Infocus (INFS) 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission file number 000-18908

INFOCUS CORPORATION

(Exact name of registrant as specified in its charter)

Oregon	93-0932102
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
27500 SW Parkway Avenue, Wilsonville, Oregon	97070
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 503-685-8888

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  x	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller     reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock without par value	40,669,516
(Class)	(Outstanding at November 3, 2008)

INFOCUS CORPORATION

FORM 10-Q

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets - September 30, 2008 and December 31, 2007 (unaudited)	2
	Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)	3
	Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2008 and 2007 (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
PART II - OTHER INFORMATION
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
Signatures		28

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INFOCUS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

	September 30, 2008			December 31, 2007
Assets
Current Assets:
Cash and cash equivalents	$	55,146		$	61,187
Restricted cash, cash equivalents, and marketable securities		15,154			22,923
Accounts receivable, net of allowances of $3,693 and $4,695		39,197			46,315
Inventories		30,351			30,984
Other current assets		4,943			7,548
Total Current Assets		144,791			168,957
Property and equipment, net of accumulated depreciation of $24,519 and $24,198		2,407			2,973
Other assets, net		5,347			1,061
Total Assets	$	152,545		$	172,991
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	62,469		$	64,140
Related party accounts payable		1,624			1,624
Payroll and related benefits payable		1,694			1,848
Marketing incentives payable		3,567			3,710
Accrued warranty		3,487			6,235
Other current liabilities		5,878			8,113
Total Current Liabilities		78,719			85,670
Long-Term Liabilities		2,316			3,623
Shareholders’ Equity:
Common stock, 150,000,000 shares authorized; shares issued and outstanding: 40,669,516 and 40,779,413		90,418			90,493
Additional paid-in capital		79,593			78,385
Accumulated other comprehensive income:
Cumulative currency translation adjustment		34,792			38,246
Accumulated deficit		(133,293	)		(123,426	)
Total Shareholders’ Equity		71,510			83,698
Total Liabilities and Shareholders’ Equity	$	152,545		$	172,991

The accompanying notes are an integral part of these balance sheets.

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INFOCUS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
Revenues	$	70,596		$	75,790		$	204,294		$	227,078
Cost of revenues		59,215			62,026			167,244			192,850
Gross margin		11,381			13,764			37,050			34,228
Operating expenses:
Marketing and sales		7,926			8,424			25,115			27,510
Research and development		3,001			3,367			8,562			11,333
General and administrative		4,172			5,305			12,571			15,613
Restructuring costs		430			225			1,330			4,675
		15,529			17,321			47,578			59,131
Loss from operations		(4,148	)		(3,557	)		(10,528	)		(24,903	)
Other income (expense):
Interest expense		(146	)		(154	)		(381	)		(342	)
Interest income		322			599			1,120			2,025
Other, net		(30	)		319			718			(261	)
		146			764			1,457			1,422
Loss before income taxes		(4,002	)		(2,793	)		(9,071	)		(23,481	)
Provision for income taxes		214			27			796			174
Net loss	$	(4,216	)	$	(2,820	)	$	(9,867	)	$	(23,655	)
Basic and diluted net loss per share	$	(0.10	)	$	(0.07	)	$	(0.25	)	$	(0.60	)
Shares used in basic and diluted per share calculations		40,260			39,786			39,974			39,682

The accompanying notes are an integral part of these statements.

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INFOCUS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine months ended September 30,
	2008			2007
Cash flows from operating activities:
Net loss	$	(9,867	)	$	(23,655	)
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:
Depreciation and amortization		1,909			3,444
Stock-based compensation		1,392			1,263
Gain on sale of property and equipment		—			(3	)
Deferred income taxes		708			7
Other non-cash (income) expense		121			(722	)
(Increase) decrease in:
Restricted cash		7,769			(462	)
Accounts receivable		5,437			2,402
Inventories		505			11,749
Income taxes receivable, net		(327	)		(165	)
Other current assets		1,725			1,348
Increase (decrease) in:
Accounts payable		(1,350	)		7,083
Related party accounts payable		—			(421	)
Payroll and related benefits payable		(73	)		(348	)
Marketing incentives payable, accrued warranty and other current liabilities		(6,380	)		(7,361	)
Other long-term liabilities		(1,310	)		919
Net cash provided by (used in) operating activities		259			(4,922	)
Cash flows from investing activities:
Payments for purchase of property and equipment		(1,412	)		(2,699	)
Proceeds from sale of property and equipment		—			3
Dividend payments received from joint venture		1,500			1,000
Cash paid for cost-based technology investments		(4,500	)		—
Other assets, net		—			37
Net cash used in investing activities		(4,412	)		(1,659	)
Cash flows from financing activities:
Repurchase of common stock		(75	)		—
Net settlement of restricted stock		(184	)		—
Net cash used in financing activities		(259	)		—
Effect of exchange rate on cash		(1,629	)		2,647
Decrease in cash and cash equivalents		(6,041	)		(3,934	)
Cash and cash equivalents:
Beginning of period		61,187			53,716
End of period	$	55,146		$	49,782
Supplemental Cash Flow Information:
Cash paid during the period for interest	$	381		$	343
Cash paid during the period for income taxes		326			251

The accompanying notes are an integral part of these statements.

