual basis, as
        follows:
 
 ·
              Each
                  member receives a retainer fee of
                  $30,000;
 ·
              The
                  chair of each committee receives a $10,000 fee;
                  and
 ·
              Each
                  other committee member receives a fee of $3,000 per
                  year.
 
 The
        non-employee members are also reimbursed for certain expenses including travel,
        lodging and other reasonable expenses incurred in attending Board of Directors
        or committee meetings. However, during 2005 each of the non-employee members
        of
        our Board of Directors received $46,000 in cash and, in addition, Mr. Stein
        received computer equipment with a retail value of $567. In 2006, we plan
        to
        adhere to our standard arrangement for non-employee director compensation
        as
        outlined above. Mr. Chu receives no additional consideration in connection
        with
        his services on our Board of Directors.
 
 In
        addition to cash compensation, we also grant stock options to our non-employee
        directors pursuant to our 2004 Equity Incentive Plan. Each of our non-employee
        directors received an option to purchase 250,000 shares of our common stock
        when
        they joined our Board of Directors. Each of these options were re-priced
        to
        $0.38 on May 9, 2005 in connection with our stock option
        re-pricing.
 
 **Stock
        Option Grants and Exercises**
  We
        grant
        options to purchase shares of our common stock to our named executive officers
        under our 2004 Equity Incentive Plan, or the 2004 Plan. The following table
        presents each stock option grant during 2005 to each of our named executive
        officers. The exercise price of each option was $0.38 per share, which our
        Board
        of Directors determined, after due consideration of all relevant factors,
        including, but not limited to an independent valuation, to be the fair market
        value of our common stock on the date of the grant. In May 2005, we re-priced
        options held by Messr. Morlan pursuant to our 1999 Stock Plan. The outstanding
        options held by Messr. Morlan were re-priced to $0.38 per share, which our
        Board
        of Directors determined, after due consideration of all relevant factors,
        including, but not limited to an independent valuation, to be the fair market
        value of our common stock on the date of the re-pricing.
  60
 *Table
            of Contents*
  The
        potential realizable value is calculated based on the ten-year term of the
        option at the time of grant. Stock price appreciation of 5% and 10% is assumed
        pursuant to rules promulgated by the SEC and does not represent our prediction
        of our stock price performance. The potential realizable values at 5% and
        10%
        appreciation are calculated by:
 •
                multiplying
                    the number of shares of common stock subject to a given option
                    by the
                    exercise price per share;
 
 •
                assuming
                    that the aggregate stock value derived from that calculation
                    compounds at
                    the annual 5% or 10% rate shown in the table until the expiration
                    of the
                    option; and
 
 •
                subtracting
                    from that result the aggregate option exercise price.
  All
        shares listed in the following table under the heading “Number of Securities
        Underlying Options Granted” are subject to vesting. The shares subject to the
        options granted to Messrs. Ho, Jensen, Milne and Morlan vested 25% immediately
        upon the date of grant and the remaining 75% of the shares subject to the
        option
        vest in equal annual installments. Each of these options shall be fully vested
        on the third year anniversary of the date of grant and have a ten-year term.
        The
        term of each option is subject to earlier termination if the Named Executive
        Officer’s service with us ceases. Our re-pricing had no effect on the vesting
        schedule of Mr. Morlan.
  Under
        certain circumstances following a change of control, the vesting of such
        option
        grants may accelerate and become immediately exercisable. Please
        see Item 11. “Executive Compensation—Employment Contracts, Termination of
        Employment and Change-in-Control Arrangements” for a description.
  Percentages
        shown under “Percent of Total Options Granted to Employees in Fiscal Year” are
        based on an aggregate of 8,342,273
        options granted to our employees under all of our equity incentive plans
        during
        the fiscal year ended December 31, 2005.
  **Individual
                  Grants**
              
              
              
              
              
              **Potential
                  Realizable Value at**
                **Assumed
                  Annual Rates of Stock Price**
                **Appreciation
                  for Option Term****Name**
              
              **Number
                  of**
                **Securities**
                **Underlying**
                **Options**
                **Granted
                  (#) (1)**
              
              **Percent
                  of Total**
                **Options
                  Granted**
                **to
                  Employees in**
                **2005
                  (%)**
              
              **Exercise
                  Price**
                **Per
                  Share ($)**
              
              **Expiration**
                **Date**
              
              **5%
                  ($)**
              
              **10%
                  ($)**James
                  Chu
              
              —
              
              —
              
              —
              
              —
              
              —
              
              —James
                  A. Morlan
              
              
              750,000
              (2)
              
