**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, 2006**





**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**
            95-4120606(State
                or Other Jurisdiction of Incorporation or Organization)
            (I.R.S.
                Employer Identification No.)





**381
      Brea Canyon Road**


**Walnut,
      California 91789**


**(909)
      444-8800**


(Address
      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 ý No  ̈




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 ý




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







1


The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant as of June 30, 2006 was approximately $19.0 million (based on the
      price per share of $0.45, as determined by the Board of Directors on April
      6, 2006). 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, 2006.
      This determination of affiliate status is not a conclusive determination for
      other purposes.




The
      number of shares of common stock outstanding was 354,594,666 shares and the
      number of shares of Series C preferred stock outstanding was 3,300,000 shares,
      each as of March 9, 2007.


2


**DOCUMENTS
      INCORPORATED BY REFERENCE**





The
      information required by Part III of this Annual Report on Form 10-K is
      incorporated from an Annual Report on Form 10-K/A to be filed with the
      Securities and Exchange Commission on or before April 30, 2007.




Exhibits
      previously filed as noted on the Exhibit Index.




3


**ANNUAL
      REPORT ON FORM 10-K**


**TABLE
      OF CONTENTS**





**Page
                No.****Part
                I**Item
                1.
            Business
            6Item
                1A
            Risk
                Factors
            10Item
                1B
            Unresolved
                Staff Comments
            17Item
                2.
            Properties
            17Item
                3.
            Legal
                Proceedings
            17Item
                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
            20Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            35Item
                8.
            Financial
                Statements and Supplementary Data
            36Item
                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,
                Executive Officers and Corporate Governance
            56Item
                11.
            Executive
                Compensation
            56Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            56Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            56Item
                14.
            Principal
                Accounting Fees and Services
            56**Part
                IV**Item
                15.
            Exhibits
                and Financial Statement Schedules
            57Signatures
            58Exhibit
                Index
            59




4
 *Table
          of Contents*


**FORWARD-LOOKING
      STATEMENTS**





This
      Annual 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 Annual Report. The "Risk Factors”
section, among other things, should be considered in evaluating our prospects
      and future financial performance.




5
 *Table
          of Contents*


**PART
      I**




**ITEM1.**
            **BUSINESS**





**Overview**





ViewSonic
      Corporation is a leading global provider of display products. We develop, market
      and support a broad range of award winning products including liquid crystal
      display (“LCD”) monitors, LCD TVs, projectors, digital signage and cathode ray
      tube (“CRT”) monitors. According to a fourth quarter of 2006 research report, by
      DisplaySearch, we ranked
      sixth in worldwide LCD
      monitor shipments in 2006 .





We
      have a
      customer-driven business model. Our strategy is to effectively leverage industry
      leading technologies into products marketed under the ViewSonic brands. We
      collaborate with a network of world class component suppliers and contract
      manufacturers to deliver a wide array of products to meet the needs of our
      customers. We believe our business model enables us to quickly scale our
      business, shorten new product time to market, reduce costs to our business,
      introduce innovative products and offer price/performance levels to meet
      customer needs.





Our
      products are sold through a variety of channels, including distributors,
      solution providers, value added resellers and retailers to Fortune 1000
      companies, small and medium sized businesses, and consumers. We sell our
      products globally and are managed in three geographic segments: the Americas,
      Europe, Middle-East and Africa (“EMEA”) and Asia-Pacific.





**Industry
      Background**





According
      to a fourth quarter 2006 research report by DisplaySearch, a unit of market
      research firm NPD Group, worldwide desktop monitor shipments are expected to
      increase from 167 million units in 2006 to 202 million units in 2010. In this
      report, DisplaySearch estimates that total LCD monitor shipments are expected
      to
      increase from 134 million units in 2006 to 190 million units in 2010, while
      total CRT monitor shipments are expected to decrease from 33 million units
      in
      2006 to 12 million in 2010. DisplaySearch also estimates that worldwide revenue
      from LCD monitors will increase from $37.5 billion in 2006 to $39.1 billion
      in
      2010, while revenue from CRT monitors will decline from $3.6 billion in 2006
      to
      $1.2 billion in 2010. According to research conducted by Display Search, the
      LCD
      TV market is projected to grow from $47.0 billion in 2006 to $71.7 billion
      in
      2009.





***LCD
      Panel Development for Desktop Monitor Applications***





The
      display industry is continuing to experience 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.





***TV
      Industry Trends and Opportunities***





Globally,
      governments are supporting the growth of digital TV displays through a series
      of
      mandates and deadlines to convert all analog transmissions to digital. In the
      United States, all TV stations must transmit digitally by February 2009, while
      in Europe and Asia, 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
      signals, freeing broadcast spectrum for other purposes. We believe this global
      move towards digital media/high definition content and advances in technology
      are the primary growth drivers in the TV market.





Although
      there are several technologies available today in the TV market, including
      LCD,
      plasma, rear projection and digital light processing (“DLP”), among others, we
      believe that LCD TVs present the highest growth opportunities in the overall
      TV
      market for screen sizes 52 inches and below. LCD TV unit sales are projected
      to
      increase from 42 million units in 2006 to 100 million units in 2009 according
      to
      Display Search. We believe that LCD TV technology will prevail as the technology
      of choice in the overall TV market due to its excellent picture quality, thin
      size and performance. In addition to consumer usage in the TV market, we believe
      that LCD will emerge as the leading technology in commercial applications as
      LCD
      panels become available in larger sizes, with growth expected to occur in both
      end-user segments.





***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 2006, retail prices for projectors broke the sub-$500 barrier,
      making them more affordable for mainstream users.


6
 *Table
          of Contents*


***CRT
      Monitor Trends***





Although
      the demand for CRTs is continuing to decline, its price advantage over LCDs
      continues to drive 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.





**Products**





We
      offer
      a wide range of visual display technology products worldwide under the ViewSonic
      brand name. Our product categories include: LCD monitors, LCD TVs, projectors,
      CRT, digital signage, visual devices and peripherals such as 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
      offer
      our customers a broad range of ViewSonic-branded visual display products,
      including computer monitors, TVs and other products. Within computer monitors,
      we sell and market both CRT and LCD monitors. Our TV products include LCD TVs.
      Our other products include projectors, peripheral products and visual devices.
      We believe that the market for CRTs is currently in the decline stage of its
      life cycle. We have seen a significant decrease in our unit shipments of CRTs
      over the past three years, which is consistent with the overall trends in the
      worldwide CRT market. We believe that the market for LCDs is currently in the
      growth stage of its life cycle and has been replacing 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 has exceeded the overall trend
      in
      the worldwide LCD market. Many of our other products, specifically LCD TVs
      and
      projectors, are currently in the growth stage of their respective product life
      cycles. We believe that the LCD TV and projector product categories represent
      opportunities for future growth. The following table identifies our principal
      product categories as of December 31, 2006:





**Product
                Type**
            **Series**
            **Size/**
              **Additional
                Attributes**LCDs
            Q
            17”
                through 19”VE
            17”
                through 19”VG
            17”
                through 22”VX
            19”
                through 22”VP
            19”
                through 23”VA
            15”
                through 20”LCD
                TVs
            N
            19”
                through 42”Digital
                Signage
            N,
                ND,NMP
            42”
                Displays,
              Network
                Media PlayersCRTs
            E
            15”
                through 19”G
            17”
                through 22”Projectors
            PJ,
                CINE
            Under
                3 Lbs. to 17 Lbs.Peripherals
                & Accessories
            KU,
                KC, KW, MC, MU, MW,CP,
                CC, CW, SP
            Keyboards,
                Mice, Speakers, Etc.Visual
                Devices
            V
            3.5”
                to 10” Wireless Displays





***Desktop
      LCD and CRT Monitors***





We
      offer
      a broad range of desktop monitors, including 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 77.0%,
      57.6%, and 40.3% of our total unit shipments in 2006, 2005, and 2004,
      respectively. CRT monitor shipments comprised 12.5%, 27.6%, and 45.8% of our
      total unit shipments in 2006, 2005, and 2004, respectively.


7
 *Table
          of Contents*


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. The ASP of our CRT monitors declined approximately 12.0%
      from 2005 to 2006 and the ASP of our LCD monitors declined approximately 21.7%
      from 2005 to 2006.





***Other
      Products***





Other
      products include TV products, projectors, peripheral products and visual
      devices. This product category comprised 10.5%, 14.8%, and 13.9% of our total
      unit shipments in 2006, 2005, and 2004, respectively.





*TV
      Products* - We
      currently offer LCD TV products for the digital television market. Our LCD
      TV
      products include 19”, 20", 26”, 27", 32”, 37”, 40” and 42” TVs and other
      commercial applications, including digital signage.





*Digital
      Signage* -
      Digital signage products include network-enabled large screen displays that
      are
      targeted at system integrators and value-added resellers, or VARs.





*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 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 and ruggedized
      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 distributors, retailers,
      solution providers, value-added resellers 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. Sales to Ingram Micro Inc. in 2006, 2005 and 2004 were
      11%,
      11% and 14%, respectively, of our total consolidated net sales. Sales to Tech
      Data Corporation in 2005 and 2004 were 10% and 13%, respectively, of our total
      consolidated net sales.





Our
      sales
      force supports sales opportunities through our worldwide network of channel
      partners, corporate accounts and online stores with sales offices located in
      the
      Americas, EMEA 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.





***Distributors***





We
      use
      distributors to ship our products to various resellers. We believe that with
      product proliferation and increasingly 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 who then 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.


·
            *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.


8
 *Table
          of Contents*


·
            *Solution
                Providers -*Solution providers are technology consulting firms that offer a
                solution-based approach incorporating hardware and software to help
                resolve business problems. A solution provider typically integrates
                products, services and applications to increase productivity, protect
                critical data and limit technology
                problems.





**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-service 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.





In
      December 2005, we started to source LCD panels directly from LCD panel
      manufacturers. We believe this sourcing initiative has brought us closer to
      the
      supply base allowing us to more closely monitor market trends and supply cycles.
      In addition, this initiative has allowed us to consolidate our LCD panel
      purchasing power. We believe this sourcing initiative has enabled us to secure
      better pricing and better allocation of LCD panels during 2006. By means of
      this
      sourcing initiative, we hope to be less vulnerable to the inherent instability
      of the LCD monitor industry.





**Manufacturing
      and Logistics**





We
      source
      our products from several third party suppliers, 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,
      Europe and Asia-Pacific. From our distribution centers, we ship to our channel
      partners, which include the distribution, reseller 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 leverage 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.





We
      believe our cooperative approach allows us to determine the best method and
      timing for delivering new products and technologies to the market. Research
      and
      development expense was $0.9 million, $1.1 million, and $1.9 million for
      2006, 2005 and 2004, 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.
      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, Samsung
      Electronics, Syntax-Brillian and Vizio.


9
 *Table
          of Contents*


**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 OptiSync® and Optiquest®, and corporate
      taglines such as See the Difference®. Our registered trademarks have renewal
      dates ranging from June 2007 to March 2017. We actively police similar
      third-party marks and enforce our trademark rights against potential infringing
      third-party mark use.





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, 2006, we had 749 employees worldwide. Some of our employees in
      France are represented by a labor union. We believe that our employee relations
      are in good standing.





**Financial
      Information by Business Segment and Geographic Data**





We
      operate in three segments: Americas, EMEA 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.*





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





*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;


10
 *Table
          of Contents*


·
            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 and operating results.





*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. The ASP of our CRT monitors declined
      approximately 12.0% from 2005 to 2006 and the ASP of our LCD monitors declined
      approximately 21.7% from 2005 to 2006. 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, Samsung
      Electronics, Syntax-Brillian and Vizio.





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





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





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





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


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


·
            Decreased
                demand and market acceptance for our
                products;


·
            Inability
                to successfully develop our next-generation products;


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


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


·
            New
                product announcements or product introductions by our
                competitors.




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





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





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


11
 *Table
          of Contents*


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





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


*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 our customers. Our inventory
        purchases are made based upon future demand forecasts. These forecasts are
        based
        upon assumptions about future product demand that may prove to be inaccurate.
        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. If our revenue growth slows or if
        there
        were a higher incidence of inventory obsolescence due to rapidly changing
        prices
        of product components, rapidly changing technology and customer requirements
        or
        an increase of the supply of products in the marketplace, we could be subject
        to
        excess or obsolete inventories or under-utilized tooling. If any of these
        events
        occur, we could be required to take corresponding inventory write-downs or
        write-offs or tooling write-offs, which would impair our financial results
        and
        our gross margin.
 
 *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 demand for our products
        falls, we could end up with too many products and be unable to sell the excess
        inventory in a timely manner and may need to reduce the prices on our products
        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,
        which
        would harm our revenue and gross margins.
 
 *If
        we
        are unable to effectively manage our component and material requirements
        amongst
        our third-party component suppliers and contract manufacturers, 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. Regardless of the accuracy of our
        forecasts, our contract manufacturers may be unable to meet our product timing,
        volume and price requirements. Alternatively, our component suppliers and
        contract manufacturers may be unable to utilize 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. If they are unable to use certain
        components, we may need to reimburse them for any losses they
        incur.




12
 *Table
          of Contents*


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





We
      have
      implemented 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. We
      will
      continue to explore additional opportunities in order to improve operating
      efficiencies. The
      undertaking of these initiatives may strain our existing management, information
      systems, employee workforce, operational capability and financial controls.
      The
      difficulties associated with implementing these initiatives, procedures and
      controls may place a significant burden on our management, operational and
      financial resources. If we fail to successfully implement these initiatives
      or
      encounter unexpected difficulties during the implementation, our business could
      be harmed.





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





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





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


·
            Exchange
                controls;


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


·
            Nationalization
                of local industry;


·
            Changes
                in export or import restrictions;


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


·
            Economic,
                social, and political risks.




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





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





As
      a
      percentage of net sales, selling, general and administrative expenses represent
      7.6% and 8.8% for the years ended December 31, 2006 and 2005, respectively.
      We
      expect sales, general and administrative expenses to remain relatively fixed
      or
      decrease as a percentage of net sales as we continue to improve efficiencies
      in
      all aspects of our business. Additionally, because we typically recognize a
      substantial portion of our revenues in the last month of each quarter, we may
      not be able to adjust our operating expenses in a timely manner in response
      to
      any revenue shortfalls. If we are unable to reduce operating expenses quickly
      in
      response to any revenue shortfalls, it would negatively impact our financial
      results.





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





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





·
            International
                economic and political conditions;


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


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


·
            Inadequate
                local infrastructure;


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


13
 *Table
          of Contents*


·
            Transportation
                delays;


·
            Longer
                payment cycles;


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


·
            Foreign
                currency exchange rates;


·
            Imposition
                of additional taxes and penalties;
                and


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




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




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





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





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





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





To
      maintain and grow our market share, net sales and brand, we must maintain and
      expand our sales channels. We currently sell our products through distributors,
      retailers, VARs, system integrators, commercial or enterprise resellers, and
      direct marketing/e-retailers. 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, national retailers such as Costco
      Wholesale, solution providers and value added resellers. We expect that a
      majority of our net sales will continue to come from sales to a small number
      of
      customers for the foreseeable future. We have no minimum purchase commitments
      or
      long-term contracts with any of these customers. Our customers 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.


14
 *Table
          of Contents*


*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.





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





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





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


·
            Unexpected
                increases in manufacturing and repair
                costs;


·
            Unexpected
                reductions in payment terms;


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


·
            Inability
                to control the quality of finished
                products;


·
            Inability
                to control delivery schedules;


·
            Inability
                to obtain favorable pricing;


·
            Unpredictability
                of manufacturing yields; and


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




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





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




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





We
      operate in a highly competitive, quickly changing environment. We are dependent
      upon sufficient demand and broad market acceptance for display products, which
      are now based primarily upon liquid crystal display ("LCD") technology. 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;


15
 *Table
          of Contents*


·
                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;


·
            Access
                efficiently the display technology needed for our products to have
                broad
                market acceptance and respond rapidly to shifts in the display technology
                towards new or different display
                technologies;


·
            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
      may incur substantial costs in connection with a stockholder derivative action
      brought against ViewSonic and our Chairman and Chief Executive
      Officer*





We
      and
      James Chu, our Chairman and Chief Executive Officer and majority stockholder,
      were named as defendants in a purported derivative action brought by certain
      of
      our stockholders. The complaint alleged, among other things, that Mr. Chu had
      breached various fiduciary duties by personally investing in certain of our
      suppliers, thereafter directing contracts to these suppliers and failing to
      disclose such actions. In October 2006, the plaintiffs voluntarily dismissed
      the
      complaint without prejudice. The same parties thereafter filed substantially
      the
      same action in California state court in which they make essentially the same
      allegations and press the same claims. After retaining independent counsel,
      we
      filed a motion to dismiss the complaint on various grounds. The hearing is
      scheduled for April 17, 2007. Based upon the information available to us to
      date, we are unable to determine the ultimate disposition of this matter. If
      resolved adversely, the matter may have a material adverse effect on our
      consolidated financial statements.





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





James
      Chu, our Chairman and Chief Executive Officer and majority stockholder, along
      with other senior officers of the Company, possess specialized knowledge with
      respect to our business and our operations. Consequently, the loss of service
      of
      any of our officers could adversely affect our business. We do not carry key
      man
      life insurance on our officers.





Each
      of
      our officers may terminate their employment without notice and without cause
      or
      good reason. On
      February 1, 2007, ViewSonic Corporation and James A. Morlan, our Chief Financial
      Officer, mutually agreed that he would step down as Chief Financial Officer
      sometime in 2007. We expect that Mr. Morlan will continue to serve as our
      Chief Financial Officer until his successor has been retained in order to ensure
      a smooth transition. We have commenced an executive search for Mr. Morlan’s
      successor.  Other
      than Mr. Morlan, we currently are not aware that any officer is planning to
      leave or retire.





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




We
      are
      subject to local laws and regulations in various regions in which we operate,
      including the European Union, or the EU. There are two particular EU directives,
      RoHS and WEEE, that may have a material impact on our business. RoHS restricts
      the distribution of certain substances, including lead, within the EU and is
      effective July 1, 2006. RoHS requires us to eliminate and/or reduce the level
      of
      specified hazardous materials from our products and requires us to maintain
      and
      publish a detailed list of all chemical substances in our products. WEEE
      requires us to take back and recycle all products we manufacture or import
      into
      the EU at our own expense and became effective in August 2005 for most EU
      countries and at varying dates thereafter for other EU countries whose
      implementation of the European WEEE Directive was subsequent to August 2005.
      The
      United Kingdom is the most recent country to implement the WEEE Directive and
      its regulations became effective in January 2007. If we fail to, or do not
      fully, comply with the EU directives our business may be harmed. For
      example,





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


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


·
            We
                may face excess and obsolete inventory risk related to non-compliant
                inventory that we may continue to hold in 2007 for which there is
                reduced
                demand and we may need to write down such
                inventory.




*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.


16
 *Table
          of Contents*


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





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





**ITEM
                1B.**
            **UNRESOLVED
                STAFF COMMENTS**





Not
      applicable.