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INFOCUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The consolidated financial information included herein has been prepared by InFocus Corporation without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2007 is derived from our 2007 Annual Report on Form 10-K. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2007 Annual Report on Form 10-K. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Note 2. Inventories

Inventories are valued at the lower of cost or market, using average purchase costs, which approximates the first-in, first-out (FIFO) method. For finished goods inventory, the average purchase costs include overhead items, such as inbound freight and other logistics costs. Following is a detail of our inventory (in thousands):

	September 30, 2008		December 31, 2007
Lamps and accessories	$	3,652	$	4,487
Service inventories		4,445		4,413
Finished goods		22,254		22,084
Total inventories	$	30,351	$	30,984

We classify our inventory in three categories: lamps and accessories, service inventories and finished goods. Lamps and accessories consist of replacement lamps and other new accessory products such as screens, remotes and ceiling mounts. These items can either be sold as new or can be consumed in service repair activities. Service inventories consist of service parts held for warranty or customer repair activities, remanufactured projectors and projectors in the process of being repaired. Finished goods inventory consists of new projectors in our logistics centers, new projectors in transit from our contract manufacturers where title transfers at shipment and new projectors held by certain retailers on consignment until sold. Inventories are reported on the consolidated balance sheets net of reserve for obsolete and excess inventories of $3.8 million and $4.7 million, respectively, as of September 30, 2008 and December 31, 2007.

Note 3. Earnings Per Share

Since we were in a loss position for the three and nine-month periods ended September 30, 2008 and 2007, there was no difference between the number of shares used to calculate basic and diluted loss per share for those periods. Potentially dilutive securities that are not included in the diluted per share calculations because they would be antidilutive included the following (in thousands):

	Three and Nine Months Ended September 30,
	2008	2007
Stock Options	3,435	3,047
Restricted Stock	365	1,068
Total Securities	3,800	4,115

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Note 4. Comprehensive Income (Loss)

Comprehensive income (loss) includes foreign currency translation gains (losses) and unrealized losses on marketable equity securities available for sale that are recorded directly to shareholders’ equity. The following table sets forth the calculation of comprehensive income (loss) for the periods indicated (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Net loss	$	(4,216	)	$	(2,820	)	$	(9,867	)	$	(23,655	)
Foreign currency translation gains (losses)		(8,060	)		3,565			(3,454	)		5,449
Net unrealized loss on equity securities		—			(15	)		—			(52	)
Total comprehensive income (loss)	$	(12,276	)	$	730		$	(13,321	)	$	(18,258	)
Note 5. Stock-Based Compensation
Stock-based compensation expense was included in our statements of operations as follows (in thousands):
	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Cost of revenues	$	44		$	146		$	250		$	267
Marketing and sales		49			208			365			404
Research and development		28			147			243			234
General and administrative		157			162			534			358
	$	278		$	663		$	1,392		$	1,263

On May 31, 2007, we granted restricted stock awards covering a total of 809,300 shares of common stock to employees under our 1998 Stock Incentive Plan. The restricted stock awards were to vest 100% one year from date of grant contingent upon the employee’s continuous employment during that period. Awards covering a total of 574,500 shares vested on May 30, 2008 with a related fair value of $1.4 million, which was recognized over the vesting period. As a result of employee terminations during the one-year vesting period, restricted stock awards covering 234,800 shares, with a related fair value of $0.6 million, were forfeited and the related expense was reversed.

As of June 30, 2008, performance targets were partially met related to 40,000 performance restricted shares that were granted to executive officers on May 31, 2007. Pursuant to the terms of the performance restricted share agreements, 50% of the shares, or 20,000 shares, were fully vested on July 31, 2008, with the remaining 20,000 shares being forfeited. The expense associated with the 20,000 restricted shares that vested on July 31, 2008 totaled $49,000 and was recognized over the service period.

In the first quarter of 2008, we issued stock options exercisable for a total of 1,019,500 shares of our common stock to certain employees under the 1998 Stock Incentive Plan. The fair value of these options, as determined utilizing the Black-Scholes option pricing model, was $0.7 million and is being recognized over the vesting period of these options.

Additionally, on January 21, 2008, in connection with the hiring of our new Chief Financial Officer, we issued the following stock-based awards:

• 100,000 shares of restricted stock, which vest as to 25% of the total on the first anniversary of the grant date and as to an additional 1/48 of the total each month thereafter, with full vesting occurring on the fourth anniversary of the grant date. The fair market value of our common stock on the date of grant was $1.57 per share. Accordingly, the fair value of this restricted stock grant was $0.2 million and is being recognized over the four-year vesting period.