              9.0
              %
              $
              0.38
              
              
              06/18/10
              
              $
              179,234.97
              
              $
              454,216.60James
                  A. Morlan
              
              
              600,000
              (3)
              
              7.2
              %
              $
              0.38
              
              
              04/30/13
              
              $
              143,387.97
              
              $
              363,373.28Matthew
                  Milne
              
              
              1,250,000
              
              
              15.0
              %
              $
              0.38
              
              
              04/14/15
              
              $
              298,724.95
              
              $
              757,027.67Jan
                  Jensen
              
              
              500,000
              
              
              6.0
              %
              $
              0.38
              
              
              04/14/15
              
              $
              119,489.98
              
              $
              302,811.07Heng-Chun
                  Ho
              
              
              1,000,000
              
              
              12.0
              %
              $
              0.38
              
              
              04/14/15
              
              $
              238,979.96
              
              $
              605,622.13Christopher
                  M. Franey
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
  (1)
              Percentages
                  calculated above exclude an aggregate of 22,775,611 options held
                  by
                  employees re-priced in connection with our option re-pricing program
                  in
                  May 2005.
 (2)
              Includes
                  an option to purchase 750,000 shares of common stock granted on
                  June 19,
                  2000 at an exercise price of $1.00 per share that was re-priced
                  by us on
                  May 9, 2005 with a new exercise price of $0.38 per
                  share.
 (3)
              Includes
                  an option to purchase 600,000 shares of common stock granted on
                  May 1,
                  2003 at an exercise price of $1.09 per share that were re-priced
                  by us on
                  May 9, 2005 with a new exercise price of $0.38 per
                  share.
 
 **Aggregated
        Option Exercises During 2005 and Option Values at December 31, 2005**
 
 The
        following table presents the number and value of securities underlying
        unexercised options that are held by, each of the Named Executive Officers
        as of
        December 31, 2005.  No options were exercised during 2005 by such
        individuals.
  61
 *Table
            of Contents*
  Amounts
        shown under the column “Value of Unexercised In-the-Money Options at
        December 31, 2005” are based on a price of $0.45 per share, which was the
        fair market value of shares of our common stock on December 31, 2005,
        (based upon the per share price of $0.45, as determined by an external valuation
        company dated December 30, 2005), without taking into account any taxes
        that may be payable in connection with the transaction, multiplied by the
        number
        of shares underlying the option, less the exercise price payable for these
        shares.
 
 **Number
                  of Securities**
                **Underlying
                  Unexercised**
                **Options
                  at December 31, 2005**
              **Value
                  of Unexercised**
                **In-the-Money
                  Options at**
                **December
                  31, 2005****Name**
              **Exercisable**
              **Unexercisable**
              **Exercisable**
              **Unexercisable**James
                  Chu
              —
              —
              —
              —James
                  A. Morlan
              1,200,000
              150,000
              $84,000
              $10,500Matthew
                  Milne
              312,500
              937,500
              $21,875
              $65,625Jan
                  Jensen
              125,000
              375,000
              $8,750
              $26,250Heng-Chun
                  Ho
              250,000
              750,000
              $17,500
              $52,000Christopher
                  M. Franey
              —
              —
              —
              —
  **Employment
        Contracts, Termination of Employment and Change-in-Control Arrangements**
 
 *2004
        Equity Incentive Plan*
 
 The
        vesting of option grants under our 2004 Plan may accelerate and become
        immediately exercisable upon a change in control of ViewSonic. Each participant
        whose service to us continues through the effective date of the change of
        control and whose option grant is not assumed, continued or substituted with
        a
        similar option grant from the acquirer shall have five days before the effective
        date of the change in control to exercise all or part of his or her option
        or
        options outstanding under our 2004 Plan. A change in control, within the
        meaning
        of our 2004 Plan, includes (a) the acquisition of 90% or more of our outstanding
        shares of common stock; (b) a sale or other disposition of all or
        substantially all of our assets; (c) a merger, consolidation or similar
        transaction following which we are not the surviving corporation; or (d)
        a
        merger, consolidation or similar transaction following which we are the
        surviving corporation but the shares of common stock outstanding immediately
        preceding the merger, consolidation or similar transaction are converted
        or
        exchanged by virtue of the merger, consolidation or similar transaction into
        other property, whether in the form of securities, cash or otherwise.
 