**ITEM
                2.**
            **PROPERTIES**





**Americas**





We
      lease
      facilities in Walnut, California of 298,050 usable square feet that serve as
      our
      corporate headquarters and a warehouse facility, under a lease that expires
      in
      June 2007. In addition, we have sales offices in Atlanta, Georgia, Miami,
      Florida and Ontario, Canada.





On
      January 19, 2007, we entered into a lease agreement for our Walnut, California
      facilities for 298,050 square feet of office space at its existing principal
      office location. The term of the lease commences on July 1, 2007 and runs
      through July 2014, subject to extension at our option under certain
      circumstances. The
      future minimum lease payments required under this operating lease are $0.4
      million in 2007, $1.5 million in 2008, $1.6 million in 2009, $1.6 million in
      2010, $1.7 million in 2011 and $4.6 million per year thereafter.





**EMEA**





We
      lease facilities
      in Crawley, West Sussex, United Kingdom. This lease expires in April 2007.
      In
      February 2007, we signed a 12 year lease on a facility located in London, United
      Kingdom. In addition, we lease space in Belgium, Denmark, Finland, France,
      Germany, Netherlands, Norway, Russia, Spain, Sweden, Ukraine and United Arab
      Emirates for marketing, sales and after-sales service operations.





**Asia-Pacific**





We
      own
      offices in Taipei, Taiwan, Beijing, Shanghai and Wuhan, China, and lease offices
      in Guangzhou, Nanjing and Shenyang, China, Hong Kong, Kaoshiung, Taiwan,
      Singapore, and Australia.  We
      also
      lease warehouses in Shanghai, Beijing, Guangzhou, Chengdu and Xi’an, Taoyuan,
      Taiwan and own an additional warehouse in Taipei, Taiwan.





We
      believe our properties are adequately maintained and suitable for their intended
      use and that our facilities are adequate for our current and foreseeable needs.





**ITEM3.**
            **LEGAL
                PROCEEDINGS**





We
      and
      James Chu, our Chairman and Chief Executive Officer and majority stockholder,
      were named as defendants in a purported derivative action brought by certain
      of
      our stockholders. The complaint alleged, among other things, that Mr. Chu had
      breached various fiduciary duties by personally investing in certain of our
      suppliers, thereafter directing contracts to these suppliers and failing to
      disclose such actions. In October 2006, the plaintiffs voluntarily dismissed
      the
      complaint without prejudice. The same parties thereafter filed substantially
      the
      same action in California state court in which they make essentially the same
      allegations and press the same claims. After retaining independent counsel,
      we
      filed a motion to dismiss the complaint on various grounds. The hearing is
      scheduled for April 17, 2007. Based upon the information available to us to
      date, we are unable to determine the ultimate disposition of this matter. If
      resolved adversely, the matter may have a material adverse effect on our
      consolidated financial statements.





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


17
 *Table
          of Contents*


On
      November 21, 2006, the jury in the trial of LG Philips LCD Co. Ltd., (“LPL”) v.
      Tatung Company, Tatung Company of America, Inc., and Chunghwa Picture Tubes
      Ltd.
      (“CPT”), pending in the United States District Court, Central District of
      California, (Case No. CV-02-6775 CBM) delivered a verdict finding that each
      of
      the defendants (we are not a defendant) had willfully infringed two patents
      of
      LPL’s relating to the design and manufacture of liquid crystal display modules
      (“LCDs”). The Court has not entered judgment in the case. The parties to the
      case are currently briefing post-trial motions challenging various aspects
      of
      the jury’s verdict. However, we are a defendant in the related case, LG. Philips
      LCD Co., Ltd. v. ViewSonic Corporation, also pending in the United States
      District Court, Central District of California (Case No. CV-03-2886 CBM), in
      which LPL alleges infringement of the same patents asserted in Case No.
      CV-02-6775 CBM above as a result of our incorporation of CPT LCD’s into our
      products. Our suit had been consolidated with the CPT case for pre-trial
      purposes. No trial date has been set and none is expected to be set as the
      patent issues have already been heard by the jury in the CPT case (Case No.
      CV-02-6775 CBM). If an injunction is entered against the CPT LCD panels, we
      may
      be required to change our sourcing of certain LCD displays. While the outcome
      of
      the post-trial proceedings in Case No. CV-02-6775 cannot be predicted with
      certainty, we do not believe that the outcome will have a material adverse
      effect on our consolidated financial statements.





On
      December 1, 2006, LG Philips LCD Co., Ltd. (“LPL”) filed a patent suit against
      Chi-Mei Optoelectronics Corporation (“CMO”), AU Optronics Corporation (“AUO”),
      AU Optronics Corporation America, Tatung Company, Tatung Company of America,
      Inc. and ViewSonic Corporation in the United States District Court, District
      of
      Delaware, alleging infringement of the same three LPL patents that were found
      to
      be valid and infringed in the two cases referenced above, i.e., CV-02-6775
      and
      05-292 JJF. Presumably, as with the other LPL suits identified above, the
      allegations against us are based upon our incorporation of CMO’s and AUO’s LCDs
      into our products. While the outcome of this case cannot be predicted with
      certainty, we do not believe that the outcome will have a material adverse
      effect on our consolidated financial statements.





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. While the
      outcome of these proceedings and claims cannot be predicted with certainty,
      we
      believe that the ultimate outcome of such matters will not have a material
      adverse effect on the consolidated financial statements.





**ITEM4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





In
      October 2006, we submitted the amendment and restatement of our Third Amended
      and Restated Certificate of Incorporation to our stockholders by written consent
      for their approval. On December 6, 2006, our stockholders approved the amendment
      and restatement. We did not receive written consents from each stockholder.
      As
      of the record date for taking such action, we had 357,894,666 shares of common
      stock outstanding (on an as-if-converted basis). The results of the voting
      from
      the stockholders that returned written consents to us are as
      follows:





1. The
      amendment and restatement of our Third Amended and Restated Certificate of
      Incorporation to (a) decrease the number of shares of authorized preferred
      stock
      from 50,000,000 to 22,800,000; (b) decrease the authorized number of shares
      of
      capital stock from 650,000,000 to 622,800,000; (c) decrease the number of shares
      designated as Series B preferred stock from 12,500,000 to zero and eliminate
      all
      references to the Company’s Series B Preferred Stock; (d) decrease the shares of
      preferred stock designated as Series C Preferred Stock from 18,000,000 to
      3,300,000; and (e) remove the “Redemption” section set forth in Article
      IV(D)(8).





For:
            256,438,456


Against:
            0





Our
      2007
      Annual Meeting was held on January 31, 2007. The following matter was voted
      upon
      at the meeting, and the final votes on the proposal were recorded as
      follows:





1.
            To
                elect directors to hold office until the next Annual Meeting of
                Stockholders and until their successors are duly elected and
                qualified:





**Name
                of Individual**
            
            **Votes
                For**
            
            **Votes
                Withheld**James
                Chu
            
            318,728,917
            
            0Matthew
                Massengill
            
            318,728,917
            
            0William
                J. Miller
            
            318,728,917
            
            0Bruce
                L. Stein
            
            318,728,917
            
            0Luc
                H. Vanhal
            
            318,728,917
            
            0




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 9, 2007, there were 83 holders of record of our common stock and there
      was
      one holder of record of our Series C preferred stock. As of March 9, 2007,
      we had 435 holders of stock options exercisable for shares of our common stock.




**Dividends**





We
      did
      not declare or pay cash dividends in 2006, 2005 or 2004 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**





On
      July
      7, 2006, ViewSonic issued an aggregate of 3.3 million shares of our Series
      C
      preferred stock to Intel Capital Corporation, a Cayman Islands company, pursuant
      to the exercise of an outstanding warrant, dated January 10, 2002. The warrant
      had an exercise price of $0.01 per share and Intel paid an aggregate of $33,000
      for the shares of Series C Preferred Stock. We relied upon Section 4(2) of
      the
      Securities Act of 1933, as amended, and Regulation D promulgated thereunder,
      for
      the issuance of the Series C Preferred Stock to Intel.




**Issuer
      Repurchases of Equity Securities**





None.




**ITEM6.**
            **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,
      2006, 2005 and 2004 and the consolidated balance sheet data as of
      December 31, 2006 and 2005 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, 2003 and 2002, and the consolidated balance sheet
      data
      as of December 31, 2004, 2003 and 2002, is derived
      from audited consolidated financial statements and the notes thereto which
      are
      not included in this Annual Report on Form 10-K.


19
 *Table
          of Contents*





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(in
                thousands, except per share data)**Net
                sales
            
            $
            1,589,090
            
            $
            1,200,190
            
            $
            1,104,333
            
            $
            1,060,691
            
            $
            876,121Cost
                of sales
            
            
            1,444,905
            
            
            1,085,011
            
            
            1,003,960
            
            
            926,201
            
            
            748,209Gross
                profit
            
            
            144,185
            
            
            115,179
            
            
            100,373
            
            
            134,490
            
            
            127,912Selling,
                general and administrative expenses
            
            
            120,606
            
            
            105,349
            
            
            117,338
            
            
            126,180
            
            
            99,806Income
                (loss) from operations
            
            
            23,579
            
            
            9,830
            
            
            (16,965
            )
            
            8,310
            
            
            28,106Other
                income (expense):Interest
                (expense) income, net
            
            
            (198
            )
            
            287
            
            
            (1,291
            )
            
            (1,464
            )
            
            (1,420
            )Other
                income (expense), net
            
            
            3,764
            
            
            (4,266
            )
            
            2,542
            
            
            2,822
            
            
            6,470Total
                other income (expense), net
            
            
            3,566
            
            
            (3,979
            )
            
            1,251
            
            
            1,358
            
            
            5,050Income
                (loss) from continuing operations before income taxes
            
            
            27,145
            
            
            5,851
            
            
            (15,714
            )
            
            9,668
            
            
            33,156Provision
                (benefit) for income taxes
            
            
            2,954
            
            
            14,659
            
            
            (3,293
            )
            
            2,333
            
            
            11,500Income
                (loss) from continuing operations
            
            
            24,191
            
            
            (8,808
            )
            
            (12,421
            )
            
            7,335
            
            
            21,656Loss
                from discontinued operations (1)
            
            
            —
            
            
            —
            
            
            (5,989
            )
            
            (2,853
            )
            
            (2,465
            )Net
                gain on disposal of discontinued operations, net of tax
                (1)
            
            
            —
            
            
            475
            
            
            2,153
            
            
            —
            
            
            —Net
                income (loss)
            
            
            24,191
            
            
            (8,333
            )
            
            (16,257
            )
            
            4,482
            
            
            19,191Preferred
                stock accretion
            
            
            (48
            )
            
            (1,524
            )
            
            (1,372
            )
            
            (1,229
            )
            
            (1,078
            )Net
                income (loss) available to common stockholders
            
            $
            24,143
            
            $
            (9,857
            )
            $
            (17,629
            )
            $
            3,253
            
            $
            18,113Basic
                earnings (loss) per shareContinuing
                operations
            
            $
            0.07
            
            $
            (0.03
            )
            $
            (0.04
            )
            $
            0.02
            
            $
            0.06Discontinued
                operations (1)
            
            
            —
            
            
            —
            
            
            (0.02
            )
            
            (0.01
            )
            
            (0.01
            )Gain
                on disposal of discontinued operations
            
            
            —
            
            
            —
            
            
            0.01
            
            
            —
            
            
            —Total
                basic earnings (loss) per share
            
            $
            0.07
            
            $
            (0.03
            )
            $
            (0.05
            )
            $
            0.01
            
            $
            0.05Diluted
                earnings (loss) per shareContinuing
                operations
            
            $
            0.07
            
            $
            (0.03
            )
            $
            (0.04
            )
            $
            0.02
            
            $
            0.06Discontinued
                operations (1)
            
            
            —
            
            
            —
            
            
            (0.02
            )
            
            (0.01
            )
            
            (0.01
            )Gain
                on disposal of discontinued operations
            
            
            —
            
            
            —
            
            
            0.01
            
            
            —
            
            
            —Total
                diluted earnings (loss) per share
            
            $
            0.07
            
            $
            (0.03
            )
            $
            (0.05
            )
            $
            0.01
            
            $
            0.05Basic
                weighted average shares outstanding
            
            $
            354,279
            
            $
            353,969
            
            $
            353,917
            
            $
            353,891
            
            $
            353,322Diluted
                weighted average shares outstanding
            
            $
            360,432
            
            $
            353,969
            
            $
            353,917
            
            $
            358,538
            
            $
            362,344





(1)
            Two
                of our majority-owned subsidiaries were discontinued during 2004.
                See Note
                16 of the Notes to Consolidated Financial Statements, which is
                incorporated herein by reference.





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(in
                thousands)****Balance
                Sheet Data:**Working
                capital
            
            $
            87,445
            
            $
            72,727
            
            $
            71,404
            
            $
            81,742
            
            $
            60,061Total
                assets
            
            $
            578,637
            
            $
            432,725
            
            $
            458,523
            
            $
            414,929
            
            $
            376,898Short-term
                bank borrowings
            
            $
            307
            
            $
            4,852
            
            $
            3,529
            
            $
            1,475
            
            $
            —Subordinated
                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





**ITEM7.**
            **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
      Part I, Item 1A* — *“Risk
      Factors” and elsewhere in this Annual Report on Form 10-K. The following
      discussion should be read in conjunction with our consolidated financial
      statements and the related notes thereto.*





**Overview**





***Our
      Company***




ViewSonic
      Corporation is a leading global provider of display products. We develop, market
      and support a broad range of award winning products including liquid crystal
      display (“LCD”) monitors, LCD TVs, projectors, digital signage and cathode ray
      tube (“CRT”) monitors. According to a fourth quarter of 2006 research report, by
      DisplaySearch, we ranked
      sixth in worldwide LCD
      monitor shipments in 2006 .


20
 *Table
          of Contents*


We
      have a
      customer-driven business model. Our strategy is to effectively leverage industry
      leading technologies into products marketed under the ViewSonic brands. We
      collaborate with a network of world class component suppliers and contract
      manufacturers to deliver a wide array of products to meet the needs of our
      customers. We believe our business model enables us to quickly scale our
      business, shorten new product time to market, reduce costs to our business,
      introduce innovative products and offer price/performance levels to meet
      customer needs.





Our
      products are sold through a variety of channels, including distributors,
      solution providers, value added resellers and retailers to Fortune 1000
      companies, small and medium sized businesses, and consumers. We sell our
      products globally and are managed in three geographic segments: the Americas,
      EMEA (Europe, Middle-East and Africa) and Asia-Pacific.




***Recent
      Trends in Our Business***




During
      2006, the display industry continued to experience competitive pressures in
      terms of declining average selling prices (“ASPs”) and margin compression. In
      the first half of 2006, we saw an oversupply of display panels and declining
      ASPs primarily resulting from an increase in LCD panel production capacities
      and
      slower than expected demand. In the second half of 2006, however, we experienced
      spot shortages of display panels for some LCD sizes due to an increase in demand
      in excess of LCD panel production capacities for certain sizes. In response
      to
      the spot shortages, panel production capacities increased during the fourth
      quarter of 2006. However, amidst softening fourth quarter demand, we began
      to
      experience a slight oversupply situation for some LCD panel sizes. Despite
      increasing pricing and margin pressures throughout 2006, we were able to
      mitigate the impact of this downward trend in ASPs primarily as a result of
      our
      implementation of key initiatives in 2006 to improve our supply chain and
      logistics efficiency, simplify our business processes to maximize operating
      efficiencies, grow sales in regional markets and expand our core product
      offerings. In addition, we believe our initiative to source LCD panels directly
      from manufacturers has resulted in higher gross margins. We believe this
      sourcing initiative has brought us closer to the supply base allowing us to
      more
      closely monitor market trends and supply cycles and has allowed us to
      consolidate our LCD panel purchasing power. By means of this key component
      sourcing initiative, we hope to be less vulnerable to the inherent instability
      of the LCD monitor industry.





Total
      unit shipments increased 35.5% from 2005 to 2006. During 2006, the display
      industry continued to experience a shift from older technologies, such as CRT,
      to newer technologies, such as LCD, as well as a broadening of applications
      from
      PC monitors to TVs and other digital media products. Unit shipments of our
      LCD
      monitors, LCD TVs, and projectors grew 81.1%, 106.0%, and 138.3%, respectively,
      from 2005 to 2006, while shipments of our CRT monitors declined 38.8% from
      2005
      to 2006.





The
      ASPs
      of our LCD monitors decreased 21.7% in 2006 compared to 2005. This decrease
      was
      primarily due to increased production capacities, aggressive price competition,
      and product mix. We expect that excess panel capacity will continue to result
      in
      further declines in ASPs through the second quarter of 2007 until anticipated
      market demand growth is realized and consumes the increased supply.





Our
      net
      sales increased $388.9 million, or 32.4%, to $1,589.1 million in 2006 from
      $1,200.2 million in 2005. The increase was primarily due to our ability to
      grow
      sales in regional markets and expand core product offerings across our LCD
      monitor, LCD TV and projector product lines. Income from operations increased
      139.9% to $23.6 million in 2006 compared to $9.8 million in 2005. This increase
      was primarily due to sales growth and increased leverage in our selling, general
      and administrative expenses as a percentage of net sales, which decreased to
      7.6% in 2006 compared to 8.8% in 2005, primarily as a result of strategic
      initiatives undertaken to maximize operating efficiencies and enhance our
      competitiveness.





***Future
      Objectives and Challenges***





There
      are
      several factors that we believe will drive and affect our future performance:





***Improve
      Financial Performance***





***Growth***





*Expand
      sales in regional markets* - We
      continue to expand our presence in our existing regional markets while exploring
      new geographic market opportunities. We continue to develop and market a broad
      range of display and related products designed to satisfy a wide range of
      consumer and commercial applications. In our existing regional markets, we
      continue to actively manage our relationships with our wholesale distributors
      and national retailers to ensure continued growth 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 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.




21
 *Table
          of Contents*


*Expand
      product offerings* - We
      continue to expand our LCD TV and digital signage product lines to complement
      our LCD monitors. We believe that these product lines will be growth
      opportunities as they 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.





*Continue
      to grow LCDs* - We
      continue to focus our resources on our core products. We are taking various
      initiatives to grow our LCD market share utilizing a common platform on our
      products and eliminating unprofitable products.





***Efficiency***





*Component
      sourcing initiative -* In
      December 2005, we started to source LCD panels directly from the manufacturers.
      We believe this sourcing initiative has brought us closer to the supply base
      allowing us to more closely monitor market trends and supply cycles. In
      addition, this initiative has allowed us to consolidate our LCD panel purchasing
      power. We believe our sourcing initiative has enabled us to secure better
      pricing and better allocation of LCD panels during 2006. By means of this
      sourcing initiative, we hope to be less vulnerable to the inherent instability
      of the LCD monitor industry.





*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 ASPs
      and
      changes in our product mix. Our business environment is being transformed due
      to
      intense price competition. As a result, we continue to drive strategic
      initiatives to maximize operating efficiencies and enhance our competitiveness
      resulting in increased leverage in our overall operating expenses as a
      percentage of net sales.