• An option exercisable for 150,000 shares of our common stock, which vests as to 25% of the total on the first anniversary of the grant date and as to an additional 1/48 of the total each month

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thereafter, with full vesting occurring on the fourth anniversary of the grant date. The fair value of this option, as determined utilizing the Black-Scholes option pricing model, was $0.1 million and is being recognized over the four-year vesting period of the option.

The stock options and restricted stock granted to the new Chief Financial Officer described above, as well as certain of the employee stock options issued in the first quarter of 2008, are subject to accelerated vesting in certain circumstances upon the occurrence of a change of control.

To determine the fair value of stock-based awards granted, we used the Black-Scholes option pricing model and the following weighted average assumptions:

Three and Nine Months Ended September 30,	2008		2007
Risk-free interest rate	2.13% – 3.13	%	4.23% – 4.93	%
Expected dividend yield	0	%	0	%
Expected lives (years)	2.75 – 4.75		0.6 – 4.2
Expected volatility	47.5% – 56.6	%	31.6% – 56.5	%
Discount for post vesting restrictions	0	%	0	%

The risk-free interest rate used is based on the U.S. Treasury yield over the estimated life of the options granted. Our option pricing model utilizes the simplified method accepted under Staff Accounting Bulletin No. 107 and Staff Accounting Bulletin No. 110 to estimate the expected life of the option. The expected volatility for options granted pursuant to our stock incentive plans is calculated based on our historical volatility over the estimated term of the options granted. We have not paid cash dividends in the past and we do not expect to pay cash dividends in the future resulting in the dividend rate assumption above.

We amortize stock-based compensation on a straight-line basis over the vesting period of the individual award with estimated forfeitures considered. Shares to be issued upon the exercise of stock options will come from newly issued shares.

Note 6. Product Warranties

We evaluate our obligations related to product warranties on a quarterly basis. In general, we offer a standard two-year warranty and, for certain sales channels, products and regions, we offer a three-year warranty. We monitor failure rates on a product category basis through data collected by our manufacturing sites, factory repair centers and authorized service providers. The service organizations also track costs to repair each unit. Costs include labor to repair the projector, replacement parts for defective items, freight costs and other incidental costs associated with warranty repairs. Any cost recoveries from warranties offered to us by our suppliers covering defective components are also considered, as well as any cost recoveries of defective parts and material, which may be repaired at a factory repair center or through a third party. In addition, as our contract manufacturing partners have improved the manufacturing quality of the projectors we sell, we have been transitioning towards purchasing warranty coverage as part of the product we source. For the products procured from the contract manufacturer with warranty coverage included, our future liability is calculated based on the estimated warranty costs associated with the difference between the warranty period offered from the contract manufacturer and the warranty period offered to the end customer. As of September 30, 2008, all new product platforms are being procured with a 2 year factory warranty from the contract manufacturer. This data is then used to calculate our future warranty liability based on the actual quantity of projectors sold in each projector category and warranty coverage model, and remaining warranty periods. If circumstances change, or a dramatic change in the failure rates were to occur, our estimate of the warranty liability could change significantly. Revenue generated from sales of extended warranty contracts is deferred and recognized as revenue over the term of the extended warranty coverage. Deferred warranty revenue totaled $1.1 million and $2.1 million, respectively, at September 30, 2008 and December 31, 2007, and was included in other current liabilities on our consolidated balance sheets. Our warranty accrual at September 30, 2008 totaled $5.8 million, of which $3.5 million was classified as a component of current liabilities and $2.3 million was classified as long-term liabilities on our consolidated balance sheets.

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The following is a reconciliation of the changes in the warranty liability for the nine months ended September 30, 2008 and 2007 (in thousands).

	Nine Months Ended September 30,
	2008			2007
Warranty accrual, beginning of period	$	9,846		$	13,049
Reductions for warranty payments made		(5,010	)		(5,724	)
Warranties issued		1,888			7,311
Adjustments and changes in estimates		(939	)		(3,186	)
Warranty accrual, end of period	$	5,785		$	11,450

Note 7. Letter of Credit and Restricted Cash, Cash Equivalents and Marketable Securities

At September 30, 2008, we had four outstanding standby letters of credit totaling $13.0 million, which secure our obligations to foreign suppliers for purchases of inventory. Two of the letters of credit, totaling $10.7 million, are to one supplier, with one letter of credit for $10.0 million expiring on February 28, 2009 and the second, for $0.7 million, expiring on November 30, 2008. The other two letters of credit, for $2.0 million and $0.3 million, expire on January 15, 2009 and February 28, 2009, respectively. The fair value of these letters of credit approximates their contract values. The letters of credit were collateralized by $13.7 million of cash and marketable securities at September 30, 2008, which were reported as restricted on the consolidated balance sheets. The remaining restricted cash and marketable securities of $1.5 million secures our merchant credit card processing account and deposits for value-added taxes in foreign jurisdictions.