 *1999
        Stock Plan*
 
 The
        vesting of option grants under our 1999 Stock Plan may accelerate and become
        immediately exercisable upon a change in control of ViewSonic. Each participant
        who is not tendered, or does not accept, an option granted by the surviving
        corporation, which substantially preserves the economic rights and benefits
        of
        the participant's existing option, shall have seven days before the
        effective date of the change in control to exercise all or part of his or
        her
        option or options outstanding under our 1999 Stock Plan. A change in control,
        within the meaning of our 1999 Stock Plan, includes (a) the acquisition of
        50% or more of our outstanding shares of common stock; (b) a sale or other
        disposition of all or substantially all of our assets; or (c) a merger or
        consolidation with any other entity in which our stockholders immediately
        preceding such merger or consolidation will not hold a majority of the
        outstanding capital stock or other equity interests in the surviving entity
        (whether or not we are the surviving entity) immediately after such merger
        or
        consolidation.
 
 *Christopher
        Franey*
 
 Effective
        May 18, 2005, we entered into a Separation Agreement dated May 10, 2005 with
        Christopher M. Franey, ViewSonic’s former President of ViewSonic Americas.
        Pursuant to the Separation Agreement and in consideration for the general
        release given by Mr. Franey, we agreed to pay Mr. Franey a lump sum severance
        payment of $198,874, less payroll deductions and all required withholdings.
 
 *Jan
        Jensen*
  See
“Item
        9B. Other Information” for a description of these agreements.
  *Matthew
        W. Milne*
  62
 *Table
            of Contents*
  We
        entered into an agreement with Matthew W. Milne, the President of ViewSonic
        Americas, dated February 22, 2005. Under the terms of his agreement with
        us, Mr.
        Milne has an annualized base salary of $310,800.  If Mr. Milne’s employment
        is terminated by ViewSonic for any reason other than gross misconduct, Mr.
        Milne
        shall be entitled to receive at least three months of salary continuation
        in
        addition to the number of months of salary continuation under our standard
        guidelines.
  **Compensation
        Committee Interlocks and Insider Participation**
 
 During
        2005, our Compensation Committee was comprised of Messrs. Massengill, Stein
        and
        Vanhal.  Messr. Stein is the Chairman of our Compensation Committee. None
        of our executive officers serves as members of the board of directors or
        compensation committee of any entity that has one or more executive officers
        who
        serve on our Board of Directors or Compensation Committee. No interlocking
        relationship exists between our Board of Directors or Compensation Committee
        and
        the board of directors or compensation committee of any other company, nor
        has
        any interlocking relationship existed in the past.
 
 **ITEM
                  12****.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER TRANSACTIONS**
 
 The
        following table presents information regarding the ownership of our outstanding
        common stock as of March 15, 2006 by:
  ·
              Each
                  director;
 ·
              Each
                  of our Named Executive Officers;
 ·
              All
                  of our directors and executive officers as a group; and
 ·
              All
                  of those known by us to be beneficial owners of more than five
                  percent of
                  our common stock.
 
 Beneficial
        ownership is determined in accordance with the rules of the SEC and generally
        includes voting or investment power with respect to securities. Beneficial
        ownership also includes shares of common stock subject to options exercisable
        within 60 days of March 15, 2006. These shares are not deemed outstanding
        for purposes of computing the percentage ownership of each other person.
        Percentage of beneficial ownership is based on 354,124,268 shares of our
        common
        stock outstanding as of March 15, 2006. Unless otherwise indicated, the address
        of each of the individuals and entities listed below is c/o ViewSonic
        Corporation, 381 Brea Canyon Road, Walnut, California, 91789.
  **Shares**
                **Beneficially
                  Owned****Name
                  and Address of Beneficial Owner**
              
              **Number
                  of Shares**
                **Issuable
                  Pursuant to**
                **Options**
                **Exercisable
                  Within**
                **60
                  days of**
                **March
                  15, 2006**
              
              **Number**
              
              **Percent****Directors
                  and Named Executive Officers**James
                  Chu(1)
              
              
              —
              
              
              311,969,998
              
              
              88.1
              %Matthew
                  E. Massengill
              
              
              187,500
              
              
              187,500
              
              
              *William
                  J. Miller
              
              
              187,500
              
              
              187,500
              
              
              *Bruce
                  L. Stein
              
              
              225,000
              
              
              225,000
              
              
              *Luc
                  H. Vanhal
              
              
              225,000
              
              
              225,000
              
              
              *James
                  A. Morlan
              
              
              1,350,000
              
              
              1,350,000
              
              
              *Matthew
                  Milne
              
              
              625,000
              
              
              625,000
              
              
              *Jan
                  Jensen
              
              
              250,000
              
              
              250,000
              
              
              *Heng-Chun
                  Ho
              
              
              500,000
              
              
              500,000
              
              
              *Christopher
                  M. Franey
              
              
              —
              
              
              —
              
              
              —All
                  directors and executive officers as a group (11 persons)
              