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 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.





***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 the weakening of the U.S. dollar,
      which made our products more affordable in several markets. However, we must
      manage our account receivables and inventory balances to limit our foreign
      currency exposure in periods of a strengthening U.S. dollar. We are currently
      in
      the process of evaluating various foreign currency hedging strategies to
      minimize the effects of foreign currency fluctuations on our
      operations.





***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.





**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 53%, 55% and 45% of our consolidated net sales generated
      outside of the Americas in 2006, 2005 and 2004, respectively. We extend price
      reductions and sales incentives to our customers including price protection,
      promotions and other volume-based sales incentives. Sales to Ingram Micro Inc.
      in 2006, 2005 and 2004 were 11%, 11% and 14%, respectively, of our total
      consolidated net sales. Sales to Tech Data Corporation in 2005 and 2004 were
      10%
      and 13%, respectively, of our total consolidated net sales.


22
 *Table
          of Contents*


***Cost
      of Sales***





Our
      cost
      of sales consists primarily of the 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 in the normal course of business. We
      expect to continue to experience price fluctuations for our products. Changes
      in
      gross profit as a percentage of revenue, or gross margin, are primarily the
      result of 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) primarily includes interest income, interest expense, gains
      and
      losses on sales of investments and transaction related foreign currency gains
      and losses.





***Preferred
      Stock Accretion***





Preferred
      stock accretion represents the accretion value of our Series B Preferred
      Stock from its initial value to the redemption price. We redeemed all
      outstanding shares of our Series B Preferred Stock in January 2006.





**Comparison
      of Years Ended December 31, 2006 and 2005**





The
      following table sets forth our consolidated statements of operations for the
      periods indicated ($ in thousands):




**Year
                  Ended December 31,**
              
              **Increase
                  (Decrease)****2006**
              
              **2005**
              
              **$**
              
              **%**Net
                  sales
              
              $
              1,589,090
              
              $
              1,200,190
              
              $
              388,900
              
              
              32.4
              %Cost
                  of sales
              
              
              1,444,905
              
              
              1,085,011
              
              
              359,894
              
              
              33.2
              %Gross
                  profit
              
              
              144,185
              
              
              115,179
              
              
              29,006
              
              
              25.2
              %Selling,
                  general and administrative expenses
              
              
              120,606
              
              
              105,349
              
              
              15,257
              
              
              14.5
              %Income
                  from operations
              
              
              23,579
              
              
              9,830
              
              
              13,749
              
              
              139.9
              %Other
                  income (expense):Interest
                  (expense) income, net
              
              
              (198
              )
              
              287
              
              
              (485
              )Other
                  income (expense), net
              
              
              3,764
              
              
              (4,266
              )
              
              8,030Total
                  other income (expense), net
              
              
              3,566
              
              
              (3,979
              )
              
              7,545Income
                  from continuing operations before income taxes
              
              
              27,145
              
              
              5,851
              
              
              21,294
              
              
              363.9
              %Provision
                  for income taxes
              
              
              2,954
              
              
              14,659
              
              
              (11,705
              )
              
              (79.8
              )%Income
                  (loss) from continuing operations
              
              
              24,191
              
              
              (8,808
              )
              
              32,999
              
              
              374.6
              %Net
                  gain on disposal of discontinued operations, net of taxes
              
              
              -
              
              
              475
              
              
              (475
              )Net
                  income (loss)
              
              
              24,191
              
              
              (8,333
              )
              
              32,524
              
              
              390.3
              %Preferred
                  stock accretion
              
              
              (48
              )
              
              (1,524
              )
              
              1,476
              
              
              96.9
              %Net
                  income (loss) available to common stockholders
              
              $
              24,143
              
              $
              (9,857
              )
              $
              34,000
              
              
              344.9
              %


23
 *Table
          of Contents*





The
      following table sets forth our consolidated statements of operations expressed
      as a percentage of net sales for the periods indicated:




**Year
                  Ended December 31,****2006**
              
              **2005**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %Cost
                  of sales
              
              
              90.9
              
              
              90.4Gross
                  profit
              
              
              9.1
              
              
              9.6Selling,
                  general and administrative expenses
              
              
              7.6
              
              
              8.8Income
                  from operations
              
              
              1.5
              
              
              0.8Other
                  income (expense):Interest
                  (expense) income, net
              
              
              -
              
              
              -Other
                  income (expense), net
              
              
              0.2
              
              
              (0.4
              )Total
                  other income (expense), net
              
              
              0.2
              
              
              (0.4
              )Income
                  from continuing operations before income taxes
              
              
              1.7
              
              
              0.4Provision
                  for income taxes
              
              
              0.2
              
              
              1.2Income
                  (loss) from continuing operations
              
              
              1.5
              
              
              (0.8
              )Net
                  gain on disposal of discontinued operations, net of taxes
              
              
              -
              
              
              -Net
                  income (loss)
              
              
              1.5
              
              
              (0.8
              )Preferred
                  stock accretion
              
              
              -
              
              
              (0.1
              )Net
                  income (loss) available to common stockholders
              
              
              1.5
              %
              
              (0.9
              )%





***Net
      Sales***





Net
      sales
      increased $388.9 million, or 32.4%, to $1,589.1 million in 2006 from
      $1,200.2 million in 2005. The increase was primarily due to an increase in
      LCD, LCD TV and projector unit shipments of 81.1%, 106.0% and 138.3%,
      respectively, partially offset by lower CRT unit shipments of 38.8%. We
      continued to experience declines in our ASPs within our LCD and CRT product
      categories of 21.7% and 12.0%, respectively, which reflects the effects of
      increased competition and reduced costs associated with advances in visual
      display technology.





Our
      total
      unit shipments increased 35.5% from 2005 to 2006 primarily due to strong unit
      shipment growth across all of our product categories and regions driven by
      our
      strategic marketing efforts and continued expansion in China, Europe and other
      Asian markets. Of the display products shipped in 2006, LCD products accounted
      for 77.0%, CRT products accounted for 12.5%, and other products accounted for
      10.5% as compared to 57.6%, 27.6%, and 14.8%, respectively, in 2005.





Sales
      allowances increased $24.6 million, or 32.5%, to $100.2 million in 2006 from
      $75.6 million in 2005. As a percentage of net sales, sales allowances remained
      constant at 6.3% in 2006 compared to 2005. Returns charged against gross sales
      were $30.2 million and $20.7 million in 2006 and 2005,
      respectively.





***Cost
      of Sales***





Cost
      of
      sales increased $359.9 million, or 33.2%, to $1,444.9 million in 2006 from
      $1,085.0 million in 2005. As a percentage of net sales, cost of sales increased
      to 90.9% in 2006 from 90.4% in 2005. Included in 2005 cost of sales was the
      reversal of $3.2 million of accrued liabilities related to a contingent EU
      duty
      obligation on 20” and above display panels with DVI connectors of which $3.0
      million was accrued in 2004. The impact of this reversal had a 0.3 percentage
      point decrease on 2005 cost of sales as a percentage of net sales. The remaining
      0.2 percentage point increase was primarily due to ASPs declining at a faster
      rate than our cost of sales. Product costs as a percentage of net sales
      increased to 87.2% in 2006 from 86.0% in 2005. Gross margin declined to 9.1%
      in
      2006 from 9.6% in 2005 primarily due to increased product costs as a percentage
      of net sales, partially offset by better pricing due to our sourcing of LCD
      components directly from manufacturers and promotional incentives received
      from
      our vendors and increased efficiencies and reductions in freight and warranty
      expenses as a percentage of net sales.





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





Selling,
      general and administrative expenses increased $15.3 million, or 14.5%, to
      $120.6 million in 2006 from $105.3 million in 2005. The increase was
      primarily due to an increase in account development fund expense of $5.0
      million, higher incentive compensation of $4.8 million as a result of the
      increase in our sales and profits, increased selling and marketing expenses
      of
      $4.4 million, higher personnel-related costs of $1.3 million due to higher
      headcount, higher facilities expenses of $0.5 million and other costs of $1.3
      million, partially offset by a decrease in non-cash stock-based compensation
      of
      $1.3 million and lower legal fees of $0.7 million related to patent infringement
      lawsuits. Selling, general and administrative expenses as a percentage of net
      sales decreased to 7.6% in 2006 from 8.8% in 2005. We continue to benefit from
      increasing leverage in our selling, general and administrative expenses as
      a
      percentage of net sales as a result of strategic initiatives undertaken to
      maximize operating efficiencies and enhance our competitiveness.





***Other
      Income (Expense), Net***





Other
      income (expense), net, increased to income of $3.6 million in 2006 from an
      expense of $4.0 million in 2005. The increase was primarily due to foreign
      currency translation gains of $5.2 million in 2006 compared to foreign currency
      translation losses of $4.7 million in 2005. This increase was partially offset
      by impairment write-downs and net losses on the sale of long-term investments
      of
      $2.1 million in 2006 and other net changes from 2005 to 2006 of $0.2 million.
      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.


24
 *Table
          of Contents*


***Provision
      for Income Taxes***





Our
      provision for income taxes decreased $11.7 million to $3.0 million in 2006
      from
      $14.7 million in 2005. The effective tax rate on pre-tax income decreased to
      10.9% in 2006 compared to 250.5% on losses from continuing operations in 2005.
      The decrease in effective tax rate was primarily due to the recording of a
      non-cash charge of $13.7 million to establish a valuation allowance against
      net
      deferred income tax assets in 2005. In 2006, we reversed $1.1 million and $2.3
      million of valuation allowances related to our Asia-Pacific and Americas
      regions, respectively. In addition, we did not provide for U.S. income taxes
      on
      pre-tax income of $9.8 million for our Americas region due to the utilization
      of
      deferred tax assets which were previously subject to a full valuation allowance.





**Comparison
      of Years Ended December 31, 2005 and 2004**





The
      following table sets forth our consolidated statements of operations for the
      periods indicated ($ in thousands):


**Year
                  Ended December 31,**
              
              **Increase
                  (Decrease)****2005**
              
              **2004**
              
              **$**
              
              **%**Net
                  sales
              
              $
              1,200,190
              
              $
              1,104,333
              
              $
              95,857
              
              
              8.7
              %Cost
                  of sales
              
              
              1,085,011
              
              
              1,003,960
              
              
              81,051
              
              
              8.1
              %Gross
                  profit
              
              
              115,179
              
              
              100,373
              
              
              14,806
              
              
              14.8
              %Selling,
                  general and administrative expenses
              
              
              105,349
              
              
              117,338
              
              
              (11,989
              )
              
              (10.2
              )%Income
                  (loss) from operations
              
              
              9,830
              
              
              (16,965
              )
              
              26,795
              
              
              157.9
              %Other
                  income (expense):Interest
                  income (expense), net
              
              
              287
              
              
              (1,291
              )
              
              1,578Other
                  (expense) income, net
              
              
              (4,266
              )
              
              2,542
              
              
              (6,808
              )Total
                  other (expense) income, net
              
              
              (3,979
              )
              
              1,251
              
              
              (5,230
              )Income
                  (loss) from continuing operations before income taxes
              
              
              5,851
              
              
              (15,714
              )
              
              21,565
              
              
              137.2
              %Provision
                  (benefit) for income taxes
              
              
              14,659
              
              
              (3,293
              )
              
              17,952
              
              
              545.2
              %Loss
                  from continuing operations
              
              
              (8,808
              )
              
              (12,421
              )
              
              3,613
              
              
              29.1
              %Loss
                  from discontinued operations, net of taxes
              
              
              -
              
              
              (5,989
              )
              
              5,989Net
                  gain on disposal of discontinued operations, net of taxes
              
              
              475
              
              
              2,153
              
              
              (1,678
              )Net
                  loss
              
              
              (8,333
              )
              
              (16,257
              )
              
              7,924
              
              
              48.7
              %Preferred
                  stock accretion
              
              
              (1,524
              )
              
              (1,372
              )
              
              (152
              )
              
              (11.1
              )%Net
                  loss available to common stockholders
              
              $
              (9,857
              )
              $
              (17,629
              )
              $
              7,772
              
              
              44.1
              %





The
      following table sets forth our consolidated statements of operations expressed
      as a percentage of net sales for the periods indicated:




**Year
                  Ended December 31,****2005**
              
              **2004**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %Cost
                  of sales
              
              
              90.4
              
              
              90.9Gross
                  profit
              
              
              9.6
              
              
              9.1Selling,
                  general and administrative expenses
              
              
              8.8
              
              
              10.6Income
                  (loss) from operations
              
              
              0.8
              
              
              (1.5
              )Other
                  income (expense):Interest
                  income (expense), net
              
              
              -
              
              
              (0.1
              )Other
                  (expense) income, net
              
              
              (0.4
              )
              
              0.2Total
                  other (expense) income, net
              
              
              (0.4
              )
              
              0.1Income
                  (loss) from continuing operations before income taxes
              
              
              0.4
              
              
              (1.4
              )Provision
                  (benefit) for income taxes
              
              
              1.2
              
              
              (0.3
              )Income
                  (loss) from continuing operations
              
              
              (0.8
              )
              
              (1.1
              )Loss
                  from discontinued operations(1)
              
              
              -
              
              
              (0.5
              )Net
                  gain on disposal of discontinued operations, net of taxes
              
              
              -
              
              
              0.2Net
                  income (loss)
              
              
              (0.8
              )
              
              (1.4
              )Preferred
                  stock accretion
              
              
              (0.1
              )
              
              (0.1
              )Net
                  income (loss) available to common stockholders
              
              
              (0.9
              )%
              
              (1.5
              )%




25
 *Table
          of Contents*


***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.





Our
      total
      units shipped increased 26.7% from 2004 to 2005. Of the display products shipped
      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 shipped was mainly due to continued
      expansion in China as well as stronger unit sales in our EMEA
      region.





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 charged against gross sales
      were $20.7 million and $16.0 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* (“SFAS
      123”), in 2005 that resulted in non-cash compensation expense of $0.5 million in
      addition to $1.1 million non-cash stock-based compensation expense due to the
      stock option re-pricing in the second quarter of 2005.





***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 2005, we recorded a non-cash charge
      of $13.7 million to establish a valuation allowance against the net deferred
      income tax assets in the United States.





***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.


26
 *Table
          of Contents*


**Segment
      Information**





Our
      management evaluates and monitors segment performance primarily through net
      sales and income (loss) from operations. We do not allocate assets or
      liabilities by segment for management reporting purposes. During the fourth
      quarter of 2006, management realigned our operating segments under a new
      methodology to allocate certain corporate overhead expenses and corporate
      benefits associated with our initiative to source LCD panels directly from
      LCD
      panel manufacturers to our operating segments. Management believes that this
      segment information provides useful information for analyzing the underlying
      business results. The following segment information for 2005 and 2004 has been
      recast to conform to the 2006 presentation.





**Comparison
      of Years Ended December 31, 2006 and 2005**




**Year
                  Ended December 31,**
              
              **Increase
                  (Decrease)****($
                  in thousands)**
              
              **2006**
              
              **2005**
              
              **$**
              
              **%**Net
                  sales:Americas
              
              $
              741,255
              
              $
              538,813
              
              $
              202,442
              
              
              37.6
              %EMEA
              
              
              374,274
              
              
              297,549
              
              
              76,725
              
              
              25.8
              %Asia-Pacific
              
              
              473,561
              
              
              363,828
              
              
              109,733
              
              
              30.2
              %$
              1,589,090
              
              $
              1,200,190
              
              $
              388,900
              
              
              32.4
              %Income
                  (loss) from operations:Americas
              
              $
              13,337
              
              $
              2,653
              
              $
              10,684
              
              
              402.7
              %EMEA
              
              
              (824
              )
              
              4,057
              
              
              (4,881
              )
              
              (120.3
              )%Asia-Pacific
              
              
              11,756
              
              
              6,137
              
              
              5,619
              
              
              91.6
              %Other
                  (1)
              
              
              (690
              )
              
              (3,017
              )
              
              2,327$
              23,579
              
              $
              9,830
              
              $
              13,749
              
              
              139.9
              %




(1)
            Includes
                certain corporate expenses that were not allocated to a specific
                segment
                for management reporting purposes.





**Americas**





***Net
      Sales***





In
      our
      Americas region, net sales increased $202.4 million, or 37.6%, to $741.3 million
      in 2006 from $538.8 million in 2005. The increase was primarily due to unit
      shipment growth in our LCD, LCD TV and projector products of 93.6%, 71.3% and
      212.6%, respectively, driven by pricing strategies designed to gain market
      share
      and channel diversification. In addition, sales of our LCD TVs experienced
      higher ASPs in 2006 compared to 2005 due to a shift in mix to larger LCD TV
      sizes. These increases were partially offset by lower CRT unit shipments of
      63.9% and lower ASPs for our LCD, projector and CRT products.





***Income
      from Operations***





In
      our
      Americas region, income from operations increased $10.7 million to $13.3 million
      in 2006 from $2.7 million in 2005. The increase was primarily due to the
      increase in net sales in 2006 compared to 2005 and lower selling, general and
      administrative expenses as a percentage of net sales of 7.0% in 2006 compared
      to
      9.0% in 2005 mainly driven by lower personnel-related costs due to reduced
      headcount and lower advertising and marketing expenses. This increase was
      partially offset by lower gross profit margins of 8.8% in 2006 compared to
      9.5%
      in 2005 primarily due to increased competition and pricing pressures resulting
      in higher product costs as a percentage of net sales.





**EMEA**





***Net
      Sales***





In
      our
      EMEA region, net sales increased $76.7 million, or 25.8%, to $374.3 million
      in
      2006 from $297.5 million in 2005. The increase was primarily due to growth
      in
      our LCD and LCD TV unit shipments of 52.2% and 291.2%, respectively, driven
      by
      channel diversification and increased geographic coverage. This increase was
      partially offset by a decrease in CRT unit shipments of 11.8% and lower ASPs
      for
      our LCD, LCD TV and CRT products. Our EMEA region experienced increased sales
      in
      most countries particularly in Russia, Ukraine, Sweden, Greece, Spain and the
      Middle East. In addition, foreign currency translation had a favorable impact
      on
      our net sales due to the 11.9% stronger Euro exchange rate compared to the
      U.S.
      dollar as measured from January 1, 2006 to December 31, 2006.


27
 *Table
          of Contents*


***(Loss)
      income from Operations***





In
      our
      EMEA region, income from operations decreased $4.9 million to a $0.8 million
      loss in 2006 from $4.1 million of income in 2005. The decrease was primarily
      due
      to a 0.8 percentage point decline in gross profit margins as a result of higher
      product costs as a percentage of net sales and higher inventory write-down
      expense resulting from an oversupply of LCD monitors in Russia during the first
      quarter of 2006. This decrease was partially offset by lower warranty costs
      of
      $0.9 million due to lower defect rates and improved operating efficiencies.
      Selling, general and administrative expenses increased as a percentage of net
      sales from 10.3% in 2005 to 11.0% in 2006 primarily due to a stronger Euro
      exchange rate compared to the U.S. dollar and higher advertising and marketing
      expenses in order to promote sales in a very competitive
      environment.