Note 8. Share Repurchase Program

In the third quarter of 2008, our Board of Directors authorized a share repurchase program for the purchase of up to 4,000,000 shares of our common stock over a three-year period. As of September 30, 2008, 50,000 shares had been purchased pursuant to this program at an average price of $1.53 per share, inclusive of commissions and fees, and 3,950,000 shares remained available for purchase.

Note 9. Line of Credit Amendments

In the first quarter of 2008, we amended our line of credit facility with Wells Fargo Foothill, Inc. (“Wells Fargo”) to:

• extend the maturity date of the credit facility to August 31, 2008;

• reduce the line of credit (and letters of credit that can be issued thereunder) to $10.0 million;

• reduce the amount of the accounts owed by one customer that can be included in the borrowing base for the line of credit;

• establish minimum EBITDA covenants for the extended loan period; and

• amend our reporting requirements.

In the third quarter of 2008, we again amended our line of credit facility to:

• assign Wells Fargo Bank, National Association, as the successor to Wells Fargo Foothill, Inc;

• extend the maturity date of the credit facility to August 31, 2009;

• permit us, during such times as undrawn availability under the credit facility and cash on hand are at least $25 million, and subject to certain other limitations, to expend up to $8 million for repurchases of our common stock pursuant to our share repurchase program; and

• modify the minimum EBITDA covenant in certain respects.

At September 30, 2008, we did not have any amounts outstanding under the credit facility; however, we were out of compliance with the financial covenants in the credit facility agreement. See Note 14 for a discussion of an amendment to the credit facility agreement in November 2008. The amendment signed in November 2008 waived the event of default and reset the financial covenants for both September 30, 2008 and December 31, 2008 and brought us into compliance with the covenants as of September 30, 2008.

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Note 10. Restructuring

In the three and nine-month periods ended September 30, 2008, we incurred $0.4 million and $1.3 million, respectively, of restructuring costs primarily related to employee severance in connection with the elimination of several middle management and other positions in the company and charges related to facilities that had previously been abandoned but whose leases were terminated during the quarter.

At September 30, 2008, we had $2.4 million of restructuring costs accrued on our consolidated balance sheet classified as other current liabilities. We expect the majority of the severance and related costs to be paid by the end of the second quarter of 2009, and the lease loss to be paid over the related lease terms through 2011, net of estimated sub-lease rentals. The following table displays a roll-forward of the accruals established for restructuring (in thousands):

	Accrual at December 31, 2007		2008 Charges		2008 Amounts Paid			Accrual at September 30, 2008
Severance and related costs	$	1,090	$	1,124	$	(1,799	)	$	415
Lease loss reserve		4,236		188		(2,427	)		1,997
Other		67		18		(50	)		35
	$	5,393	$	1,330	$	(4,276	)	$	2,447

The total restructuring charges in the three and nine-month periods ended September 30, 2008 and 2007 were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Severance and related costs	$	264		$	225		$	1,124		$	2,490
Lease loss reserve		188			—			188			2,185
Other		(22	)		—			18			—
	$	430		$	225		$	1,330		$	4,675
Note 11. Other, net
Other, net included the following (in thousands):
	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Income related to the profits of Motif, 50-50 joint venture	$	104		$	410		$	1,326		$	722
Losses related to foreign currency transactions		(116	)		(130	)		(538	)		(963	)
Recovery of impairment of cost-based investment		—			202			—			202
Foreign jurisdiction tax related recoveries/(penalties)		46			(150	)		46			(150	)
Other		(64	)		(13	)		(116	)		(72	)
	$	(30	)	$	319		$	718		$	(261	)

Note 12. Fair Value Measurements

Effective January 1, 2008, we adopted the provisions of SFAS No. 157, “Fair Value Measurements,” for our financial assets and liabilities. The adoption of this portion of SFAS No. 157 did not have any effect on our financial position or results of operations and we do not expect the adoption of the provisions of SFAS No. 157 related to non-financial assets and liabilities to have an effect on our financial position or results of operations. Although the adoption of SFAS No. 157 did not materially impact our results of operations, we are now required to provide additional disclosures as part of our financial statements.

SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring the fair value of our financial assets and liabilities and are summarized into three broad categories:

• Level 1 – quoted prices in active markets for identical securities;

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• Level 2 – other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.; and

• Level 3 – significant unobservable inputs, including our own assumptions in determining fair value.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Following are the disclosures related to our financial assets pursuant to SFAS No. 157 (in thousands):

	September 30, 2008
	Fair Value		Input Level
Money market funds and commercial paper	$	29,974	Level 2
Letters of credit	$	13,035	Level 2

Our investments in money market funds and commercial paper are recorded at cost on our balance sheets as cash equivalents. However, we reference their fair value, based on quoted market prices, on a quarterly basis in order to help us determine if an other than temporary impairment has occurred. Our letters of credit are recorded at their contract value, which approximates fair value.

Note 13. Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.