              
              4,249,390
              
              
              316,154,380
              
              
              88.2
              %**5%
                  Stockholders**Keypoint
                  Investments, L.P.(2)
              
              
              —
              
              
              58,831,542
              
              
              16.6
              %
 
 *
              Represents
                  beneficial ownership of less than 1% of the outstanding shares
                  of our
                  common stock.
 (1)
              Includes
                  58,831,542 shares held by Keypoint Investments, L.P., a California
                  limited
                  partnership. Mr. Chu and his wife, Lily Chu, are general partners of
                  Keypoint Investments, L.P.
   63
 *Table
            of Contents*
  (2)
              Mr.
                  Chu and his wife, Lily Chu, are general partners of Keypoint Investment,
                  L.P.
 
 **Stockholder
        Approval of Stock Plans**
 
 We
        have
        two stockholder approved equity compensation plans, the 1999 Stock Plan and
        the
        2004 Equity Incentive Plan. Under the terms of the 1999 Stock Plan and the
        2004
        Equity Incentive Plan, officers, directors, consultants and our employees
        may be
        granted options to purchase our common stock at the fair market value on
        the
        date the option is granted as determined by our Board of Directors. Options
        generally vest over three to four years and may be exercised for up to
        10 years from the date of grant.
 
 The
        following table provides certain information regarding our equity incentive
        plans as of December 31, 2005.
  **Plan
                  Category**
              
              **Number
                  of Securities to be**
                **Issued
                  upon Exercise of**
                **Outstanding
                  Options,**
                **Warrants
                  and Rights**
                **(a)**
              
              **Weighted-Average**
                **Exercise
                  Price of**
                **Outstanding**
                **Options,
                  Warrants**
                **and
                  Rights**
                **(b)**
              
              **Number
                  of Securities**
                **Remaining
                  Available for**
                **Future
                  Issuance under**
                **Equity
                  Compensation Plans**
                **(excluding
                  Securities**
                **Reflected
                  in Column (a))**
                **(c)**Equity
                  compensation plans approved by security holders
              
              
              27,625,596
              
              $
              0.38
              
              
              15,342,419Equity
                  compensation plans not approved by security holders
              
              
              —
              
              
              —
              
              
              —Total
              
              
              27,625,596
              
              $
              0.38
              
              
              15,342,419
 
 
 **ITEM
                  13****.**
              **CERTAIN
                  RELATIONSHIPS AND RELATED
                  TRANSACTIONS**
 
 **Notes
        Payable**
 
 As
        of
        December 31, 2005, we had outstanding a subordinated note payable to James
        Chu, our Chairman of the Board and Chief Executive Officer, and Keypoint
        Investments, L.P., a California limited partnership, of which Mr. Chu and
        his wife, Lily Chu, are the general partners, in the aggregate principal
        amount
        of $43.0 million. The subordinated notes are due on April 12, 2008 and
        no payments were made against the principal amount in 2005 or 2004. The interest
        rate on the subordinated notes was 3.97% per annum for 2005, 2004, and 2003,
        respectively. Interest expense related to the subordinated notes was
        $1.7 million for 2005, 2004 and 2003, respectively.
 
 **Related
        Party Sales**
 
 We
        have
        entered into non-exclusive distribution agreements with ASI Corp., a privately
        held company located in Fremont, California pursuant to which ASI Corp.
        distributes a full range of our products. The prices charged to ASI Corp.
        are
        consistent with the prices we charge to our other distribution customers.
        Mr. Chu's sister and her husband own 100% of the stock of ASI Corporation.
        Net sales to ASI Corporation were $22.4 million, $24.7 million and
        $28.8 million for 2005, 2004, and 2003, respectively. We had an account
        receivable balance of $1.5 million and $1.5 million from ASI Corp. at
        December 31, 2005 and 2004, respectively, which are included in other
        receivables. We believe that the distribution agreements with ASI Corp. were
        in
        our best interests and on terms no less favorable to us than could be obtained
        from unaffiliated third parties.
  **Investor
        Rights Agreement**
 
 We,
        Mr. Chu and certain other preferred stockholders have entered into an
        agreement, pursuant to which these stockholders have registration rights
        with
        respect to their shares of common stock.
 