**Asia-Pacific**





***Net
      Sales***





In
      our
      Asia-Pacific region, net sales increased $109.7 million, or 30.2%, to $473.6
      million in 2006 from $363.8 million in 2005. The increase was primarily due
      to
      an increase in unit shipments of our LCD and LCD TV products of 90.7% and
      101.6%, respectively, as a result of our continued growth in the China market
      and expanded efforts in Taiwan, Australia, New Zealand, Korea and Southeast
      Asia. In addition, foreign currency translation had a favorable impact on our
      net sales due to the strengthening Chinese Yuan compared to the U.S. dollar
      throughout 2006. This increase was partially offset by a decrease in CRT unit
      shipments of 28.3%.





***Income
      from Operations***





In
      our
      Asia-Pacific region, income from operations increased $5.6 million, or 91.6%,
      to
      $11.8 million in 2006 from $6.1 million in 2005. The increase was primarily
      due
      to the increase in net sales and higher gross margins of 8.2% in 2006 compared
      to 7.4% in 2005 due to lower product costs as a percentage of net sales. This
      increase was partially offset by an increase in selling, general and
      administrative expense of $6.3 million mainly due to an increase in headcount
      as
      we continue to build our infrastructure to support our growing sales in the
      Asia-Pacific markets. Selling, general and administrative expenses as a
      percentage of net sales were 5.7% for 2006 and 2005.





**Comparison
      of Years Ended December 31, 2005 and 2004**




**Year
                  Ended December 31,**
              
              **Increase
                  (Decrease)****($
                  in thousands)**
              
              **2005**
              
              **2004**
              
              **$**
              
              **%**Net
                  sales:Americas
              
              $
              538,813
              
              $
              610,644
              
              $
              (71,831
              )
              
              (11.8
              )%EMEA
              
              
              297,549
              
              
              237,727
              
              
              59,822
              
              
              25.2
              %Asia-Pacific
              
              
              363,828
              
              
              255,962
              
              
              107,866
              
              
              42.1
              %$
              1,200,190
              
              $
              1,104,333
              
              $
              95,857
              
              
              8.7
              %Income
                  (loss) from operations:Americas
              
              $
              2,653
              
              $
              1,599
              
              $
              1,054
              
              
              65.9
              %EMEA
              
              
              4,057
              
              
              (3,367
              )
              
              7,424
              
              
              220.5
              %Asia-Pacific
              
              
              6,137
              
              
              (11,122
              )
              
              17,259
              
              
              155.2
              %Other
                  (1)
              
              
              (3,017
              )
              
              (4,075
              )
              
              1,058$
              9,830
              
              $
              (16,965
              )
              $
              26,795
              
              
              157.9
              %




(1)
            Includes
                certain corporate expenses that were not allocated to a specific
                segment
                for management reporting purposes.





**Americas**





***Net
      Sales***





In
      our
      Americas region, net sales decreased $71.8 million, or 11.8%, to $538.8 million
      in 2005 from $610.6 million in 2004. The decrease was primarily due to lower
      per
      unit ASPs reflecting the effects of competition and reduced selling price
      associated with advances in display technology.





***Income
      from Operations***





In
      our
      Americas region, income from operations increased $1.1 million to $2.7 million
      in 2005 from $1.6 million in 2004. The increase was primarily due to lower
      selling, general and administrative expenses of $16.6 million driven by lower
      advertising and marketing expenses, and lower personnel costs resulting from
      headcount reductions. This increase was partially offset by lower gross margins
      of 9.5% in 2005 compared to 10.9% in 2004 primarily due to higher product costs
      as a percentage of net sales.


28
 *Table
          of Contents*


**EMEA**





***Net
      Sales***





In
      our
      EMEA region, net sales increased $59.8 million, or 25.2%, to $297.5 million
      in
      2005 from $237.7 million in 2004. The increase 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***





In
      our
      EMEA region, income from operations increased $7.4 million to $4.1 million
      in
      2005 from a loss of $3.4 million in 2004. The increase was primarily due to
      increased net sales and lower selling, general and administrative expenses
      as a
      percentage of net sales of 10.3% in 2005 compared to 13.1% in 2004 as a result
      of a stronger U.S dollar exchange rate compared to the Euro and improved
      operating efficiencies.





**Asia-Pacific**





***Net
      Sales***





In
      our
      Asia-Pacific region, net sales increased $107.9 million, or 42.1%, to $363.8
      million in 2005 from $256.0 million in 2004. The primary reason for the increase
      was our continued expansion into the China market. Net sales also increased
      due
      to higher unit shipments in Taiwan and emerging markets such as Southeast Asia.
      The increase in unit shipments was a result of expanding our customer base
      in
      all markets.





***Income
      (loss) from Operations***





In
      our
      Asia-Pacific region, income from operations increased $17.3 million to $6.1
      million in 2005 from a loss of $11.1 million in 2004. The increase was primarily
      due to increased net sales, higher gross margin of 7.4% in 2005 compared to
      6.1%
      in 2004 due to the decrease in the number of sales allowances offered during
      2005 as compared to the LCD product oversupply period in 2004, and lower
      selling, general and administrative expenses of $5.8 million driven by lower
      account development fund expenses, lower advertising and marketing expenses
      and
      improvements in operating efficiencies. Selling, general and administrative
      expenses as a percentage of net sales decreased from 10.4% in 2004 to 5.7%
      in
      2005.





**Liquidity
      and Capital Resources**





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(in
                thousands)**Net
                cash (used in) provided by operating activities
            
            $
            (4,634
            )
            $
            (8,330
            )
            $
            9,778Net
                cash (used in) provided by investing activities
            
            
            (1,480
            )
            
            1,228
            
            
            1,154Net
                cash (used in) provided by financing activities
            
            
            (19,326
            )
            
            1,435
            
            
            2,099Net
                cash (used in) provided by discontinued operations
            
            
            —
            
            
            (1,284
            )
            
            755Effect
                of exchange rate changes on cash and cash equivalents
            
            
            521
            
            
            452
            
            
            (117
            )Net
                (decrease) increase in cash and cash equivalents
            
            $
            (24,919
            )
            $
            (6,499
            )
            $
            13,669





As
      of
      December 31, 2006, we had cash and cash equivalents of $69.1 million.
      Our cash balances are held in numerous locations throughout the world. Most
      of
      the amounts held outside the United States can be repatriated to the United
      States, but under current law would be subject to U.S. federal income taxes,
      less applicable foreign tax credits. In certain countries, foreign exchange
      limitations limit the amount of cash that can be repatriated. Repatriation
      could result in additional U.S. federal income tax payments in future years.
      Where local restrictions prevent an efficient inter-company transfer of funds,
      our intent is that cash balances would remain in the foreign country and we
      would meet U.S. liquidity needs through ongoing cash flows from operations,
      external borrowings, or both. We utilize various tax planning and financing
      strategies in an effort to ensure that our worldwide cash is available in the
      locations in which it is needed. We have available various credit lines in
      our
      Americas, EMEA and Asia-Pacific regions to meet expected and unexpected cash
      flow needs.


29
 *Table
          of Contents*


***Operating
      Activities***





Cash
      used
      in operating activities was $4.6 million in 2006 compared to $8.3 million in
      2005 and cash provided by operating activities of $9.8 million in 2004. The
      $4.6
      million use of cash in 2006 was primarily due to the lengthening of our cash
      conversion cycle as a result of a decrease in our days in accounts payable
      outstanding due to timing of payments to vendors at the end of the period
      compared to 2005, an increase in our days of sales outstanding due to a change
      in customer mix with longer average accounts receivable terms and a decrease
      in
      our days in inventory. This decrease was partially offset by net income from
      continuing operations and an increase in accrued promotional and other expenses.
      The $8.3 million use of cash in 2005 was primarily due to an increase in working
      capital requirements and a decrease in accrued promotional and other expenses,
      partially offset by a decrease in deferred tax assets and an increase in accrued
      warranty expense. The $9.8 million cash provided by operating activities was
      primarily due to a decrease in working capital requirements and an increase
      in
      accrued promotional and other expenses, partially offset by net losses from
      continuing operations.





Trade
      receivables increased $130.9 million in 2006 compared to a decrease of $6.1
      million in 2005 and an increase of $22.2 million in 2004. The increase in 2006
      was primarily due to an increase in net sales over 2005 and a change in customer
      mix with longer average accounts receivable terms. Days of sales outstanding
      increased to 48 days at December 31, 2006 from 45 days at December 31, 2005.
      The
      decrease in 2005 was primarily due to an improvement in days of sales
      outstanding to 45 days at December 31, 2005 compared to 46 days at December
      31,
      2004, partially offset by an increase in net sales over 2004. Payment terms
      vary
      by geographic location, and in some cases, a cash discount option is offered
      in
      addition to the standard payment terms.





Inventories
      increased $38.2 million in 2006 compared to an increase of $7.3 million in
      2005
      and an increase of $22.6 million in 2004. The increase in 2006 was primarily
      due
      to increased purchases of inventory to support our forecasted growth in 2007
      net
      sales over 2006. Our inventory turns increased to eight turns at December 31,
      2006 compared to seven turns at December 31, 2005. The increase in 2005 was
      primarily due to a build up of inventory to meet our higher level of forecasted
      sales in 2006 over 2005. Our inventory turns remained constant at seven turns
      at
      December 31, 2005 and 2004.





Accounts
      payable increased $120.4 million in 2006 compared to a decrease of $14.4 million
      in 2005 and an increase of $47.5 million in 2004. The increase in 2006 was
      primarily due to increased purchases of inventory and timing of payments to
      our
      suppliers. The decrease in 2005 was primarily due to the reduction in our
      inventory balances and timing of product payments.





***Investing
      Activities***





Cash
      used
      in investing activities was $1.5 million in 2006 compared to cash provided
      by
      investing activities of $1.2 million in both 2005 and 2004. The primary reason
      for the variance between periods was the timing and amount of sales and
      purchases of investments. In addition, 2006 and 2005 included deposits paid
      for
      the purchase of buildings in our Asia-Pacific region in the amounts of $2.3
      million and $3.0 million, respectively.





***Financing
      Activities***





Cash
      used
      in financing activities was $19.3 million in 2006 compared to cash provided
      by
      financing activities of $1.4 million in 2005 and $2.1 million in 2004. In
      2006, we redeemed all outstanding shares of our Series B Preferred Stock for
      $15.0 million and had net payments on borrowings of $4.6 million. 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.





On
      July
      7, 2006, we issued an aggregate of 3.3 million shares of our Series C Preferred
      Stock to Intel Capital Corporation pursuant to the exercise of an outstanding
      warrant, dated January 10, 2002. The warrant had an exercise price of $0.01
      per
      share and Intel paid an aggregate of $33,000 for the shares of Series C
      Preferred Stock.





***Discontinued
      Operations***





Cash
      flows used in operating activities from discontinued operations was $1.3 million
      in 2005 compared to cash provided by operating activities from discontinued
      operations of $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.





Cash
      provided by investing activities from discontinued operations was $0.0 million
      in 2005 and $4.7 million in 2004. During 2004, we received proceeds
      from the sale of a majority-owned subsidiary in 2004.




There
      was
      no financing activity from discontinued operations in 2005. We borrowed $4.9
      million in 2003 and repaid the balance in 2004.


30
 *Table
          of Contents*


**Contractual
      Obligations and Commitments**





The
      following table summarizes our contractual obligations and commercial
      commitments at December 31, 2006. 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)
            
            $
            3,599
            
            $
            1,959
            
            $
            1,640
            
            $
            —
            
            $
            —Bank
                borrowings
            
            
            307
            
            
            307
            
            
            —
            
            
            —
            
            
            —Subordinated
                notes payable - related party (2)
            
            
            45,189
            
            
            1,707
            
            
            43,482
            
            
            —
            
            
            —Total
            
            $
            49,095
            
            $
            3,973
            
            $
            45,122
            
            $
            —
            
            $
            —





(1)
            The
                amounts include our lease commitments under currently outstanding
                leases.
                We have the ability under the terms of our current 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 above. For further
                information regarding the obligations of subsequent lease extensions,
                see
                Note 18 of the Notes to Consolidated Financial
                Statements.





(2)
            Includes
                interest payable of $1.7 million in the less than 1 year category
                and $0.5
                million in the 1-3 years category
                above.





On
      January 19, 2007, we entered into a lease agreement with Catellus Operating
      Limited Partnership for 298,050 square feet of office space at our existing
      principal office location in Walnut, California. The term of the lease commences
      on July 1, 2007 and runs through July 2014, subject to extension at our option
      under certain circumstances. The
      future minimum lease payments required under this operating lease are $0.4
      million in 2007, $1.5 million in 2008, $1.6 million in 2009, $1.6 million in
      2010, $1.7 million in 2011 and $4.6 million each year thereafter.





**Credit
      Facilities**





In
      the
      United States, we have a $60.0 million credit line that expires in March 2008.
      Advances bear interest at the prime rate plus 0.50% (8.75% and 7.75% at December
      31, 2006 and 2005, respectively) with interest payable monthly. As of December
      31, 2006 and 2005, there was no outstanding balance on the line-of-credit.
      All
      advances under the agreement are collateralized by substantially all of the
      assets of ViewSonic Americas. Under the agreement we are subject to various
      restrictive covenants, which, among other things, limit dividends (not to exceed
      $250,000 per year without the consent of the financial institution), capital
      expenditures and executive compensation and require us to maintain a minimum
      earnings before interest, taxes, depreciation and amortization amount. We are
      not required to comply with the restrictive covenants when borrowing capacity
      exceeds $15.0 million. There were no outstanding borrowings against this
      facility as of December 31, 2006 and 2005.





In
      Europe, we have a $20.0 million line-of-credit facility with a financial
      institution. This line-of-credit is secured by trade receivables and
      inventory of ViewSonic Europe Limited. Advances bear interest at Libor plus
      LIBOR plus a margin (7.58% and 6.39% as of December 31, 2006 and 2005,
      respectively). There were no outstanding borrowings against this facility as
      of
      December 31, 2006 and 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. The aggregate borrowing limit was $23.7 million and $23.4 million
      at
      December 31, 2006 and 2005, respectively. These lines of credit had a weighted
      average interest rate of 7.23% and 6.37% at December 31, 2006 and 2005,
      respectively. As of December 31, 2006 and 2005, there were outstanding cash
      advances of $0.3 million and $4.9 million, respectively.





As
      of
      December 31, 2006, we were in compliance with the covenants of all our borrowing
      arrangements.





**Off-Balance
      Sheet Arrangements**





During
      2006, 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.


31
 *Table
          of Contents*


**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. 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:




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


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


·
            Decreased
                demand and market acceptance for our
                products;


·
            Inability
                to successfully develop our next-generation products;


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


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


·
            New
                product announcements or product introductions by our
                competitors.





**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 risk of loss is transferred, persuasive 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 and reflected as reductions to revenues. 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. If
      actual
      returns exceed our estimated returns, additional reductions to revenue would
      be
      recorded in the period the adjustments are made.





We
      offer
      several customer and distributor incentive programs, including price protection,
      rebates, promotions and other volume-based incentives, which are recorded as
      reductions to revenue. Certain incentive programs require us to estimate, based
      on historical experience and other factors, the number of customers who will
      actually redeem the incentive. 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. We estimate our promotions in accordance with
      EITF 01-9, *Accounting
      for Consideration Given by a Vendor to a Customer (Including a Reseller of
      the
      Vendor's Products* )
      (“EITF
      01-9”), which requires us to record 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 7.5% of our net sales per year.
      Therefore, if our estimates were understated by 1% of our net sales for 2006,
      the negative impact to our net sales would be approximately $16.0 million.


32
 *Table
          of Contents*


***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. We monitor customer credit limits and historical
      payment history on a monthly basis. As of December 31, 2006, we had $277.2
      million of net trade 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.
      We write down our inventory for estimated lower of cost or market which is
      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. We evaluate our inventory on a monthly basis and
      make
      necessary adjustments. Inventory write-downs totaled $14.0 million, $11.5
      million and $9.8 million in 2006, 2005 and 2004, respectively. Our inventory
      write-downs as a percentage of cost of sales have averaged approximately 1%
      for
      2006, 2005 and 2004.





We
      operate in a rapidly changing business environment in which changes in
      technology and customer demand may have a significant impact on the valuation
      of
      our inventory. We adjust our inventories for obsolescence, excess or amount
      in
      excess of net realizable value to reflect inventory at the lower of cost or
      market. Factors influencing these adjustments include changes in demand,
      technological changes, product life cycle and development plans, component
      cost
      trends, product pricing, physical deterioration and quality issues. Revisions
      to
      these adjustments are required if any of these factors differ from our
      estimates.





We
      review
      the amount of inventory in our 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. 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.





***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 and geographic location. 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), defect rates, and total number of products under warranty. If our
      estimates for net cost of repair and defect rates are higher than recorded,
      this
      could result in higher future warranty expenses.


33
 *Table
          of Contents*


***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 and the liability is reasonably estimable. The amount of the accrual
      is
      estimated based on a review of each individual claim, including the type and
      facts of the claim and an assessment of the claim’s merits. 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.




***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 and $0.1
      million as of December 31, 2006 and 2005, 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 $1.7 million, $1.8 million and $4.3 million in 2006, 2005
      and 2004, respectively. In determining whether impairment exists, we evaluate
      the latest financial operating results of the investment and review discounted
      cash flow projections. The actual amount of impairment is based on the
      difference between the discounted cash flows versus the recorded
      value.





***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 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, 2006, we had a valuation allowance of
      $10.8
      million of which $10.3 million was against domestic net deferred income tax
      assets.





Pursuant
      to Accounting Principles Board Opinion No. 23, *Accounting
      for Income Taxes-Special Areas* (“APB
      23”), 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.





In
      July 2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), which prescribes a recognition threshold and measurement process for
      recording in the financial statements uncertain tax positions taken or expected
      to be taken in a tax return. Additionally, FIN 48 provides guidance on
      derecognition, classification, accounting in interim periods and disclosure
      requirements for uncertain tax positions. FIN 48 will be effective for us on
      January 1, 2007, and will require adjustment to the opening balance of retained
      earnings (or other components of shareholders’ equity in the statement of
      financial position) for the cumulative effect of the difference in the net
      amount of assets and liabilities for all open tax positions at the effective
      date. We are currently in the process of determining the effect, if any, FIN
      48
      will have on our financial statements.





**New
      Accounting Pronouncements**





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115* (“SFAS
      159”). SFAS 159 permits, but does not require, companies to report at fair value
      the majority of recognized financial assets, financial liabilities and firm
      commitments. Under this standard, unrealized gains and losses on items for
      which
      the fair value option is elected are reported in earnings at each subsequent
      reporting date. We are currently assessing the effect SFAS 159 may have, if
      any,
      on our consolidated financial statements when adopted on January 1,
      2008.