Note 14. Subsequent Event - Credit Facility Amendment

On November 4, 2008, we entered into an agreement with Wells Fargo to amend our credit facility agreement. The amendment reset the financial covenants effective September 30, 2008 for the periods ended September 30, 2008 and December 31, 2008. With this amendment, we were in compliance with the financial covenants as of September 30, 2008.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements and Factors Affecting Our Business and Prospects

Some of the statements in this quarterly report on Form 10-Q are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, or the PSLRA. Forward-looking statements in this Form 10-Q are being made pursuant to the PSLRA and with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words like “intend,” “plan,” “believe,” “anticipate,” “project,” “may,” “will,” “could,” “continue,” “expect” and variations of these words or comparable words or phrases of similar meaning. They may relate to, among other things:

• our ability to operate profitably;

• our ability to successfully introduce new products;

• our ability to compete in the market, including our ability to compete against alternate technologies;

• the wind-down of South Mountain Technologies (“SMT”), our 50-50 joint venture with TCL Corporation;

• the supply of components, subassemblies, and projectors manufactured for us;

• our financial risks;

• fluctuations in our revenues and results of operations;

• the impact of regulatory actions by authorities in the markets we serve;

• anticipated outcome of legal disputes;

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• uncertainties associated with the activities of our contract manufacturing partners;

• expectations regarding results and charges associated with restructuring our business and other changes to reduce or simplify the cost structure of the business;

• impacts of changes in foreign currency rates on our results of operations;

• our ability to sustain cash;

• our ability to grow revenue and gross margins;

• our ability to grow the business; and

• our various expenses and expenditures, including marketing and sales expenses, research and development expenses, general and administrative expenses and expenditures for property and equipment.

These forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, which may cause actual results to differ materially from trends, plans or expectations set forth in the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of this filing. See Item 1A. Risk Factors below for further discussion of factors that could cause actual results to differ from these forward-looking statements.

Company Profile

InFocus Corporation is the industry pioneer and a global leader in the digital projection market. Backed by more than 20 years of experience and innovation in digital projection, and approximately 240 U.S. and additional corresponding foreign patents. InFocus is dedicated to setting the industry standard for large format visual display. Our products include projectors and related accessories for use in the conference room, board room, auditorium, classroom and living room.

Overview

Our results of operations were negatively affected in the third quarter of 2008 by the unexpected degree of economic turmoil in the later part of the quarter. After four consecutive quarters of gross margins above 18%, gross margins fell to 16.1% in the third quarter of 2008. As economic conditions deteriorated, we experienced softening demand for our products and increased gross margin pressure in our United States and European markets, which resulted in an average selling price decline of 5% from the second quarter of 2008.

In the near-term, we expect that the economic challenges will create an even more aggressive competitive environment, resulting in pricing pressures on the low end of our product portfolio. We will attempt to mitigate such pricing pressures by the introduction of new products with differentiated features and improved gross margins, such as those described below.

During the third quarter of 2008, we began shipping three new projector platforms:

• The InFocus IN1100 series projectors, for mobile professionals and teams, simplify computer-to-projector connectivity with new DisplayLink™ technology to connect over USB instead of a traditional VGA cable. This differentiated feature is a key element in our strategy to reclaim our leadership position in the mobile segment;

• The InFocus IN3100 series projectors are also available with DisplayLink™ and are marketed for conference and classroom use. This addition to our portable lineup can be used on a tabletop or mounted on the ceiling; and

• The InFocus IN5100 series installation projectors feature the new SplitScreen™ technology, which allows side-by-side projection from two different sources. SplitScreen™ has been well received by our higher education and corporate customers, for use in distance learning and videoconferencing. These applications are receiving increased interest as enterprises seek to reduce transportation costs and schools extend their reach beyond the main campus.

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With these new projectors, we are beginning to transform the business from one that has been offering commodity products to one that attempts to provide value-added, differentiated solutions. Our ongoing investments in product development resources support our strategy of creating value-added solutions and differentiation in our products and our brand name. The evolving features of our products are intended to address the changing needs of our customers and the evolving usage model for displaying visual content. We are addressing the commoditization in our industry by bringing back innovation to the InFocus brand. In addition to differentiated products, we are differentiating ourselves by improving our supply chain and striving for service excellence.

We have increased our focus on strategic account penetration in an effort to increase our market share and revenue. During the third quarter of 2008, we added eight new Fortune 1000 customers to our customer base.

During 2008, we redefined our internal projector categories to better reflect the converging usage models between the commercial and home market segments. We now classify our projectors into the categories “Portable,” “Mobile” and “Installation.” Portable is the new name for our meeting room category and better represents our projectors used in meeting rooms or classrooms. The mobile projector category has not changed and includes all of our portable projectors that weigh less than 4.4 pounds and are easily adaptable for travel. Installation now includes our home projectors, as well as our business installation projectors.

We continue to streamline our regional and global marketing and general and administration functions to drive greater efficiencies and eliminate redundant activities. Operating expenses in the third quarter of 2008, exclusive of charges for restructuring, were at the lowest level in approximately 10 years.