 **Employment
        Agreements**
 
 Please
        see Item 11. “Executive Compensation—Employment Contracts, Termination of
        Employment and Change-in-Control Arrangements” and Item 9B. “Other Information”
for a description of our employment agreements.
 
 We
        believe that the above transactions were in our best interests and on terms
        no
        less favorable to us than could be obtained from unaffiliated third parties.
  64
 *Table
            of Contents*
  **Indemnification
        Agreements**
 
 We
        have
        entered into indemnification agreements with each of our directors and executive
        officers. The agreements require us to indemnify such individuals for certain
        liability to which they may be subject as a result of their affiliation with
        us,
        to the fullest extent permitted by Delaware law.
 
 **Transactions
        Between Stockholders**
 
 In
        December 2003, Mr. Chu, our Chief Executive Officer and the Chairman
        of our Board of Directors, transferred 9,000,000 shares of ViewSonic common
        stock held by him to certain investors who had purchased our common stock
        in
        2000. At the same time, we entered into an agreement with these stockholders
        providing for certain registration rights as described above under "Investor
        Rights Agreement.” In connection with these transactions, the investors provided
        a release to us and Mr. Chu of alleged claims of misrepresentation, breach
        of contract and breach of fiduciary duty arising out of their previous purchase
        of common stock. Mr. Chu did not receive any compensation from us in
        connection with these transactions.
 
 **ITEM
                  14****.**
              **PRINCIPAL
                  ACCOUNTANT FEES AND
                  SERVICES**
 
 **Fees
        of Deloitte & Touche LLP**
 
 The
        following table presents fees for professional audit services rendered by
        Deloitte & Touche for the audit of ViewSonic’s annual financial statements
        for 2005 and 2004, and fees billed for all other services rendered by Deloitte
        & Touche, the member firms of Deloitte & Touche Tohmatsu and their
        respective member firms (collectively Deloitte & Touche).
 
 **Year
                  Ended December 31,****2005**
              
              **2004**Audit
                  fees
              
              $
              949,000
              
              $
              831,582Audit-related
                fees (1)
              
              
              46,000
              
              
              30,200Tax
                  fees(2)
              
              
              443,163
              
              
              598,975Total
                  fees
              
              $
              1,438,163
              
              $
              1,460,757
  (1)  Fees
          for
          audit-related services billed in 2005 and 2004 consisted of financial accounting
          and reporting consultations and Sarbanes-Oxley Act, Section 404 advisory
          services.
 (2) Fees
          for domestic and foreign tax compliance, international tax planning and
          advise
          and tax audit assistance.
 The
        Audit
        Committee has determined that the rendering of the services other than audit
        services by Deloitte & Touche is compatible with maintaining Deloitte &
Touche’s independence. All of the fiscal 2005 and 2004 fees described above paid
        to Deloitte & Touche were pre-approved by the Audit Committee.
  **Audit
        Committee Pre-Approval Policy**
 
 Section 10A(i)(1)
        of the Exchange Act requires that all services to be performed by our
        independent registered public accounting firm be approved in advance by the
        Audit Committee of the Board of Directors, subject to certain exceptions
        relating to non-audit services accounting for less than five percent of the
        total fees paid to its independent registered public accounting firm which
        are
        subsequently ratified by the Audit Committee, or the De Minimus Exception.
        In
        addition, pursuant to Section 10A(i)(3) of the Exchange Act, the Audit
        Committee has established procedures by which the Chairperson of the Audit
        Committee may pre-approve such services provided the Chairperson report the
        details of the services to the full Audit Committee at its next regularly
        scheduled meeting. None of the audit-related or non-audit services described
        above were performed pursuant to the De Minimus Exception during the periods
        in
        which the pre-approval requirement has been in effect.
 