34
 *Table
          of Contents*


In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”), which provides guidance for using fair value to measure assets and
      liabilities. SFAS 157 clarifies that for items that are not actively traded,
      such as certain kinds of derivatives, fair value should reflect the price in
      a
      transaction with a market participant, including an adjustment for risk, not
      just the company’s mark-to-model value. SFAS 157 also requires expanded
      disclosure of the effect on earnings for items measured using unobservable
      data
      and applies whenever other standards require (or permit) assets or liabilities
      to be measured at fair value but does not expand the use of fair value in any
      new circumstances. SFAS 157 will be effective for us beginning January 1, 2008.
      We are in the process of determining the effect, if any, this statement will
      have on our consolidated financial statements.





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* (“SAB
      108”), which provides guidance for quantifying financial statement
      misstatements. We adopted the provisions of SAB 108 in 2006. The adoption did
      not have a material effect on our consolidated financial statements.





In
      July 2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), which prescribes a recognition threshold and measurement process for
      recording in the financial statements uncertain tax positions taken or expected
      to be taken in a tax return. Additionally, FIN 48 provides guidance on
      derecognition, classification, accounting in interim periods and disclosure
      requirements for uncertain tax positions. FIN 48 will be effective for us on
      January 1, 2007, and will require adjustment to the opening balance of retained
      earnings (or other components of shareholders’ equity in the statement of
      financial position) for the cumulative effect of the difference in the net
      amount of assets and liabilities for all open tax positions at the effective
      date. We are currently in the process of determining the effect, if any, FIN
      48
      will have on our financial statements.





**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.





We
      have
      significant European and Asia-Pacific net sales denominated in the Euro and
      Chinese Renminbi. Product shipping, and selling, general and administrative
      costs associated with a portion of these sales are U.S. dollar-denominated.
      During 2006, the Euro-to-U.S. dollar foreign currency exchange rate strengthened
      against the U.S. dollar increasing 1% on an average annual basis compared to
      the
      average in 2005. The strengthening of the Euro positively impacted our 2006
      net
      sales and income from operations by $0.6 million and $0.2 million,
      respectively, assuming all other factors remain constant. During 2006, the
      Chinese Renminbi-to-U.S. dollar foreign currency exchange rate strengthened
      against the U.S. dollar increasing 3% on an average annual basis compared to
      the
      average in 2005. The strengthening of the Chinese Renminbi positively impacted
      our 2006 net sales and income from operations by $6.9 million and
      $6.4 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. In addition, we must manage our
      account receivables and inventory balances in order to limit our foreign
      currency exposure to a strengthening U.S. dollar. We are currently in the
      process of evaluating various foreign currency hedging strategies to minimize
      the effects of foreign currency fluctuations on our operations.


35
 *Table
          of Contents*


**ITEM
                8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





**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, 2006 and 2005, and the
      related consolidated statements of operations, stockholders’ equity, and cash
      flows for each of the three years in the period ended December 31, 2006. 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, 2006 and 2005, and the results of their operations and their cash
      flows for each of the three years in the period ended December 31, 2006, 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.* In
      2006,
      the Company changed its method of accounting for stock-based compensation to
      conform to Statement of Financial Accounting Standards No. 123(R), *Share-Based
      Payment* .








DELOITTE
      & TOUCHE LLP


Los
      Angeles, California


March
      15,
      2007


36
 *Table
          of Contents*


**VIEWSONIC
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**DECEMBER
      31, 2006 AND 2005**


**(Amounts
      in thousands, except share information)**




**ASSETS**
              
              **2006**
              
              **2005**Current
                  assets:Cash
                  and cash equivalents
              
              $
              69,079
              
              $
              93,998Trade
                  receivables, net
              
              
              277,162
              
              
              145,982Other
                  receivables
              
              
              7,213
              
              
              7,013Inventories
              
              
              194,049
              
              
              155,389Deferred
                  income taxes
              
              
              7,734
              
              
              3,194Prepaids
                  and other current assets
              
              
              3,670
              
              
              2,736Income
                  taxes receivable
              
              
              152
              
              
              761Current
                  assets of discontinued operations
              
              
              -
              
              
              195Total
                  current assets
              
              
              559,059
              
              
              409,268Property,
                  plant and equipment, net
              
              
              14,445
              
              
              12,929Long-term
                  investments
              
              
              237
              
              
              2,676Goodwill
              
              
              1,347
              
              
              1,347Other
                  assets, net
              
              
              3,549
              
              
              6,505Total
                  assets
              
              $
              578,637
              
              $
              432,725**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Bank
                  borrowings
              
              $
              307
              
              $
              4,852Account
                  payable
              
              
              388,554
              
              
              266,867Accrued
                  promotional expenses
              
              
              25,852
              
              
              22,663Accrued
                  warranty expense
              
              
              24,455
              
              
              21,350Other
                  accrued expenses
              
              
              32,446
              
              
              20,614Current
                  liabilities of discontinued operations
              
              
              -
              
              
              195Total
                  current liabilities
              
              
              471,614
              
              
              336,541Subordinated
                  notes payable - related party
              
              
              43,000
              
              
              43,000Convertible
                  mandatorily redeemable preferred stock
              
              
              -
              
              
              14,952Stockholders'
                  equity:Common
                  stock, $.01 par value 600,000,000 shares authorized; 354,594,666
                  and353,974,268
                  shares issued as of December 31, 2006 and 2005,
                  respectively
              
              
              3,546
              
              
              3,540Preferred
                  stock, $.001 par value 22,800,000 shares authorized; 3,300,000
                  and 0
                  sharesissued
                  as of December 31, 2006 and 2005, respectively
              
              
              3
              
              
              -Additional
                  paid-in capital
              
              
              94,181
              
              
              93,716Accumulated
                  deficit
              
              
              (31,468
              )
              
              (55,611
              )Accumulated
                  other comprehensive loss
              
              
              (2,239
              )
              
              (3,413
              )Total
                  stockholders' equity
              
              
              64,023
              
              
              38,232Total
                  liabilities and stockholders' equity
              
              $
              578,637
              
              $
              432,725





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, 2006, 2005 AND 2004**


**(Amounts
      in thousands, except per share information)**


**2006**
              
              **2005**
              
              **2004**Net
                  sales
              
              $
              1,589,090
              
              $
              1,200,190
              
              $
              1,104,333Cost
                  of sales
              
              
              1,444,905
              
              
              1,085,011
              
              
              1,003,960Gross
                  profit
              
              
              144,185
              
              
              115,179
              
              
              100,373Selling,
                  general and administrative expenses
              
              
              120,606
              
              
              105,349
              
              
              117,338Income
                  (loss) from operations
              
              
              23,579
              
              
              9,830
              
              
              (16,965
              )Other
                  income (expense):Interest
                  (expense) income, net
              
              
              (198
              )
              
              287
              
              
              (1,291
              )Other
                  income (expense), net
              
              
              3,764
              
              
              (4,266
              )
              
              2,542Total
                  other income (expense), net
              
              
              3,566
              
              
              (3,979
              )
              
              1,251Income
                  (loss) from continuing operations before income taxes
              
              
              27,145
              
              
              5,851
              
              
              (15,714
              )Provision
                  (benefit) for income taxes
              
              
              2,954
              
              
              14,659
              
              
              (3,293
              )Income
                  (loss) from continuing operations
              
              
              24,191
              
              
              (8,808
              )
              
              (12,421
              )Loss
                  from discontinued operations
              
              
              -
              
              
              -
              
              
              (5,989
              )Net
                  gain on disposal of discontinued operations, net of tax
              
              
              -
              
              
              475
              
              
              2,153Net
                  income (loss)
              
              
              24,191
              
              
              (8,333
              )
              
              (16,257
              )Preferred
                  stock accretion
              
              
              (48
              )
              
              (1,524
              )
              
              (1,372
              )Net
                  income (loss) available to common stockholders
              
              $
              24,143
              
              $
              (9,857
              )
              $
              (17,629
              )Basic
                  earnings (loss) per share:Continuing
                  operations
              
              $
              0.07
              
              $
              (0.03
              )
              $
              (0.04
              )Discontinued
                  operations
              
              $
              -
              
              $
              -
              
              $
              (0.02
              )Gain
                  on disposal of discontinued operations
              
              $
              -
              
              $
              -
              
              $
              0.01Total
                  basic earnings (loss) per share
              
              $
              0.07
              
              $
              (0.03
              )
              $
              (0.05
              )Diluted
                  earnings (loss) per shareContinued
                  operations
              
              $
              0.07
              
              $
              (0.03
              )
              $
              (0.04
              )Discontinued
                  operations
              
              $
              -
              
              $
              -
              
              $
              (0.02
              )Gain
                  on disposal of discontinued operations
              
              $
              -
              
              $
              -
              
              $
              0.01Total
                  diluted earnings (loss) per share
              
              $
              0.07
              
              $
              (0.03
              )
              $
              (0.05
              )Basic
                  weighted average shares outstanding
              
              
              354,279
              
              
              353,969
              
              
              353,917Diluted
                  weighted average shares outstanding
              
              
              360,432
              
              
              353,969
              
              
              353,917





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, 2006, 2005 AND 2004**


**(In
      thousands)**




**Additional**
                
                
                
                **Other**
                
                
                
                **Comprehensive****Common
                    Stock**
                
                **Preferred
                    Stock**
                
                **Paid-In**
                
                **Accumulated**
                
                **Comprehensive**
                
                
                
                **Income****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Capital**
                
                **Deficit**
                
                **Loss**
                
                **Total**
                
                **(Loss)****Balance
                    - January 1, 2004**
                
                
                **353,898**
                
                **$**
                **3,539**
                
                
                **-**
                
                **$**
                **-**
                
                **$**
                **92,105**
                
                **$**
                **(28,125**
                **)**
                **$**
                **(2,812**
                **)**
                **$**
                **64,707**Comprehensive
                    loss:Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (16,257
                )
                
                
                
                
                (16,257
                )
                $
                (16,257
                )Other
                    comprehensive income(loss),
                    net of tax:Foreign
                    currency translation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                706
                
                
                706
                
                
                706Unrealized
                    (loss) on investments, less realized gains
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (862
                )
                
                (862
                )
                
                (862
                )Comprehensive
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (16,413
                )Preferred
                    stock accretion
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,372
                )
                
                
                
                
                (1,372
                )Issuance
                    of common stock
                
                
                77
                
                
                1
                
                
                
                
                
                
                
                
                44
                
                
                
                
                
                
                
                
                45Rescission
                    of common stock
                
                
                (15
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -**Balance
                    - December 31, 2004**
                
                
                **353,960**
                
                
                **3,540**
                
                
                **-**
                
                
                **-**
                
                
                **92,149**
                
                
                **(45,754**
                **)**
                
                **(2,968**
                **)**
                
                **46,967**Comprehensive
                    loss:Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (8,333
                )
                
                
                
                
                (8,333
                )
                $
                (8,333
                )Other
                    comprehensive income (loss), net of tax:Foreign
                    currency translation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                178
                
                
                178
                
                
                178Unrealized
                    (loss) on investments,less realized gains
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (623
                )
                
                (623
                )
                
                (623
                )Comprehensive
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (8,778
                )Preferred
                    stock accretion
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,524
                )
                
                
                
                
                (1,524
                )Issuance
                    of common stock
                
                
                15
                
                
                -
                
                
                
                
                
                
                
                
                11
                
                
                
                
                
                
                
                
                11Stock-based
                    compensation expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,556
                
                
                
                
                
                
                
                
                1,556**Balance
                    - December 31, 2005**
                
                
                **353,975**
                
                
                **3,540**
                
                
                **-**
                
                
                **-**
                
                
                **93,716**
                
                
                **(55,611**
                **)**
                
                **(3,413**
                **)**
                
                **38,232**Comprehensive
                    loss:Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                24,191
                
                
                
                
                
                24,191
                
                $
                24,191Other
                    comprehensive income (loss), net of tax:Foreign
                    currency translation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                499
                
                
                499
                
                
                499Reclassification
                    of unrealized losses to earnings
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                675
                
                
                675
                
                
                675Comprehensive
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                25,365Preferred
                    stock accretion
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (48
                )
                
                
                
                
                (48
                )Issuance
                    of common stock
                
                
                620
                
                
                6
                
                
                
                
                
                
                
                
                230
                
                
                
                
                
                
                
                
                236Issuance
                    of preferred stock
                
                
                
                
                
                
                
                
                3,300
                
                
                3
                
                
                30
                
                
                
                
                
                
                
                
                33Stock-based
                    compensation expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                205
                
                
                
                
                
                
                
                
                205**Balance
                    - December 31, 2006**
                
                
                **354,595**
                
                **$**
                **3,546**
                
                
                **3,300**
                
                **$**
                **3**
                
                **$**
                **94,181**
                
                **$**
                **(31,468**
                **)**
                **$**
                **(2,239**
                **)**
                **$**
                **64,023**


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, 2006, 2005 AND 2004**


**(Amounts
      in thousands)**


**Year
                  Ended December 31,****2006**
              
              **2005**
              
              **2004****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income (loss)
              
              $
              24,191
              
              $
              (8,333
              )
              $
              (16,257
              )Gain
                  (loss) on discontinued operations
              
              
              -
              
              
              475
              
              
              (3,836
              )Income
                  (loss) from continuing operations
              
              
              24,191
              
              
              (8,808
              )
              
              (12,421
              )Adjustments
                    to reconcile net income (loss) from continuing operations to
                    net cash(used
                    in) provided by operating activities:Depreciation
                  and amortization
              
              
              2,771
              
              
              3,107
              
              
              3,555Loss
                  on disposal of property, plant and equipment
              
              
              4
              
              
              22
              
              
              75Provision
                  for doubtful accounts
              
              
              511
              
              
              603
              
              
              (257
              )Net
                  loss on sale and impairment of long-term investments
              
              
              1,981
              
              
              190
              
              
              2,773Deferred
                  income taxes
              
              
              (2,790
              )
              
              12,481
              
              
              (3,235
              )Stock-based
                  compensation expense
              
              
              205
              
              
              1,556
              
              
              -Changes
                  in operating assets and liabilities:Trade
                  receivables
              
              
              (130,853
              )
              
              6,094
              
              
              (22,215
              )Other
                  receivables
              
              
              (123
              )
              
              316
              
              
              (1,858
              )Inventories
              
              
              (38,153
              )
              
              (7,263
              )
              
              (22,567
              )Prepaids
                  and other current assets
              
              
              (854
              )
              
              296
              
              
              1,112Accounts
                  payable
              
              
              120,363
              
              
              (14,434
              )
              
              47,516Accrued
                  promotional and other expenses
              
              
              12,499
              
              
              (8,356
              )
              
              16,540Accrued
                  warranty expense
              
              
              3,078
              
              
              4,005
              
              
              2,833Income
                  taxes payable/receivable
              
              
              2,536
              
              
              1,861
              
              
              (2,073
              )Net
                  cash (used in) provided by operating activities
              
              
              (4,634
              )
              
              (8,330
              )
              
              9,778**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Proceeds
                  from sale of property, plant and equipment
              
              
              42
              
              
              38
              
              
              -Purchase
                  of property, plant and equipment
              
              
              (1,292
              )
              
              (1,282
              )
              
              (2,981
              )Proceeds
                  from sale of long-term investments
              
              
              1,600
              
              
              3,168
              
              
              2,716Proceeds
                  from sales of short-term investments
              
              
              15,152
              
              
              43,425
              
              
              15,477Purchase
                  of short-term investments
              
              
              (15,213
              )
              
              (41,183
              )
              
              (14,058
              )Change
                  in other assets
              
              
              (1,769
              )
              
              (2,938
              )
              
              -Net
                  cash (used in) provided by investing activities
              
              
              (1,480
              )
              
              1,228
              
              
              1,154**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Net
                  payments on bank borrowings
              
              
              (4,595
              )
              
              1,424
              
              
              2,054Proceeds
                  from issuance of common stock
              
              
              236
              
              
              11
              
              
              45Proceeds
                  from issuance of preferred stock
              
              
              33
              
              
              -
              
              
              -Redemption
                  of preferred stock
              
              
              (15,000
              )
              
              -
              
              
              -Net
                  cash (used in) provided by financing activities
              
              
              (19,326
              )
              
              1,435
              
              
              2,099**CASH
                  FLOW FROM DISCONTINUED OPERATIONS**Cash
                  flow from operating activities
              
              
              -
              
              
              (1,324
              )
              
              935Cash
                  flow from investing activities
              
              
              -
              
              
              40
              
              
              4,687Cash
                  flow from financing activities
              
              
              -
              
              
              -
              
              
              (4,867
              )Net
                  cash (used in) provided by discontinued operations
              
              
              -
              
              
              (1,284
              )
              
              755Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              521
              
              
              452
              
              
              (117
              )Net
                  (decrease) increase in cash and cash equivalents
              
              
              (24,919
              )
              
              (6,499
              )
              
              13,669Cash
                  and cash equivalents at beginning of period
              
              
              93,998
              
              
              100,497
              
              
              86,828Cash
                  and cash equivalents at end of period
              
              $
              69,079
              
              $
              93,998
              
              $
              100,497**Supplemental
                  disclosure of cash flow information:**Cash
                  paid during the year for:Interest
              
              $
              2,377
              
              $
              2,097
              
              $
              2,234Income
                  taxes, net of refunds
              
              $
              3,718
              
              $
              2,362
              
              $
              2,365**Supplemental
                  disclosure of non-cash investing activity:**In
                  2006, non-cash activity included the reclassification of a $3.0
                  million
                  deposit on a building made in 2005 from other assets to property,
                  plant
                  and equipment.In
                  2005 and 2004, non-cash activities included unrealized holding
                  losses on
                  available for sale investments of $0.2 million and $2.2 million,
                  net of
                  taxes of $0.1 million and $0.6 million, respectively.





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, 2006, 2005 AND 2004**





**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, 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
      and Cash Equivalents*** —
Cash
      and cash equivalents include currency on hand and time deposits with original
      maturities of less than three months.





***Trade
      Receivables, Net*** —
Trade
      receivables, net include an allowance for doubtful accounts of approximately
      $5.3 million, $5.0 million and $5.3 million as of December 31, 2006, 2005
      and 2004, 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 which is 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 $14.0 million, $11.5 million and $9.8 million
      in
      2006, 2005 and 2004, respectively.





***Property,
      Plant and Equipment, Net*** —
      Depreciation is provided for on the straight-line method over the estimated
      useful lives of the assets. 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
      $1.7 million, $1.8 million and $4.3 million in 2006, 2005 and 2004,
      respectively. In determining if 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.





***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* .


41
 *Table
          of Contents*


Pursuant
      to Accounting Principles Board Opinion No. 23, *Accounting
      for Income Taxes-Special Areas* ,
      (“APB
      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 $7.5 million, $6.4
      million and $3.9 million in 2006, 2005 and 2004, respectively, and are recorded
      as a reduction to cost of the related inventory.




***Patent
      Litigation Expenses*** —
There
      are certain claims against the Company that are related to patent infringement
      cases. The Company accrues for these claims whenever it determines an
      unfavorable outcome is probable and the liability is reasonably estimable.
      The
      amount of the accrual is estimated based on a review of each individual claim,
      including the type and facts of the claim and an assessment of the claim’s
      merits.