In the first nine months of 2008, we recorded restructuring charges of $1.3 million, primarily to account for estimated employee severance costs related to cost reduction initiatives. The anticipated reduction in costs will allow us to continue to invest in sales and product development activities while maintaining the desired operating expense levels.

Our patent portfolio remains strong and is growing as we continue to invest in advanced development for new projection opportunities and applications. We currently have approximately 240 U.S. patents issued in our name with another 80 patents pending. Additionally, we will seek to partner with third parties where a solution may be more readily available. In the first quarter of 2008, we announced a partnership with DisplayLink™ Corporation to utilize DisplayLink’s™ USB graphics connection technology, which is now being used in our products. This addition improves ease of use of our products and allows for application innovations for new projector solutions. We expect to explore other opportunities to leverage third parties’ technology and products where there are market opportunities outside of our core competencies or a solution is more readily available for incorporation into our overall solution.

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Results of Operations

	Three Months Ended September 30,(1)
	2008					2007
(Dollars in thousands)	Dollars			% of revenues		Dollars			% of revenues
Revenues	$	70,596		100.0	%	$	75,790		100.0	%
Cost of revenues		59,215		83.9			62,026		81.8
Gross margin		11,381		16.1			13,764		18.2
Operating expenses:
Marketing and sales		7,926		11.2			8,424		11.1
Research and development		3,001		4.3			3,367		4.4
General and administrative		4,172		5.9			5,305		7.0
Restructuring costs		430		0.6			225		0.3
		15,529		22.0			17,321		22.9
Loss from operations		(4,148	)	(5.9	)		(3,557	)	(4.7	)
Other income (expense):
Interest expense		(146	)	(0.2	)		(154	)	(0.2	)
Interest income		322		0.5			599		0.8
Other, net		(30	)	—			319		0.4
Loss before income taxes		(4,002	)	(5.7	)		(2,793	)	(3.7	)
Provision for income taxes		214		0.3			27		—
Net loss	$	(4,216	)	(6.0	)%	$	(2,820	)	(3.7	)%
	Nine Months Ended September 30,(1)
	2008					2007
(Dollars in thousands)	Dollars			% of revenues		Dollars			% of revenues
Revenues	$	204,294		100.0	%	$	227,078		100.0	%
Cost of revenues		167,244		81.9			192,850		84.9
Gross margin		37,050		18.1			34,228		15.1
Operating expenses:
Marketing and sales		25,115		12.3			27,510		12.1
Research and development		8,562		4.2			11,333		5.0
General and administrative		12,571		6.2			15,613		6.9
Restructuring costs		1,330		0.7			4,675		2.1
		47,578		23.3			59,131		26.0
Loss from operations		(10,528	)	(5.2	)		(24,903	)	(11.0	)
Other income (expense):
Interest expense		(381	)	(0.2	)		(342	)	(0.2	)
Interest income		1,120		0.5			2,025		0.9
Other, net		718		0.4			(261	)	(0.1	)
Loss before income taxes		(9,071	)	(4.4	)		(23,481	)	(10.3	)
Provision for income taxes		796		0.4			174		0.1
Net loss	$	(9,867	)	(4.8	)%	$	(23,655	)	(10.4	)%

⁽¹⁾ Percentages may not add due to rounding.

Revenues

Revenues decreased $5.2 million, or 6.9%, and $22.8 million, or 10.0%, respectively, in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007.

The decreases in revenue in the 2008 periods compared to the 2007 periods were due primarily to a 15.3% and 11.9% decrease, respectively, in overall average selling prices (“ASPs”). The decreases in ASPs in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007 were primarily due to a higher percentage of our overall revenue being derived from lower-margin, entry-level products sold in the 2008 periods compared to the 2007 periods. In addition, the turmoil experienced in the economic and financial markets and the strengthening of the U.S. dollar against the euro placed additional pressures on average selling prices. Price reductions made on products reaching their end of life were partially offset by the introduction of several new, higher ASP products that began shipping in the third quarter of 2008.

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The declines in ASPs in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007 were partially offset by an increase in units sold of approximately 10% and 2%, respectively. Units sold were 94,000 units and 254,000 units, respectively, in the three and nine-month periods ended September 30, 2008. This compares to 85,000 units and 249,000 units, respectively, in the comparable periods of 2007. These increases were primarily due to growth in the portable product segments driven by increased demand in the education and government sectors.