 **PART
        IV**
 
 **ITEM
                  15****.**
              **EXHIBITS
                  AND FINANCIAL STATEMENT
                  SCHEDULES**
 
 (a)
              The
                  following documents are filed as part of this Annual Report on
                  Form 10-K:
 
 **(1)**
              **Financial
                  Statements.**
 
 The
        following documents are included as Part II, Item 8 of this Annual Report
        on Form 10-K:
  65
 *Table
            of Contents*
 
 **Page**Independent
                  Registered Public Accountants Report
              30Consolidated
                  Balance Sheets as of December 31, 2005 and 2004
              31Consolidated
                  Statements of Operations for the years ended December 31, 2005, 2004
                  and 2003
              32Consolidated
                  Statements of Stockholders' Equity for the years ended December 2005,
                  2004 and 2003
              33Consolidated
                  Statements of Cash Flows for the years ended December 31, 2005, 2004
                  and 2003
              34Notes
                  to Consolidated Financial Statements
              35
 
 **(2)**
              **Financial
                  Statement Schedules.**
 
 **Schedule
        II - Valuation and Qualifying Accounts**
 
 The
        following table summarizes our activity in the promotional allowances as
        of
        December 31 (in thousands):
 
 **2005**
              
              **2004**
              
              **2003**Accrued
                  Promotional Expenses (1)Balance,
                  beginning of period
              
              $
              30,267
              
              $
              15,779
              
              $
              20,930Additions
                  to allowance, net of recoveries
              
              
              89,796
              
              
              128,142
              
              
              100,423Deductions
              
              
              (97,400
              )
              
              (113,654
              )
              
              (105,574
              )Balance,
                  end of period
              
              $
              22,663
              
              $
              30,267
              
              $
              15,779
 
 (1)
              Consists
                  of promotional expenses as described below:
 (a)
              Our
                  gross sales and cost of sales are adjusted for our estimate of
                  future
                  returns in our statement of operations. The returns reserve represents
                  the
                  estimated returns-related gross profit for future returns that still
                  have an expected right of return.
 (b)
              Account
                  development funds (cooperative advertising and marketing funds)
                  presented
                  in SG&A on the income
                  statement.
 (c)
              Freight
                  allowance presented in cost of sales within the income statement.
  Accrued
        promotional expenses excludes certain sales allowance expense net of off-invoice
        discounts, cash discounts and miscellaneous allowances, which are recorded
        against accounts receivable.
 
 The
        following table summarizes the Company's activity in the accounts receivable
        allowance as of December 31 (in thousands).
 
 **2005**
              
              **2004**
              
              **2003**Allowance
                  for Doubtful AccountsBalance,
                  beginning of period
              
              $
              5,327
              
              $
              4,192
              
              $
              2,787Additions
                  to allowance
              
              
              381
              
              
              (257
              )
              
              1,228Deductions
                  net of recoveries
              
              
              (733
              )
              
              1,392
              
              
              177Balance,
                  end of period
              
              $
              4,975
              
              $
              5,327
              
              $
              4,192
 
 **(3)**
              **Exhibits.**
 
 The
        exhibits listed in the accompanying index to exhibits are filed or incorporated
        by reference as a part of this Annual Report.
  66
 *Table
            of Contents*
 
 **SIGNATURES**
  Pursuant
        to the requirements of Section 12 of the Securities Exchange Act of 1934,
        as amended, the Registrant has duly caused this report to be signed on its
        behalf by the undersigned, thereunto duly authorized, on April 3, 2006.
 
 **VIEWSONIC
                  CORPORATION**By: 
                  /s/ James ChuChairman
                  of the Board of Directors and Chief Executive Officer*(Principal
                  Executive Officer)*
 
  **POWER
        OF ATTORNEY**
 
 KNOW
        ALL
        PERSONS BY THESE PRESENTS, that each person whose signature appears below
        constitutes and appoints James Chu and James A. Morlan, and each of them,
        as his
        true and lawful attorneys-in-fact and agents, with full power of substitution
        and resubstitution, for him and in his name, place and stead, in any and
        all
        capacities, to sign any and all amendments (including post-effective amendments)
        to this Report on Form 10-K, and to file the same, with all exhibits
        thereto, and other documents in connection therewith, with the Securities
        and
        Exchange Commission, granting unto said attorneys-in-fact and agents, and
        each
        of them, full power and authority to do and perform each and every act and
        thing
        requisite and necessary to be done in connection therewith, as fully to all
        intents and purposes as he might or could do in person, hereby ratifying
        and
        confirming all that said attorneys-in-fact and agents, or any of them, or
        their
        or his substitute or substitutes, may lawfully do or cause to be done by
        virtue
        hereof. Pursuant to the requirements of the Securities Exchange Act of 1934,
        this report has been signed below by the following persons on behalf of the
        registrant and in the capacities and on the dates indicated:
 