***Revenue
      Recognition, Warranty and Promotions*** —
      Revenues are recognized when risk of loss is transferred, persuasive 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 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. Returns and promotions are charged against gross
      sales and were $130.4 million, $96.3 million and $126.9 million for the years
      ended December 31, 2006, 2005 and 2004, respectively.





The
      Company also provides 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 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 $168.9 million, $101.8 million and $19.6 million
      in
      2006, 2005, and 2004, 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 takes place. Advertising costs were
      $31.1
      million, $23.7 million and $27.6 million for the years ended December 31,
      2006, 2005 and 2004, respectively.





***Research
      and Development*** —
      Research and development expenses are recorded as selling, general and
      administrative expenses and were $0.9 million, $1.1 million and $1.9 million
      for
      the years ended December 31, 2006, 2005 and 2004, respectively.





***Other
      Income, Net*** —
Other
      income, net 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 had a net transaction gain of $5.2 million for the year ended December
      31, 2006, a net transaction loss of $4.7 million for 2005 and a net transaction
      gain of $5.3 million for 2004.





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


42
 *Table
          of Contents*


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





In
      the
      second quarter of 2005, the Company adopted the fair value based method of
      accounting for stock-based compensation in accordance with the expense
      recognition provisions of SFAS 123 using the modified prospective method.
      Stock-based compensation expense for the year ended December 31, 2005 was $1.6
      million and was estimated using the minimum value method as permitted under
      SFAS
      123 to determine the fair value of stock options. Of this amount, $1.1 million
      related to the repricing of 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. There was no stock-based compensation expense recognized during
      the three months ended March 31, 2005 as the Company accounted for its employee
      stock option plans under the recognition and measurement principles of APB
      25
      and the disclosure only provisions of SFAS 123. Because the Company has
      historically granted at-the-money stock options with no intrinsic value on
      the
      date of grant, no compensation expense was recognized for stock options prior
      to
      the second quarter of 2005.




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





***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, 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 and 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.





Sales
      to
      certain customers generated over 10% of the Company’s total consolidated net
      sales. Sales to Ingram Micro Inc. for the years ended December 31, 2006, 2005
      and 2004 were 11%, 11% and 14%, respectively, of the Company’s total
      consolidated net sales. Sales to Tech Data Corporation for the years ended
      December 31, 2005 and 2004 were 10% and 13%, respectively, of the Company’s
      total consolidated net sales. At December 31, 2006 and 2005, Ingram Micro Inc.
      accounted for 11% and 13%, respectively, of the Company’s total trade
      receivables, net. At December 31, 2005, Tech Data Corporation accounted for
      5%
      of the Company’s total trade receivables, net.





Five
      suppliers accounted for 60% of total purchases for the year ended
      December 31, 2006 and 53% of accounts payable at December 31, 2006.
      For the year ended December 31, 2005, four suppliers accounted for 47% of
      total purchases and 64% of accounts payable at December 31, 2005. For the
      year ended December 31, 2004, four suppliers accounted for 53% of total
      purchases.





***Derivatives*** —
The
      Company did not hold any derivatives during 2006. On June 2, 2005, the Company
      entered into a foreign currency option contract to minimize the impact of
      foreign currency fluctuations on its business in Europe. The foreign currency
      option contract allowed the Company to sell 2.0 million 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 $0.7 million in 2005 and were recorded as part of other income (expense),
      net.


43
 *Table
          of Contents*


***New
      Accounting Pronouncements*** - In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115* (“SFAS
      159”). SFAS 159 permits, but does not require, companies to report at fair value
      the majority of recognized financial assets, financial liabilities and firm
      commitments. Under this standard, unrealized gains and losses on items for
      which
      the fair value option is elected are reported in earnings at each subsequent
      reporting date. The Company is currently assessing the effect SFAS 159 may
      have,
      if any, on its consolidated financial statements when adopted on January 1,
      2008.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”), which provides guidance for using fair value to measure assets and
      liabilities. SFAS 157 clarifies that for items that are not actively traded,
      such as certain kinds of derivatives, fair value should reflect the price in
      a
      transaction with a market participant, including an adjustment for risk, not
      just the company’s mark-to-model value. SFAS 157 also requires expanded
      disclosure of the effect on earnings for items measured using unobservable
      data
      and applies whenever other standards require (or permit) assets or liabilities
      to be measured at fair value but does not expand the use of fair value in any
      new circumstances. SFAS 157 will be effective for the Company beginning January
      1, 2008. The Company is in the process of determining the effect, if any, this
      statement will have on its consolidated financial statements.





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* (“SAB
      108”), which provides guidance for quantifying financial statement
      misstatements. The Company adopted the provisions of SAB 108 in 2006. The
      adoption did not have a material effect on the Company’s consolidated financial
      statements.





In
      July 2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), which prescribes a recognition threshold and measurement process for
      recording in the financial statements uncertain tax positions taken or expected
      to be taken in a tax return. Additionally, FIN 48 provides guidance on
      derecognition, classification, accounting in interim periods and disclosure
      requirements for uncertain tax positions. FIN 48 will be effective for the
      Company on January 1, 2007, and will require adjustment to the opening balance
      of retained earnings (or other components of shareholders’ equity in the
      statement of financial position) for the cumulative effect of the difference
      in
      the net amount of assets and liabilities for all open tax positions at the
      effective date. The Company is currently in the process of determining the
      effect, if any, FIN 48 will have on its financial statements.





**3.**
            **Property,
                Plant and Equipment**





Property,
      plant and equipment, net consist of the following at December 31 (in
      thousands):





**Useful
                Lives**
            
            **2006**
            
            **2005**Land
            
            
            
            $4,458
            
            $4,426Building
            
            
            30
                years
            
            
            8,556
            
            
            5,437Office
                equipment
            
            
            3-5
                years
            
            
            22,237
            
            
            21,595Furniture
                and fixtures
            
            
            4-5
                years
            
            
            5,125
            
            
            5,086Leasehold
                improvements
            
            
            5-15
                years
            
            
            5,792
            
            
            5,585Construction
                in progress
            
            
            
            
            
            0
            
            
            2746,168
            
            
            42,156Accumulated
                depreciation and amortization
            
            
            
            
            
            (31,723
            )
            
            (29,227
            )$
            14,445
            
            $
            12,929





The
      total
      depreciation and amortization expense for the years ended December 31,
      2006, 2005 and 2004 was approximately $2.8 million, $3.1 million and $3.6
      million, respectively.


44
 *Table
          of Contents*


**4.**
            **Long-Term
                Investments**





The
      Company’s investment activity in other comprehensive income, net of tax, is as
      follows at December 31 (in thousands):





**2006**
            
            **2005**
            
            **2004**Beginning
                balance—unrealized (loss) gain
            
            $
            (675
            )
            $
            (52
            )
            $
            810Unrealized
                holding losses
            
            
            —
            
            
            (156
            )
            
            (2,159
            )Reclassification
                for realized losses (gains)
            
            
            675
            
            
            (467
            )
            
            1,297Ending
                balance—unrealized loss
            
            $
            —
            
            $
            (675
            )
            $
            (52
            )





The
      Company's long-term investments are summarized as follows at December 31
      (in thousands):





**2006**
            
            **2005****Market/**
              **Carrying**
              **Value**
            
            **Realized**
              **Loss**
            
            **Market/**
              **Carrying**
              **Value**
            
            **Realized**
              **Gain
                (Loss)**Private
                securities—at cost
            
            $
            110
            
            $
            —
            
            $
            110
            
            $
            (797
            )Available-for-sale
                equity securities—public
            
            
            127
            
            
            (2,066
            )
            
            2,566
            
            
            776$
            237
            
            $
            (2,066
            )
            $
            2,676
            
            $
            (21
            )





**2005****Market/**
              **Carrying**
              **Value**
            
            **Unrealized**
              **Holding**
              **Gain
                (Loss)**Available-for-sale
                equity securities—unrealized gains
            
            $
            831
            
            $
            62Available-for-sale
                equity securities—unrealized (losses)
            
            
            1,735
            
            
            (1,188
            )$
            2,566
            
            $
            (1,126
            )




There
      were no unrealized holding gains or losses recorded on the consolidated balance
      sheet as of December 31, 2006 as the Company determined that its unrealized
      holding losses related to its available-for-sale investments were
      other-than-temporary based on its evaluation of available evidence as of
      December 31, 2006. As a result, the Company recognized an impairment of $1.7
      million during 2006 which is included in other income (expense), net, in its
      consolidated statement of operations.





**5.**
            **Bank
                Borrowings**





In
      the
      United States, the Company has a $60.0 million credit line that expires in
      March
      2008. Advances bear interest at the prime rate plus 0.50% (8.75% and 7.75%
      at
      December 31, 2006 and 2005, respectively) with interest payable monthly. As
      of
      December 31, 2006 and 2005, there was no outstanding balance on the
      line-of-credit. All advances under the agreement are collateralized by
      substantially all of the assets of ViewSonic Americas. Under the agreement
      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 $15.0 million. There
      were no outstanding borrowings against this facility as of December 31, 2006
      and
      2005.





In
      Europe, the Company has 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 (7.58% and 6.39% as of December 31, 2006 and 2005, respectively).
      There
      were no outstanding borrowings against this facility as of December 31, 2006
      and
      2005.





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. The aggregate borrowing limit was $23.7 million and $23.4
      million at December 31, 2006 and 2005, respectively. These lines of credit
      had a
      weighted average interest rate of 7.23% and 6.37% at December 31, 2006 and
      2005,
      respectively. As of December 31, 2006 and 2005, there were outstanding cash
      advances of $0.3 million and $4.9 million, respectively.


45
 *Table
          of Contents*


As
      of
      December 31, 2006, the Company was in compliance with the covenants of all
      its
      borrowing arrangements.





**6.**
            **Income
                Taxes**





The
      provision (benefit) for income taxes consists of the following for the years
      ended December 31 (in thousands):





**2006**
            
            **2005**
            
            **2004**Current:Federal
            
            $
            2,829
            
            $
            (582
            )
            $
            (92
            )State
            
            
            127
            
            
            377
            
            
            (83
            )Foreign
            
            
            2,788
            
            
            2,383
            
            
            117Total
                current
            
            
            5,744
            
            
            2,178
            
            
            (58
            )Deferred:Federal
            
            
            (2,318
            )
            
            9,906
            
            
            (2,131
            )State
            
            
            0
            
            
            2,972
            
            
            (310
            )Foreign
            
            
            (472
            )
            
            (397
            )
            
            (794
            )Total
                deferred
            
            
            (2,790
            )
            
            12,481
            
            
            (3,235
            )$
            2,954
            
            $
            14,659
            
            $
            (3,293
            )





The
      components of deferred tax assets (liabilities) are as follows at
      December 31 (in thousands):





**2006**
            
            **2005****Deferred
                tax assets**Current:Accounts
                receivable, inventory, and warranty allowances
            
            $
            8,622
            
            $
            8,129Accruals
            
            
            3,230
            
            
            1,842State
                taxes
            
            
            69
            
            
            21Unrealized
                foreign exchange gains
            
            
            (92
            )
            
            (204
            )Other
            
            
            688
            
            
            214Sub-Total
            
            
            12,517
            
            
            10,002Valuation
                Allowance
            
            
            (4,783
            )
            
            (6,808
            )Total
                current
            
            
            7,734
            
            
            3,194Non-current:Net
                operating loss carry-forwards
            
            
            255
            
            
            7,180Depreciation
                and amortization
            
            
            1,649
            
            
            1,328Foreign
                tax credit carry-forwards
            
            
            3,280
            
            
            2,472Unrealized
                loss on securities
            
            
            654
            
            
            1,081Other
            
            
            213
            
            
            219Subtotal
            
            
            6,051
            
            
            12,280Valuation
                allowance
            
            
            (6,051
            )
            
            (10,470
            )Total
                non-current
            
            
            —
            
            
            1,810Net
                deferred tax assets
            
            $
            7,734
            
            $
            5,004





The
      net deferred
      tax assets are reflected on the December 31, 2006 and 2005 consolidated balance
      sheets as a separately stated current asset of $7.7 million and $3.2 million,
      respectively, and a non-current asset (included within other assets) of $0
      and
      $1.8 million, respectively.





During
      the second quarter of 2005, the Company recorded a $13.7 million valuation
      allowance against net deferred income tax assets in the United States. The
      valuation allowance was calculated pursuant to SFAS 109, which requires an
      assessment of both positive and negative evidence when measuring the need for
      a
      valuation allowance. Such evidence includes the Company’s past and projected
      future performance, the market environment in which the Company operates, the
      utilization of past tax credits and the length of the carry-back and
      carry-forward periods of net operating losses. In determining that a valuation
      allowance was required, the Company placed added weight on the
      operating results of the past three years including 2005. In
      2006,
      the Company reversed $1.1 million and $2.3 million of valuation allowances
      related to the its Asia-Pacific and Americas regions, respectively. In addition,
      the Company did not provide for U.S. income taxes on pre-tax income of $9.8
      million for its Americas region due to the utilization of deferred tax assets
      which were previously subject to a full valuation allowance. As
      of
      December 31, 2006, the Company had $10.8 million of valuation allowances against
      its deferred income tax assets in the U.S. and the U.K., of which $10.3 million
      was against domestic net deferred income tax assets. The Company intends to
      maintain a valuation allowance until sufficient positive evidence, as
      contemplated by SFAS 109, exists in future periods to support its
      reversal.


46
 *Table
          of Contents*


The
      Company had net operating loss carry-forwards in various states totaling $1.0
      million at December 31, 2006, which resulted in deferred tax assets of $0.1
      million. These net operating loss carry-forwards begin to expire in 2010. In
      addition, the Company had approximately $0.2 million of non-U.S. net operating
      loss carry-forwards at December 31, 2006. 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 $11.3 million, $5.5
      million and $(4.5) million for the years ended December 31, 2006, 2005 and
      2004, 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):





**2006**
              **Amount**
            
            **%**
            
            **2005**
              **Amount**
            
            **%**
            
            **2004**
              **Amount**
            
            **%**Provision
                (benefit) for income taxes at statutory rate
            
            $
            9,501
            
            
            35.0
            %
            $
            2,047
            
            
            35.0
            %
            $
            (5,500
            )
            
            (35.0
            )%Nondeductible
                items
            
            
            104
            
            
            0.4
            
            
            381
            
            
            6.5
            
            
            222
            
            
            1.4Change
                in valuation allowance
            
            
            (6,444
            )
            
            (23.7
            )
            
            13,582
            
            
            232.1
            
            
            673
            
            
            4.3State
                taxes—net of federal benefit
            
            
            127
            
            
            0.5
            
            
            245
            
            
            4.2
            
            
            (256
            )
            
            (1.6
            )Permanent
                and other items, including foreign income taxed at different
                rates
            
            
            (334
            )
            
            (1.3
            )
            
            (1,596
            )
            
            (27.3
            )
            
            1,568
            
            
            10.0$
            2,954
            
            
            10.9
            %
            $
            14,659
            
            
            250.5
            %
            $
            (3,293
            )
            
            (20.9
            )%





**7.**
            **Convertible
                Mandatorily Redeemable Preferred Stock**





On
      January 10, 2002, the Company entered into a Series B Preferred Stock
      Exchange and Warrant Purchase Agreement (the "Exchange Agreement") with Intel.
      Under the Exchange Agreement, Intel paid an additional $5.0 million, bringing
      the total cash paid to $15.0 million. The exchange was made for the 3.7 million
      shares of Series A Preferred Stock originally issued to Intel and related
      warrants. As consideration for the exchange, the Company issued 7.5 million
      shares of Series B mandatorily redeemable convertible preferred stock, par
      value of $.001 per share (the "Series B Stock") to Intel. Each share of
      Series B Stock was convertible into one share of common stock or redeemable
      for cash for $2.00 per share on January 10, 2006. In connection with such
      issuance, the Company granted to Intel 3.3 million Interest Warrants and 7.5
      million Valuation Warrants to purchase Series C Preferred Stock (par value
      of $.001 per share). The Interest Warrants vested on January 10, 2006, have
      an exercise price of $.01 per share and 3.3 million shares were exercised on
      July 7, 2006. The Valuation Warrants were immediately vested, have an exercise
      price of $2.00 per share and 7.5 million expired on July 10, 2006. The Company
      accreted the value of the Series B Stock from its initial value of $9.8
      million to the redemption price of $15.0 million. Such accretion totaled
      $48,000, $1.5 million, and $1.4 million for the years ended December 31,
      2006, 2005, and 2004, respectively. On January 10, 2006, the Company redeemed
      its outstanding Series B Stock for $15.0 million, representing the full
      redemption price for such Series B Stock.





Intel
      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, 2006, 2005, and 2004, respectively.





The
      Series C preferred stock (the “Series C Stock”) is convertible into the
      Company’s common stock at any time on a one-to-one ratio based upon a conversion
      price initially set at $2.00 per share. The conversion ratio may be adjusted
      upon the issuance of additional shares of common stock at an issue price that
      is
      less than the initial $2.00 conversion price of the Series C Stock, subject
      to
      certain exceptions. The Series C Stock shall automatically convert into the
      Company’s common stock upon the occurrence of certain events including an
      initial public offering under certain restrictions, or a majority vote by the
      holders of Series C Stock. Each holder of the Series C Stock is entitled to
      voting rights under applicable law. In addition, the Company’s certificates of
      incorporation possess certain protective provisions which require the consent
      of
      the holders of Series C Stock. The holders of Series C Stock are entitled to
      receive dividends, when and if declared by the Board of Directors. Such
      dividends will be non-cumulative. No dividends will be payable on the Company’s
      common stock unless equal or greater dividends have been declared and paid
      to
      the holders of the Series C Stock. The Series C Stock has a liquidation
      preference of $2.60 per share, plus any declared and unpaid dividends. Upon
      a
      liquidation, dissolution or winding up of the Company, the holders of the
      Company’s common stock and Series C Stock shall participate in the remaining
      assets of the Company on a pro rata basis.





On
      December 7, 2006, the Company filed its Fourth Amended and Restated Certificate
      of Incorporation (the “Restated Charter”) with the Secretary of State of the
      State of Delaware to amend and restate the Company’s Third Amended and Restated
      Certificate of Incorporation in its entirety to, among other things, (i)
      decrease the authorized number of shares of the Company’s capital stock from
      650.0 million to 622.8 million; (ii) decrease the number of authorized shares
      of
      the Company’s preferred stock from 50.0 million to 22.8 million; (iii) decrease
      the number of shares designated as Series B preferred stock from 12.5 million
      to
      zero and eliminate all references to the Company’s Series B Preferred Stock;
      (iv) decrease the number of shares designated as Series C Stock from 18.0
      million to 3.3 million; and (v) remove the “Redemption” section set forth in
      Article IV(D)(8). The Restated Charter was approved by the Board of Directors
      of
      the Company on September 22, 2006 and then approved by the Company’s
      stockholders in an action by written consent as of December 6, 2006.


47
 *Table
          of Contents*


**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 $2.6 million and $2.8 million at December 31,
      2006 and 2005, 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 $30.2 million, $22.4 million, and $24.7
      million for the years ended December 31, 2006, 2005 and 2004, respectively.
      The Company had receivables of approximately $0.4 million and $1.5 million
      from
      these related parties at December 31, 2006 and 2005, respectively, which
      are included in other receivables.