Geographic Revenues

Revenue by geographic area and as a percentage of total revenue was as follows (dollars in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2008				2007				2008				2007
United States	$	34,229	48.5	%	$	46,950	61.9	%	$	100,490	49.2	%	$	136,687	60.2	%
Europe		20,375	28.9	%		16,269	21.5	%		61,119	29.9	%		53,114	23.4	%
Asia		11,193	15.8	%		8,699	11.5	%		29,913	14.6	%		25,783	11.3	%
Other		4,799	6.8	%		3,872	5.1	%		12,772	6.3	%		11,494	5.1	%
	$	70,596			$	75,790			$	204,294			$	227,078

United States revenues in the three and nine-month periods ended September 30, 2008 decreased 27.1% and 26.5%, respectively, compared to the same periods of 2007. These decreases were primarily due to declines in unit sales of 20.9% and 24.9%, respectively, which resulted primarily from deteriorating economic conditions and were compounded by our de-emphasis on the retail sector of the market during 2008. Also negatively impacting U.S. revenues in the three-month period ended September 30, 2008 compared to the same period of 2007 was an ASP decline of 7.9% due to an increase in the percentage of the overall sales during the quarter coming from the entry-level products sold primarily into the education sector as well as sales of end of life products as efforts were made to launch higher margin follow-on products introduced late in the third quarter of 2008. U.S. ASPs decreased 2.1% in the nine-month period ended September 30, 2008 compared to the same period of 2007, primarily due to the shift in mix to lower-margin products discussed above.

European revenues increased 25.2% and 15.1%, respectively, in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007. These increases were primarily due to increases in units sold of 55.3% and 49.0%, respectively, partially offset by declines in ASPs of 19.4% and 22.8%, respectively, in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007. The increases in units sold and corresponding increases in revenue in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007 were driven by new product introductions targeted at specific channels and markets where we had identified strong growth potential. Due to current economic conditions in the market and the recent strengthening of the U.S. dollar against the euro, we do not expect to be able to maintain this level of revenue growth in future periods. The strengthening of the U.S. dollar against the euro and deteriorating economic conditions in specific regions of Europe during the third quarter of 2008 negatively affected our revenues and ASPs.

Asian revenues increased 28.7% and 16.0%, respectively, in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007. These increases were primarily due to increases in units sold of 58.8% and 37.5%, respectively, partially offset by declines in ASPs of 19.0% and 15.6%, respectively, in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007. The increases in units sold and corresponding declines in ASPs were primarily related to the introduction of a tender-specific product line, which accounted for the majority of the increase in unit sales but carries lower ASPs than non-tender specific products.

Other revenues primarily consist of sales in Canada and Latin America. Other revenues increased 24.0% and 11.1%, respectively, in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007. Other revenue unit sales increased 63.3% and 28.2%, respectively, in the

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three and nine-month periods ended September 30, 2008 compared to the same periods of 2007. Other revenue ASPs decreased 24.1% and 13.4%, respectively, in the three and nine-month periods ended September 30, 2008 compared to the same periods of 2007. The decrease in ASPs in both the three and nine-month periods was primarily attributable to a shift in mix to our lower-margin entry-level products.

Backlog

At September 30, 2008, we had backlog of approximately $4.8 million, compared to approximately $6.6 million at December 31, 2007. Given current supply and demand estimates, it is anticipated that a majority of the current backlog will turn over by the end of the fourth quarter of 2008. The stated backlog is not necessarily indicative of sales for any future period, nor is a backlog any assurance that we will realize a profit from filling future orders.

Gross Margin

We achieved gross margin percentages of 16.1% and 18.1%, respectively, in the three and nine-month periods ended September 30, 2008, compared to 18.2% and a 15.1%, respectively, in the same periods of 2007.

The decrease in gross margin in the three-month period ended September 30, 2008 compared to the same period of 2007 was primarily due to softening in the global markets, increasing competition and a relatively high mix of our revenues coming from lower-priced products. Margins were also negatively affected in the three-month period by the strengthening of the U.S. dollar against the euro, which essentially lowers ASPs for our products priced in euros. We increased prices in certain markets in Europe in September 2008 in an effort to partially counteract the currency effects. In addition, emphasis on our new, differentiated products is expected to lead to improvements in gross margins over the longer term. These factors were offset in the nine-month period ended September 30, 2008 compared to the same period of 2007 by an overall shift in product mix to higher-margin products between the comparable periods, sales of end of life products in the first half of 2007, as well as continued decreases in other costs of goods sold primarily due to efficiencies achieved within our supply chain and lower costs associated with warranty repair activities. Charges for inventory related write-downs totaled $1.3 million and $3.0 million, respectively, in the three and nine-month periods ended September 30, 2008 compared to $1.6 million and $4.0 million in the comparable periods of 2007.

Marketing and Sales Expense

Marketing and sales expense decreased $0.5 million, or 5.9%, to $7.9 million in the three-month period ended September 30, 2008 compared to $8.4 million in the same period of 2007, and decreased $2.4 million, or 8.7%, to $25.1 million in the nine-month period ended September 30, 2007 compared to $27.5 million in the same period of 2007.

The decreases in marketing and sales expense were primarily due to our ongoing efforts to reduce our cost structure to better align with current revenue and gross margin levels. The majority of the reductions have been in discretionary spending, such as marketing programs and advertising, as well as in management-level employee reductions. These decreases were partially offset by our investment in additional sales and product marketing resources to drive increases in revenue.