 **Signature**
              **Title**
              **Date**Chairman
                  of the Board of Directors and Chief
                  Executive/s/
                  James Chu
              Officer*(Principal
                  Executive Officer*)
              April 3,
                  2006James
                  ChuChief
                  Financial Officer/s/
                  James A. Morlan
              (*Principal
                  Financial Officer and Principal Accounting Officer*)
              April
                  3, 2006James
                  A. Morlan/s/
                  Matthew E. Massengill
              Director
              April 3,
                  2006Matthew
                  E. Massengill/s/
                  William J. Miller
              Director
              April 3,
                  2006William
                  J. Miller/s/
                  Bruce L. Stein
              Director
              April 3,
                  2006Bruce
                  L. Stein/s/
                  Luc H. Vanhal
              Director
              April 3,
                  2006Luc
                  H. Vanhal
  67
 *Table
            of Contents*
  **EXHIBIT
        INDEX**
 
 
 **Exhibit
                  Number**
              **Description
                  of Document**3.1(1)
              Amended
                  and Restated Certificate of Incorporation.3.2(2)
              Amended
                  and Restated Bylaws.4.1(3)
              Reference
                  is made to Exhibits 3.1 and 3.2.4.2(4)
                  +
              1999
                  Stock Plan.4.3(5)
                  +
              Form
                  of Non-Qualified Stock Option Agreement pursuant to the 1999 Stock
                  Plan.4.4(6)
              Specimen
                  Stock Certificate.4.5(7)
                  +
              2004
                  Equity Incentive Plan and form of Stock Option
                  Agreement.10.1(8)
              Form
                  of Indemnity Agreement.10.2(9)
              Amended
                  and Restated Investor Rights Agreement, dated December 5,
                  2003.10.3(10)
              Subordinated
                  Promissory Note, issued to James Chu, dated December 1,
                  2001.10.4(11)
              Subordinated
                  Promissory Note, issued to Keypoint Investments, L.P., dated December
                  1,
                  2001.10.5(12)
              Financing
                  Agreement between ViewSonic Corporation and The CIT Group/Business
                  Credit
                  Inc., dated December 18, 2001.10.6(13)
              Second
                  Amendment to Financing Agreement by and between ViewSonic Corporation
                  and
                  The CIT Group/Business Credit Inc., dated March 16,
                  2005.10.7(14)
              Letter
                  Agreement by and between ViewSonic Corporation and The CIT Group/Business
                  Credit Inc., dated March 16, 2005.10.8(15)
              Build
                  to Suit Industrial Lease between ViewSonic Corporation and Catellus
                  Development Corporation, dated June 25, 1996.10.9(16)
              First
                  Amendment to Lease between ViewSonic Corporation and Catellus Development
                  Corporation, dated December 18, 1998.10.10(17)
              Second
                  Amendment to Lease between ViewSonic Corporation and Catellus Development
                  Corporation, dated March 6, 2002.10.11(18)†
              Facility
                  Agreement between ViewSonic Europe Limited and Burdale Financial
                  Limited,
                  dated June 24, 2004.10.12(19)†
              Deed
                  of Debenture among ViewSonic Europe Limited, others as Chargors
                  and
                  Burdale Financial Limited, dated June 24, 2004.10.13(20)
              Pledge
                  Agreement between ViewSonic Europe Limited and Burdale Financial
                  Limited,
                  dated June 24, 2004.10.14(21)
              Third
                  Party Pledgeholder Agreement among ViewSonic Europe Limited, Burdale
                  Financial Limited and Furness Logistics B.V., dated June 24,
                  2004.10.15(22)
                  +
              2005
                  Non-Employee Director Cash Compensation Policy.10.16(23)+
              Matthew
                  W. Milne's Offer Letter dated February 22, 2005.10.17(24)+
              Separation
                  Agreement by and between ViewSonic Corporation and Christopher
                  M. Franey,
                  dated May 10, 2005.10.18+
              Director’s
                  Service Agreement, by and between Jan Jensen and ViewSonic Netherlands,
                  dated January 10, 2006.10.19+
              Director’s
                  Service Agreement, by and between Jan Jensen and ViewSonic Europe
                  Limited,
                  dated January 10, 2006.10.20+
              Director’s
                  Service Agreement, by and between Jan Jensen and ViewSonic SARL,
                  dated
                  January 10, 2006.21.1(25)
              List
                  of Registrant's Subsidiaries.23.1
              Consent
                  of Deloitte & Touche LLP, Independent Registered Public Accounting
                  Firm.24.1
              Power
                  of Attorney (See page 67).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.
  68
 *Table
            of Contents*
  +
              Management
                  contract, compensatory plan or
                  arrangement.
 