At
      December 31, 2006, the Company had subordinated notes payable to its
      principal stockholder and related entities. The subordinated notes payable
      are
      not callable until the expiration date, April 12, 2008. The amounts
      outstanding at December 31, 2006 and 2005 were $43.0 million. The interest
      rate on the subordinated notes payable was 3.97% for the years ended
      December 31, 2006, 2005, and 2004. Interest expense related to this amount
      totaled $1.7 million for each of the years ended December 31, 2006, 2005
      and 2004.





**10.**
            **Commitments
                and Contingencies**





***Lease
      Commitments*** —
The
      Company leases certain facilities under lease agreements that expire at various
      dates through 2010. 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 future minimum lease payments required under these
      operating leases are $2.0 million in 2007, $0.7 million in 2008, $0.6 million
      in
      2009 and $0.4 million in 2010. Total rental expense for the years ended
      December 31, 2006, 2005, and 2004 was $3.2 million, $3.0 million and $2.8
      million, respectively.





On
      January 19, 2007, the Company entered into a lease agreement for 298,050 square
      feet of office space at its existing principal office location in Walnut,
      California. For
      further information regarding this lease, see Note 18.





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





Four
      of
      the Company’s stockholders filed a purported derivative action against James
      Chu, the Company’s Chairman and Chief Executive Officer, and the Company on
      April 17, 2006 in the United States District Court for the Central District
      of
      California. The complaint alleged, among other things, that Mr. Chu breached
      various fiduciary duties by personally investing in certain of the Company’s
      suppliers, thereafter directing the Company’s contracts to these suppliers
      and failing to disclose such actions. Plaintiffs sought actual and punitive
      damages, attorneys’ fees, costs, disgorgement of alleged profits made by Mr.
      Chu, a declaratory judgment against Mr. Chu for alleged breaches of various
      fiduciary duties and an injunction prohibiting the award of contracts to
      suppliers in which Mr. Chu or his relatives have a financial interest. On
      October 11, 2006, plaintiffs voluntarily dismissed the complaint without
      prejudice. The same parties thereafter filed substantially the same action
      in
      California state court in which they make essentially the same allegations
      and
      press the same claims. After retaining independent counsel, the Company filed
      a
      motion to dismiss the complaint on various grounds. The hearing is scheduled
      for
      April 17, 2007. Based upon the information available to the Company to date,
      the
      Company is unable to determine the ultimate disposition of this matter. If
      resolved adversely, the matter may have a material adverse effect on the
      consolidated financial statements.


48
 *Table
          of Contents*


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





On
      November 21, 2006, the jury in the trial of LG Philips LCD Co. Ltd., (“LPL”) v.
      Tatung Company, Tatung Company of America, Inc., and Chunghwa Picture Tubes
      Ltd.
      (“CPT”), pending in the United States District Court, Central District of
      California, (Case No. CV-02-6775 CBM) delivered a verdict finding that each
      of
      the defendants (the Company is not a defendant) had willfully infringed two
      patents of LPL’s relating to the design and manufacture of liquid crystal
      display modules (“LCDs”). The Court has not entered judgment in the case. The
      parties to the case are currently briefing post-trial motions challenging
      various aspects of the jury’s verdict. However, the Company is a defendant in
      the related case, LG. Philips LCD Co., Ltd. v. ViewSonic Corporation, also
      pending in the United States District Court, Central District of California
      (Case No. CV-03-2886 CBM), in which LPL alleges infringement of the same patents
      asserted in Case No. CV-02-6775 CBM above as a result of ViewSonic’s
      incorporation of CPT LCD’s into its products. The ViewSonic suit had been
      consolidated with the CPT case for pre-trial purposes. No trial date has been
      set and none is expected to be set as the patent issues have already been heard
      by the jury in the CPT case (Case No. CV-02-6775 CBM). If an injunction is
      entered against the CPT LCD panels, the Company may be required to change its
      sourcing of certain LCD displays. While the outcome of the post-trial
      proceedings in Case No. CV-02-6775 cannot be predicted with certainty, the
      Company does not believe that the outcome will have a material adverse effect
      on
      its consolidated financial statements.





On
      December 1, 2006, LG Philips LCD Co., Ltd. (“LPL”) filed a patent suit against
      Chi-Mei Optoelectronics Corporation (“CMO”), AU Optronics Corporation (“AUO”),
      AU Optronics Corporation America, Tatung Company, Tatung Company of America,
      Inc. and ViewSonic Corporation in the United States District Court, District
      of
      Delaware, alleging infringement of the same three LPL patents that were found
      to
      be valid and infringed in the two cases referenced above, i.e., CV-02-6775
      and
      05-292 JJF. Presumably, as with the other LPL suits identified above, the
      allegations against ViewSonic are based upon ViewSonic’s incorporation of CMO’s
      and AUO’s LCDs into its products. While the outcome of this case cannot be
      predicted with certainty, the Company does not believe that the outcome will
      have a material adverse effect on its consolidated financial
      statements.





***Imposition
      of Additional Duties and Taxes*** — ****** The
      European Union (the “EU”), issued notices stating that effective January 18,
      2006, LCD monitors with DVI connectors would incur a 14% import duty
      tax. This change in tariff classification has made it more difficult
      for the Company to compete in the European Union and may result in a
      negative impact on the Company’s gross margins. To date, this change in
      classification has been applied prospectively. The Company believes that it
      is reasonably possible, but not probable, that the tariff could be applied
      retroactively. The Company will continue to monitor this situation
      and will work to change its business process to minimize any negative
      impact that may result from this new tariff.





***Laws,
      Regulations and Directives*** —
The
      Company is subject to local laws and regulations in the various regions in
      which
      the Company operates, including the EU. There are two particular EU
      directives that may have a material impact on the Company’s business.  The
      first is the Restriction of Certain Hazardous Substances Directive (“RoHS”) that
      restricts the distribution of certain substances, including lead, within the
      EU
      and is effective July 1, 2006.  In addition to specifying the elimination
      and/or reduction in the level of specified hazardous materials from the
      manufacture of the Company’s products, the Company must take reasonable measures
      to ensure that it is not being supplied with products containing the restricted
      chemical substances. The Company is working with suppliers to ensure that
      products placed on the market from July 1, 2006 are RoHS compliant products.
      The
      second directive is the Waste Electrical and Electronic Equipment Directive
      (“WEEE”) that became effective on August 13, 2005, and requires manufacturers or
      importers to provide a process of recycling all of its manufactured products
      or
      imports into the EU. Certain EU countries adopted WEEE on August 13, 2005.
      The
      majority of EU countries into which the Company’s European region sells its
      products have adopted the legislation. Certain countries, for example the United
      Kingdom and Spain, allow the Company to register as a producer and join a
      compliance program. Where this is the case, ViewSonic has registered as a
      producer and has joined a compliance program in order to comply with the
      obligations under WEEE. In other countries which do not allow the Company to
      register or where the Company does not qualify as a producer, the Company has
      taken steps to ensure that its distributors and resellers, to whom the WEEE
      compliance responsibility falls, are in compliance with WEEE. The Company is
      currently unable to assess the impact of these directives on the Company’s
      operations until more information becomes available, but at this time, the
      Company does not believe that these regulations will have a material impact
      on
      the Company’s business.





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


49
 *Table
          of Contents*


**11.**
            **Retirement
                Plans**





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,
      2006, 2005 and 2004 were $1.1 million, $1.0 million and $1.0 million,
      respectively.





**12.**
            **Stock
                Options**





The
      Company has two employee stock plans: the 1999 Stock Plan (the “1999 Plan”) and
      the 2004 Equity Incentive Plan (the “2004 EIP”). Upon approval of the 2004 EIP,
      the 1999 Plan was terminated (except for all options previously granted and
      outstanding under such plan). The 2004 EIP provides for the granting of stock
      options to eligible employees and non-employee directors. Options granted under
      this plan are granted at an exercise price equal to the fair market value of
      the
      Company’s common stock on the date of grant, vest over three or four years and
      expire ten years after their original date of grant. As the Company’s common
      stock is not publicly traded, the fair market value of the Company’s common
      stock is approved by the Company’s Board of Directors based on various
      information, assumptions and factors. As of December 31, 2006, there were 17.0
      million shares available for future grants under the 2004 EIP.





Presented
      below is a summary of the stock option activity for all years presented:




**Weighted****Weighted**
              
              **Number
                  of**
              
              **Average****Number
                  of**
              
              **Average**
              
              **Options**
              
              **Exercise****Options**
              
              **Price**
              
              **Exercisable**
              
              **Price****(in
                  000's)**
              
              **Per
                  Share**
              
              **(in
                  000's)**
              
              **Per
                  Share**Balance
                  - December 31, 2003
              
              
              32,263
              
              $
              1.08
              
              
              18,221
              
              $
              1.05Granted
              
              
              -
              
              
              -Exercised
              
              
              (77
              )
              
              1.04Cancelled
              
              
              (4,297
              )
              
              1.07Balance
                  - December 31, 2004
              
              
              27,889
              
              $
              1.08
              
              
              20,196
              
              $
              1.06Granted
              
              
              8,443
              
              
              0.38Exercised
              
              
              (15
              )
              
              0.86Cancelled
              
              
              (8,691
              )
              
              0.38Balance
                  - December 31, 2005
              
              
              27,626
              
              $
              0.38
              
              
              21,282
              
              $
              0.38Granted
              
              
              2,314
              
              
              0.53Exercised
              
              
              (620
              )
              
              0.38Cancelled
              
              
              (3,979
              )
              
              0.38Balance
                  - December 31, 2006
              
              
              25,341
              
              $
              0.40
              
              
              19,909
              
              $
              0.38





On
      May 9,
      2005, the Company re-priced 23.8 million options to $0.38 per option,
      representing all outstanding options of current directors, officers and
      employees of record on March 2, 2005.





As
      of
      December 31, 2006, the weighted average remaining contractual term for stock
      options outstanding and exercisable was 5.72 years and 4.83 years, respectively.
      The total intrinsic value of options outstanding as of December 31, 2006 was
      $3.7 million. The total intrinsic value of options exercised during the year
      ended December 31, 2006 was $43,000. Total cash received from the exercise
      of
      employee stock options was $0.2 million for the year ended December 31,
      2006.




The
      Company had 5.4 million shares of unvested stock
      options outstanding as of December 31, 2006, of which 4.7 million shares were
      ultimately
      expected to vest. The weighted average exercise price, total intrinsic value
      and
      weighted average remaining contractual term were $0.45, $0.4 million and 9.00
      years, respectively.





The
      following table summarizes information for options outstanding at
      December 31, 2006:


**Weighted****Average****Number
                  of**
              
              **Remaining**
              
              **Weighted**
              
              **Number
                  of****Options**
              
              **Contractual**
              
              **Average**
              
              **Options****Outstanding**
              
              **Term**
              
              **Exercise**
              
              **Exercisable****Range
                  of Exercise Prices**
              
              **(in
                  000's)**
              
              **(in
                  years)**
              
              **Per
                  Share**
              
              **(in
                  000's)**$0.38
              
              
              22,540
              
              
              5.23
              
              $
              0.38
              
              
              19,770$0.45
              
              
              707
              
              
              8.96
              
              $
              0.45
              
              
              139$0.54
              
              
              2,094
              
              
              9.98
              
              $
              0.54
              
              
              -


50
 *Table
          of Contents*


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





For
      the
      year ended December 31, 2006, stock-based compensation expense for employee
      stock options recognized was $0.2 million. No income tax benefit related to
      stock-based compensation expense was recognized during the year ended December
      31, 2006.





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





All
      option awards were valued as a single award and amortized on a straight-line
      basis over the requisite service period. The fair value of each option grant
      was
      estimated on the date of grant using the Black-Scholes option-pricing model
      with
      the following assumptions for the years ended December 31:




2006
              
              2005Expected
                  volatility
              
              
              48
              %
              
              0
              %Risk-free
                  interest rate
              
              
              4.6
              %
              
              3.9
              %Expected
                  dividend yield
              
              
              0
              %
              
              0
              %Expected
                  option life (in years)
              
              
              6.25
              
              
              4.00Weighted
                  average fair value of stock options granted (per share)
              
              $
              0.28
              
              $
              0.06


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




The
      risk-free interest rate assumption is based on observed interest rates for
      the
      expected option life of the Company’s stock options. The expected dividend yield
      assumption is based on the Company’s expectation of future dividend payouts. The
      Company has never declared or paid any cash dividends on its common stock and
      currently does not anticipate paying such cash dividends. The Company used
      the
      simplified method for its expected option life assumption as allowed by SEC
      Staff Accounting Bulletin No. 107, *Share-Based
      Payment* .





SFAS
      123R
      requires stock-based compensation expense to be recognized only for those stock
      options that are ultimately expected to vest. An estimate of forfeiture rate
      must be made and applied at the time of grant and revised in subsequent periods
      on a cumulative basis in the period of revision. The Company considered various
      factors including its actual historical experience of pre-vesting option
      forfeitures bifurcated by employee groups as the basis to arrive at an estimated
      average annual forfeiture rate of 4.6% for the twelve months ended December
      31,
      2006.





As
      of
      December 31, 2006, the remaining amount of unrecognized compensation cost
      related to employee stock options was $0.7 million, which is expected to be
      recognized over a weighted average period of 3.4 years.





**13.**
            **Business
                Segments**





During
      the fourth quarter of 2006, the Company realigned its operating segments under
      a
      new methodology to allocate certain corporate overhead expenses and corporate
      benefits associated with its initiative to source LCD panels directly from
      the
      manufacturers to its operating segments. In accordance with SFAS No. 131, *Disclosures
      about Segments of an Enterprise and Related Information* ,
      the
      Company has determined it has three reportable segments: Americas, EMEA (Europe,
      Middle-East and Africa) and Asia-Pacific. The Company believes that this segment
      information provides useful information for analyzing the underlying business
      results. The Company sells similar products in its segments, including CRT
      displays, LCD displays, projectors, HDTV technology and the latest in mobile
      products including wireless products. The type and class of customers, primarily
      distributors and retailers, are also similar across the product lines. The
      Company’s management evaluates the performance of and allocates resources to its
      segments based on net sales and operating income. Assets and liabilities are
      not
      allocated by segment for management reporting purposes.





The
      Company has two major products: visual displays (CRT and LCD computer monitors)
      and other products. Both products are sold in all of its markets. In aggregate,
      the Company's other products comprise 10.5%, 14.8% and 13.9% of units shipped
      in
      2006, 2005 and 2004.


51
 *Table
          of Contents*


The
      following segment financial information is for the years ended December 31.
      The years ended December 31, 2005 and 2004 have been recast to conform to the
      current year presentation (in thousands):





**2006**
            
            **2005**
            
            **2004**Net
                sales:Americas
            
            $
            741,255
            
            $
            538,813
            
            $
            610,644EMEA
            
            
            374,274
            
            
            297,549
            
            
            237,727Asia-Pacific
            
            
            473,561
            
            
            363,828
            
            
            255,962$
            1,589,090
            
            $
            1,200,190
            
            $
            1,104,333Income
                (loss) from operations:Americas
            
            $
            13,337
            
            $
            2,653
            
            $
            1,599EMEA
            
            
            (824
            )
            
            4,057
            
            
            (3,367
            )Asia-Pacific
            
            
            11,756
            
            
            6,137
            
            
            (11,122
            )Other
                (1)
            
            
            (690
            )
            
            (3,017
            )
            
            (4,075
            )$
            23,579
            
            $
            9,830
            
            $
            (16,965
            )Assets:Americas
            
            $
            256,532
            
            $
            204,302
            
            $
            244,954EMEA
            
            
            139,787
            
            
            120,109
            
            
            101,194Asia-Pacific
            
            
            182,318
            
            
            108,119
            
            
            110,566Assets
                held for sale
            
            
            —
            
            
            195
            
            
            1,809$
            578,637
            
            $
            432,725
            
            $
            458,523Depreciation
                and amortization:Americas
            
            $
            1,569
            
            $
            1,917
            
            $
            2,111EMEA
            
            
            356
            
            
            268
            
            
            265Asia-Pacific
            
            
            846
            
            
            922
            
            
            1,179$
            2,771
            
            $
            3,107
            
            $
            3,555Capital
                additions:Americas
            
            $
            234
            
            $
            826
            
            $
            2,344EMEA
            
            
            112
            
            
            122
            
            
            307Asia-Pacific
                (2)
            
            
            3,965
            
            
            334
            
            
            571$
            4,311
            
            $
            1,282
            
            $
            3,222





(1)
            Includes
                certain corporate expenses that were not allocated to a specific
                segment
                for management reporting purposes.





(2)
            In
                2006, non-cash activity included the reclassification of a $3.0 million
                deposit on a building made in 2005 from other assets to property,
                plant
                and equipment.





The
      Company's goodwill is recorded in its Americas segment. Inter-geographical
      sales
      were immaterial for the years ended December 31, 2006, 2005 and 2004. Sales
      to certain customers in the Company’s Americas, EMEA and Asia-Pacific segments
      generated over 10% of the Company’s total consolidated net sales. Sales to
      Ingram Micro Inc. for the years ended December 31, 2006, 2005 and 2004 were
      11%,
      11% and 14%, respectively, of the Company’s total consolidated net sales. Sales
      to Tech Data Corporation for the years ended December 31, 2005 and 2004 were
      10%
      and 13%, respectively, of the Company’s total consolidated net sales. No other
      country or single customer generates over 10% of the Company’s total
      consolidated net sales. Five suppliers accounted for 60% of total purchases
      for
      the year ended December 31, 2006 and 53% of accounts payable at
      December 31, 2006. For the year ended December 31, 2005, four
      suppliers accounted for 47% of total purchases and 64% of accounts payable
      at
      December 31, 2005. For the year ended December 31, 2004, four
      suppliers accounted for 53% of total purchases.


52
 *Table
          of Contents*


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):





**2006**
            
            **2005**
            
            **2004**Net
                sales:United
                States
            
            $
            566,916
            
            $
            425,555
            
            $
            533,992Taiwan
            
            
            101,375
            
            
            95,215
            
            
            137,280China
            
            
            260,569
            
            
            202,389
            
            
            118,593Others
            
            
            660,230
            
            
            477,031
            
            
            314,468$
            1,589,090
            
            $
            1,200,190
            
            $
            1,104,333Long-lived
                assets:United
                States
            
            $
            2,727
            
            $
            4,069
            
            $
            5,323Taiwan
            
            
            8,846
            
            
            8,975
            
            
            9,816China
            
            
            3,808
            
            
            440
            
            
            617Others
            
            
            411
            
            
            792
            
            
            754$
            15,792
            
            $
            14,276
            
            $
            16,510





**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**
              
              
              
              
              
              
              
              **Ending****Accrued**
              
              **Additions**
              
              **Payments**
              
              
              
              **Accrued****Warranty**
              
              **Charged
                  to**
              
              **for
                  Units**
              
              
              
              **Warranty****Liability**
              
              **Expense**
              
              **Returned**
              
              **Adjustments****(1)**
              
              **Liability**December
                  31, 2006
              
              $
              21,350
              
              $
              21,721
              
              $
              (13,889
              )
              $
              (4,727
              )
              $
              24,455December
                  31, 2005
              
              $
              17,365
              
              $
              16,696
              
              $
              (13,392
              )
              $
              681
              
              $
              21,350December
                  31, 2004
              
              $
              14,567
              
              $
              13,688
              
              $
              (11,290
              )
              $
              400
              
              $
              17,365




(1)
            For
                2006, the adjustment is primarily due to lower defect rates, partially
                offset by higher cost of repair.