 †
              Confidential
                  treatment has been requested for portions of this exhibit. The
                  redacted
                  portion have been filed separately with the Securities and Exchange
                  Commission.
 
 *
              The
                  certification attached as Exhibit 32.1, accompanies this Annual
                  Report on Form 10-K, 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-K, irrespective of any
                  general incorporation language contained in such
                  filing.
 
 (1)
              Incorporated
                  by reference to Exhibit 3.1 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (2)
              Incorporated
                  by reference to Exhibit 3.2 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (3)
              Incorporated
                  by reference to Exhibit 4.1 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (4)
              Incorporated
                  by reference to Exhibit 4.2 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (5)
              Incorporated
                  by reference to Exhibit 4.3 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (6)
              Incorporated
                  by reference to Exhibit 4.4 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (7)
              Incorporated
                  by reference to Exhibit 99.2 to ViewSonic Corporation's Registration
                  Statement on Form S-8 (333-118775) filed with the Securities and
                  Exchange
                  Commission on August 16, 2004.
 (8)
              Incorporated
                  by reference to Exhibit 10.1 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (9)
              Incorporated
                  by reference to Exhibit 10.2 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (10)
              Incorporated
                  by reference to Exhibit 10.3 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (11)
              Incorporated
                  by reference to Exhibit 10.4 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (12)
              Incorporated
                  by reference to Exhibit 10.6 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (13)
              Incorporated
                  by reference to Exhibit 10.6 toViewSonic
                  Corporation’s Annual Report on Form 10-K, (000-50730), filed with the
                  Securities and Exchange Commission on March 29,
                  2005.
 (14)
              Incorporated
                  by reference to Exhibit 10.7 to ViewSonic Corporation’s Annual Report on
                  Form 10-K, as amended (000-50730), filed with the Securities and
                  Exchange Commission on March 29,
                  2005.
 (15)
              Incorporated
                  by reference to Exhibit 10.7 toViewSonic
                  Corporation’s Registration Statement on Form 10, (000-50730), filed with
                  the Securities and Exchange Commission on April 29, 2004, amended
                  on July
                  25, 2004 and August 27, 2004.
 (16)
              Incorporated
                  by reference to Exhibit 10.8 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (17)
              Incorporated
                  by reference to Exhibit 10.9 to ViewSonic Corporation's Registration
                  Statement on Form 10, as amended (000-50730), filed with the
                  Securities and Exchange Commission on April 29, 2004, and amended on
                  July 25, 2004 and August 27,
                  2004.
 (18)
              Incorporated
                  by reference to Exhibit 10.10 to ViewSonic Corporation's Quarterly
                  Report
                  on Form 10-Q, (000-50730), filed with the Securities and Exchange
                  Commission on August 16, 2004.
 (19)
              Incorporated
                  by reference to Exhibit 10.11 to ViewSonic Corporation's Quarterly
                  Report
                  on Form 10-Q, (000-50730), filed with the Securities and Exchange
                  Commission on August 16, 2004.
  69
 *Table
            of Contents*
  (20)
              Incorporated
                  by reference to Exhibit 10.12 to ViewSonic Corporation's Quarterly
                  Report
                  on Form 10-Q, (000-50730), filed with the Securities and Exchange
                  Commission on August 16, 2004.
 (21)
              Incorporated
                  by reference to Exhibit 10.13 to ViewSonic Corporation's Quarterly
                  Report
                  on Form 10-Q, (000-50730), filed with the Securities and Exchange
                  Commission on August 16, 2004.
 (22)
              Incorporated
                  by reference to Exhibit 10.16 to ViewSonic Corporation's Annual
                  Report on
                  Form 10-K, (000-50730), filed with the Securities and Exchange
                  Commission on March 29, 2005.
 (23)
              Incorporated
                  by reference to Exhibit 10.17 to ViewSonic Corporation's Annual
                  Report on
                  Form 10-K, (000-50730), filed with the Securities and Exchange
                  Commission on March 29, 2005.
 (24)
              Incorporated
                  by reference to Exhibit 10.18 to ViewSonic Corporation's Current
                  Report on
                  Form 8-K, (000-50730), filed with the Securities and Exchange
                  Commission on May 23, 2005.
 (25)
              Incorporated
                  by reference to Exhibit 21.1 to ViewSonic Corporation’s Annual Report on
                  Form 10-K, (000-50730) filed with the Securities and Exchange Commission
                  March 29, 2005.
  70