**15.**
            **Earnings
                Per Share**





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





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





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


53
 *Table
          of Contents*





**2006**
            
            **2005**
            
            **2004**Basic
                EPS:Numerator:Income
                (loss) from continuing operations (1)
            
            $
            24,034
            
            $
            (10,332
            )
            $
            (13,793
            )Loss
                from discontinued operations
            
            $
            —
            
            $
            —
            
            $
            (5,989
            )Gain
                on disposal of discontinued operations
            
            $
            —
            
            $
            475
            
            $
            2,153Denominator—weighted-average
                shares outstanding
            
            
            354,279
            
            
            353,969
            
            
            353,917Basic
                EPSContinuing
                operations
            
            $
            0.07
            
            $
            (0.03
            )
            $
            (0.04
            )Discontinued
                operations
            
            
            —
            
            
            —
            
            
            (0.02
            )Gain
                on discontinued operations
            
            
            —
            
            
            —
            
            
            0.01Total
                Basic EPS
            
            $
            0.07
            
            $
            (0.03
            )
            $
            (0.05
            )Diluted
                EPS:Numerator:Income
                (loss) from continuing operations (1)
            
            $
            24,034
            
            $
            (10,332
            )
            $
            (13,793
            )Loss
                from discontinued operations
            
            $
            —
            
            $
            —
            
            $
            (5,989
            )Gain
                on disposal of discontinued operations
            
            $
            —
            
            $
            475
            
            $
            2,153Denominator:Weighted-average
                shares outstanding
            
            
            354,279
            
            
            353,969
            
            
            353,917Stock
                options (2)
            
            
            4,539
            
            
            —
            
            
            —Interest
                warrants (3)
            
            
            1,614
            
            
            —
            
            
            —Total
                shares
            
            
            360,432
            
            
            353,969
            
            
            353,917Diluted
                EPSContinuing
                operations
            
            $
            0.07
            
            $
            (0.03
            )
            $
            (0.04
            )Discontinued
                operations
            
            
            —
            
            
            —
            
            
            (0.02
            )Gain
                on discontinued operations
            
            
            —
            
            
            —
            
            
            0.01Total
                Diluted EPS
            
            $
            0.07
            
            $
            (0.03
            )
            $
            (0.05
            )




(1)
            In
                accordance with EITF 03-06, income (loss) from continuing operations
                includes the accretion for the mandatorily redeemable preferred stock.
                Income from continuing operations of $109,000 was allocated to preferred
                stock for the year ended December 31, 2006 and is excluded from the
                computation above. The EPS calculation reflects the allocation of
                income
                from continuing operations between common stock and preferred stock.





(2)
            For
                the year ended December 31, 2006, 0.5 million shares were excluded
                from
                the diluted earnings per common share calculation because they were
                anti-dilutive. For the years ended December 31, 2005 and 2004, all
                stock
                options were excluded from the diluted earnings per common share
                calculation because they were
                anti-dilutive.





(3)
            For
                the years ended December 31, 2006, 2005 and 2004, 4.0 million shares,
                10.8
                million shares and 10.8 million shares, respectively, of common stock
                issuable upon the exercise of outstanding warrants were excluded
                from the
                diluted earnings per share calculation because they were
                anti-dilutive.





**16.**
            **Discontinued
                Operations**





On
      July
      30, 2004, the Company completed the sale of Advanced Digital Optics, Inc.
      (“ADO”), a majority-owned subsidiary and recorded a $3.3 million gain, net of
      tax expense of $1.1 million. The cost basis of its investment in ADO was $4.1
      million. The Company also incurred $0.3 million of expenses associated with
      the
      sale.





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 $1.8 million, respectively.
      VisionBank recorded a $0.5 million 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,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **December
                31,**
              **2004**Net
                Sales
            
            $
            —
            
            $
            —
            
            $
            10,616(Loss)
                from discontinued operations (no tax benefit)
            
            $
            —
            
            $
            —
            
            $
            (5,989
            )Net
                gain on disposal of discontinued operations, net of tax $0, $0, and
                ($1,127), respectively.
            
            $
            —
            
            $
            475
            
            $
            2,153





**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Current
                assets
            
            $
            —
            
            $
            195Other
                assets
            
            
            —
            
            
            —Total
                assets
            
            
            —
            
            
            195Accounts
                payable and accrued expenses
            
            
            —
            
            
            195Net
                (liabilities)/assets of discontinued operations
            
            $
            —
            
            $
            —





**17.**
            **Quarterly
                Information (Unaudited)**





The
      following table sets forth for the periods indicated selected unaudited
      quarterly financial information for 2006 and 2005.





**Quarter
                Ended****2006**
            
            **2005****Mar.
                31**
            
            **Jun.
                30**
            
            **Sep.
                30**
            
            **Dec.
                31**
            
            **Mar.
                31**
            
            **Jun.
                30**
            
            **Sep.
                30**
            
            **Dec.
                31****(2)****(in
                thousands, except per share amounts)**Net
                sales
            
            $
            326,794
            
            $
            379,268
            
            $
            426,445
            
            $
            456,583
            
            $
            273,912
            
            $
            284,617
            
            $
            316,678
            
            $
            324,983Cost
                of sales
            
            
            296,578
            
            
            349,070
            
            
            383,992
            
            
            415,265
            
            
            245,843
            
            
            257,502
            
            
            288,482
            
            
            293,184Gross
                profit
            
            
            30,216
            
            
            30,198
            
            
            42,453
            
            
            41,318
            
            
            28,069
            
            
            27,115
            
            
            28,196
            
            
            31,799Income
                (loss) from continuing operations before income taxes
            
            
            4,802
            
            
            622
            
            
            11,457
            
            
            10,264
            
            
            (714
            )
            
            (2,897
            )
            
            3,037
            
            
            6,425Provision
                (benefit) for income taxes
            
            
            1,226
            
            
            97
            
            
            860
            
            
            771
            
            
            (200
            )
            
            13,396
            
            
            1,021
            
            
            442Income
                (loss) from continuing operations
            
            
            3,576
            
            
            525
            
            
            10,597
            
            
            9,493
            
            
            (514
            )
            
            (16,293
            )
            
            2,016
            
            
            5,983Income
                (loss) from discontinued operations
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —(Loss)
                gain on disposal of discontinued operations
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (70
            )
            
            780
            
            
            (115
            )
            
            (120
            )Net
                income (loss)
            
            
            3,576
            
            
            525
            
            
            10,597
            
            
            9,493
            
            
            (584
            )
            
            (15,513
            )
            
            1,901
            
            
            5,863Preferred
                stock accretion
            
            
            (48
            )
            
            —
            
            
            —
            
            
            —
            
            
            361
            
            
            375
            
            
            389
            
            
            399Net
                income (loss) available to common stockholders
            
            $
            3,528
            
            $
            525
            
            $
            10,597
            
            $
            9,493
            
            $
            (945
            )
            $
            (15,888
            )
            $
            1,512
            
            $
            5,464Basic
                earnings (loss) per share(1)
            
            $
            0.01
            
            $
            0.00
            
            $
            0.03
            
            $
            0.03
            
            $
            (0.00
            )
            $
            (0.05
            )
            $
            0.00
            
            $
            0.02Diluted
                earnings (loss) per share(1)
            
            $
            0.01
            
            $
            0.00
            
            $
            0.03
            
            $
            0.03
            
            $
            (0.00
            )
            $
            (0.05
            )
            $
            0.00
            
            $
            0.02





(1)
            Basic
                and diluted earnings per share are calculated based on net income
                (loss), excluding income from continuing operations allocated to
                preferred stock.  Net income (loss) includes income (loss) from
                continuing and discontinued operations.





(2)
            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 19, 2007, the Company entered into a lease agreement for 298,050 square
      feet of office space at its existing principal office location. The term of
      the
      lease commences on July 1, 2007 and runs through July 2014, subject to extension
      at the Company’s option under certain circumstances. The
      future minimum lease payments required under this operating lease are $0.4
      million in 2007, $1.5 million in 2008, $1.6 million in 2009, $1.6 million in
      2010, $1.7 million in 2011 and $4.6 million per year
      thereafter.


55
 *Table
          of Contents*


**ITEM
                9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURES.**




Not
      applicable.





**ITEM
                9A.**
            **CONTROLS
                AND PROCEDURES**





*Evaluation
      of Disclosure Controls and Procedures*




Based
      on
      their evaluation as of December 31, 2006, our Chief Executive Officer and Chief
      Financial Officer have concluded that, our disclosure controls and procedures
      (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were
      effective.





*Changes
      in Internal Controls*





There
      were no changes in our internal controls over financial reporting during the
      three months ended December 31, 2006 that have materially affected, or are
      reasonably likely to materially affect our internal controls over financial
      reporting.





**ITEM
                9B.**
            **OTHER
                INFORMATION**





None.





**PART
      III**





**ITEM10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**





The
      information required to be disclosed under this Item 10 will be filed with
      the
      SEC in a subsequent filing of an amendment to our Form 10-K on
      or
      before April 30, 2007.





**ITEM11.**
            **EXECUTIVE
                COMPENSATION**





The
      information required to be disclosed under this Item 11 will be filed with
      the
      SEC in a subsequent filing of an amendment to our Form 10-K on
      or
      before April 30, 2007.




**ITEM
                12.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS**





The
      information required to be disclosed under this Item 12 will be filled with
      the
      SEC in a subsequent filing of an amendment to our Form 10-K on
      or
      before April 30, 2007.




**ITEM
                13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE**





The
      information required to be disclosed under this Item 13 will be filled with
      the
      SEC in a subsequent filing of an amendment to our Form 10-K on
      or
      before April 30, 2007.




**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTING FEES AND
                SERVICES**





The
      information required to be disclosed under this Item 14 will be filed with
      the
      SEC in a subsequent filing of an amendment to our Form 10-K on
      or
      before April 30, 2007.




**PART
      IV**


56
 *Table
          of Contents*





**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:





**Page**Report
                of Independent Registered Public Accounting Firm
            36Consolidated
                Balance Sheets as of December 31, 2006 and 2005
            37Consolidated
                Statements of Operations for the years ended December 31, 2006, 2005
                and 2004
            38Consolidated
                Statements of Stockholders' Equity for the years ended December 2006,
                2005 and 2004
            39Consolidated
                Statements of Cash Flows for the years ended December 31, 2006, 2005
                and 2004
            40Notes
                to Consolidated Financial Statements
            41





**(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):





**2006**
            
            **2005**
            
            **2004**Accrued
                Promotional Expenses (1)Balance,
                beginning of period
            
            $
            22,663
            
            $
            30,267
            
            $
            15,779Additions
                to allowance, net of recoveries
            
            
            92,796
            
            
            89,796
            
            
            128,142Deductions
            
            
            (89,607
            )
            
            (97,400
            )
            
            (113,654
            )Balance,
                end of period
            
            $
            25,852
            
            $
            22,663
            
            $
            30,267





(1)
            Consists
                of promotional expenses as described below:


(a)
            Promotions
                such as rebates, price protection and other incentives to customers
                in the
                normal course of business.


(b)
            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.


(c)
            Account
                development funds (cooperative advertising and marketing funds) presented
                in SG&A on the income
                statement.


(d)
            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) :





**2006**
            
            **2005**
            
            **2004**Allowance
                for Doubtful AccountsBalance,
                beginning of period
            
            $
            4,975
            
            $
            5,327
            
            $
            4,192Additions
                to allowance
            
            
            511
            
            
            381
            
            
            (257
            )Deductions
                net of recoveries
            
            
            (203
            )
            
            (733
            )
            
            1,392Balance,
                end of period
            
            $
            5,283
            
            $
            4,975
            
            $
            5,327





**(3)**
            **Exhibits.**





The
      exhibits listed in the accompanying index to exhibits are filed or incorporated
      by reference as a part of this Annual Report.


57
 *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 March 15, 2007.





**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 Annual 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**/s/
                James Chu
            
            Chairman
                of the Board of Directors and Chief Executive
            
            March 15,
                2007James
                Chu
            
            Officer*(Principal
                Executive Officer*)/s/
                James A. Morlan
            
            Chief
                Financial Officer
            
            March 15,
                2007James
                A. Morlan
            
            (*Principal
                Financial Officer and Principal Accounting Officer*)/s/
                Matthew E. Massengill
            
            Director
            
            March 15,
                2007Matthew
                E. Massengill/s/
                William J. Miller
            
            Director
            
            March 15,
                2007William
                J. Miller/s/
                Bruce L. Stein
            
            Director
            
            March 15,
                2007Bruce
                L. Stein/s/
                Luc H. Vanhal
            
            Director
            
            March 15,
                2007Luc
                H. Vanhal




58
 *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
            Reference
                is made to Exhibits 3.1 and 3.2.4.2(3)
                +
            1999
                Stock Plan.4.3(4)
                +
            Form
                of Non-Qualified Stock Option Agreement pursuant to the 1999 Stock
                Plan.4.4(5)
            Specimen
                Stock Certificate.4.5(6)
                +
            2004
                Equity Incentive Plan and form of Stock Option
                Agreement.4.6(7)
                +
            Form
                of Non-Statutory Stock Option Grant Notice under the 2004 Equity
                Incentive
                Plan for use pursuant to the Long Term Incentive
                Program.4.7(8)
                +
            Form
                of Stock Option Agreement under the 2004 Equity Incentive Plan for
                use
                pursuant to the Long Term Incentive Program.10.1(9)
            Form
                of Indemnity Agreement.10.2(10)
            Amended
                and Restated Investor Rights Agreement, dated December 5,
                2003.10.3(11)
            Subordinated
                Promissory Note, issued to James Chu, dated December 1,
                2001.10.4(12)
            Subordinated
                Promissory Note, issued to Keypoint Investments, L.P., dated December
                1,
                2001.10.5(13)
            Financing
                Agreement between ViewSonic Corporation and The CIT Group/Business
                Credit
                Inc., dated December 18, 2001.10.6(14)
            Second
                Amendment to Financing Agreement by and between ViewSonic Corporation
                and
                The CIT Group/Business Credit Inc., dated March 16,
                2005.10.7(15)
            Letter
                Agreement by and between ViewSonic Corporation and The CIT Group/Business
                Credit Inc., dated March 16, 2005.10.8(16)
            Build
                to Suit Industrial Lease between ViewSonic Corporation and Catellus
                Development Corporation, dated June 25, 1996.10.9(17)
            First
                Amendment to Lease between ViewSonic Corporation and Catellus Development
                Corporation, dated December 18, 1998.10.10(18)
            Second
                Amendment to Lease between ViewSonic Corporation and Catellus Development
                Corporation, dated March 6, 2002.10.11(19)†
            Facility
                Agreement between ViewSonic Europe Limited and Burdale Financial
                Limited,
                dated June 24, 2004.10.12(20)†
            Deed
                of Debenture among ViewSonic Europe Limited, others as Chargors and
                Burdale Financial Limited, dated June 24, 2004.10.13(21)
            Pledge
                Agreement between ViewSonic Europe Limited and Burdale Financial
                Limited,
                dated June 24, 2004.10.14(22)
            Third
                Party Pledgeholder Agreement among ViewSonic Europe Limited, Burdale
                Financial Limited and Furness Logistics B.V., dated June 24,
                2004.10.15(23)
                +
            2005
                Non-Employee Director Cash Compensation Policy.10.16(24)+
            Matthew
                W. Milne's Offer Letter dated February 22, 2005.10.17(25)+
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic Netherlands,
                dated January 10, 2006.10.18(26)+
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic Europe
                Limited,
                dated January 10, 2006.10.19(27)+
            Director’s
                Service Agreement, by and between Jan Jensen and ViewSonic SARL,
                dated
                January 10, 2006.10.20(28)
            Lease
                Agreement by and between ViewSonic Corporation and Catellus Operating
                Limited Partnership, dated January 19, 2007.10.21(29)
            Long
                Term Incentive Program Summary of Terms.21.1
            List
                of Registrant's Subsidiaries.23.1
            Consent
                of Deloitte & Touche LLP, Independent Registered Public Accounting
                Firm.24.1
            Power
                of Attorney (See page 58).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.





+
            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.


59
 *Table
          of Contents*


*
            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 Current Report
                on
                Form 8-K, (000-50730), filed with the Securities and Exchange
                Commission on December 8, 2006.


(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 4.2 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.


(4)
            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.


(5)
            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.


(6)
            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.


(7)
            Incorporated
                by reference to Exhibit 4.6 to ViewSonic Corporation's Current Report
                on
                Form 8-K, (000-50730), filed with the Securities and Exchange
                Commission on February 7, 2007.


(8)
            Incorporated
                by reference to Exhibit 4.7 to ViewSonic Corporation's Current Report
                on
                Form 8-K, (000-50730), filed with the Securities and Exchange
                Commission on February 7, 2007.


(9)
            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.


(10)
            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.


(11)
            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.


(12)
            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.


(13)
            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.


(14)
            Incorporated
                by reference to Exhibit 10.6 to ViewSonic Corporation’s Annual Report on
                Form 10-K, (000-50730), filed with the Securities and Exchange Commission
                on March 29, 2005.


(15)
            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.


(16)
            Incorporated
                by reference to Exhibit 10.7 to ViewSonic 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.


(17)
            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.


(18)
            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.


(19)
            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.


(20)
            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.


(21)
            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.


(22)
            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.


(23)
            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.


(24)
            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.


60
 *Table
          of Contents*


(25)
            Incorporated
                by reference to Exhibit 10.18 to ViewSonic Corporation's Annual Report
                on
                Form 10-K, (000-50730), filed with the Securities and Exchange
                Commission on April 3, 2006.


(26)
            Incorporated
                by reference to Exhibit 10.19 to ViewSonic Corporation's Annual Report
                on
                Form 10-K, (000-50730), filed with the Securities and Exchange
                Commission on April 3, 2006.


(27)
            Incorporated
                by reference to Exhibit 10.20 to ViewSonic Corporation's Annual Report
                on
                Form 10-K, (000-50730), filed with the Securities and Exchange
                Commission on April 3, 2006.


(28)
            Incorporated
                by reference to Exhibit 10.21to ViewSonic Corporation's Current Report
                on
                Form 8-K, (000-50730), filed with the Securities and Exchange
                Commission on January 24, 2007.


(29)
            Incorporated
                by reference to Exhibit 10.23 to ViewSonic Corporation's Current
                Report on
                Form 8-K, (000-50730), filed with the Securities and Exchange
                Commission on February 7, 2007.






61