Research and Development Expense

Research and development expense decreased $0.4 million, or 10.9%, to $3.0 million in the three-month period ended September 30, 2008 compared to $3.4 million in the same period of 2007, and decreased $2.7 million, or 24.5%, to $8.6 million in the nine-month period ended September 30, 2008 compared to $11.3 million in the same period of 2007.

These decreases were primarily due to a reduced cost structure related to our previous restructuring activities, including a decrease in personnel related costs and other discretionary spending. We have shifted our research and development model to outsource more of the design functions to our contract manufacturers, which allowed us to reduce our in-house research and development resources. These

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decreases were partially offset by our increased investment in product development resources to support our strategy of creating differentiation in our products and our brand name.

General and Administrative Expense

General and administrative expense decreased $1.1 million, or 21.4%, to $4.2 million in the three-month period ended September 30, 2008 compared to $5.3 million in the same period of 2007 and decreased $3.0 million, or 19.5%, to $12.6 million in the nine-month period ended September 30, 2008 compared to $15.6 million in the same period of 2007.

Included in general and administrative expense in the three and nine-month periods ended September 30, 2007 was $0.4 million and $1.3 million, respectively, of costs incurred for various external advisors engaged as part of our strategic alternatives evaluation process. The remainder of the decreases in the 2008 periods compared to the 2007 periods were primarily related to a reduced cost structure, including decreases in personnel related costs and other discretionary spending.

Restructuring

In the three and nine-month periods ended September 30, 2008, we incurred $0.4 million and $1.3 million, respectively, of restructuring costs primarily related to employee severance in connection with the elimination of several middle management and other positions in the company and charges related to facilities that were previously abandoned and with respect to which leases were terminated during the third quarter of 2008.

In the three and nine-month periods ended September 30, 2007, we incurred restructuring charges totaling $0.2 million and $4.7 million, respectively. The charge of $0.2 million in the third quarter of 2007 was for estimated employee severance costs. A charge of $2.1 million in the second quarter of 2007 was primarily related to severance costs for personnel reductions and a charge of $2.4 million in the first quarter of 2007 primarily related to estimated lease losses on vacated or partially vacated facilities at our corporate headquarters and various European office locations. A portion of the $2.1 million charge recorded in the second quarter of 2007 for severance costs was related to a shift in our research and development model to outsource more of the design functions to our contract manufacturers, which allows us to reduce necessary in-house research and development resources.

At September 30, 2008, we had a remaining accrual for our restructuring activities of $2.4 million. See further detail in Note 10 of Notes to Consolidated Financial Statements.

Other Income (Expense)

Interest income in the three and nine-month periods ended September 30, 2008 was $0.3 million and $1.1 million, respectively, compared to $0.6 million and $2.0 million, respectively, in the same periods of 2007. The decreases were primarily due to lower interest rates realized on our invested balances. Average cash and investment balances were $29.6 million and $28.9 million, respectively, in the first nine months of 2008 and 2007.

Other, net included the following (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Income related to the profits of Motif, 50-50 joint venture	$	104		$	410		$	1,326		$	722
Losses related to foreign currency transactions		(116	)		(130	)		(538	)		(963	)
Recovery of impairment of cost-based investment		—			202			—			202
Foreign jurisdiction tax related recoveries/(penalties)		46			(150	)		46			(150	)
Other		(64	)		(13	)		(116	)		(72	)
	$	(30	)	$	319		$	718		$	(261	)

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Income Taxes

Income tax expense in the 2008 and 2007 periods primarily represented income tax expense in certain foreign tax jurisdictions.

Liquidity and Capital Resources

Total cash and cash equivalents and restricted cash and marketable securities were $70.3 million at September 30, 2008. Working capital totaled $66.1 million at September 30, 2008, which included $55.1 million of unrestricted cash and cash equivalents. The current ratio at September 30, 2008 and December 31, 2007 was 1.8 to 1 and 2.0 to 1, respectively.

We sustained an operating loss of $10.5 million in the first nine months of 2008 and a decrease in net working capital of $17.2 million for the period. If we continue to experience significant operating losses or experience significant reductions in net working capital, we may need to obtain additional debt or equity financing to continue current business operations. There is no guarantee that we will be able to raise additional funds on favorable terms, if at all.

We anticipate that our current cash and cash equivalents and marketable securities, along with cash we anticipate generating from operations and our $10 million line of credit facility, will be sufficient to fund our known operating and capital requirements for at least the next 12 months. However, to the extent our operating results fall below our expectations, there is a change in our customers’ ability to pay their receivables, or our suppliers require additional security for our purchases, we may need to raise additional capital through debt or equity financings. We may also need additional capital if we pursue other strategic growth opportunities. There is no guarantee that we will be able to raise additional funds on favorable terms, if at all.

Our $10 million line of credit facility with Wells Fargo Foothill, Inc. (“Wells Fargo”) was amended on August 31, 2008, at which time the line of credit was assigned to Wells Fargo, National Association with a new expiration date of August 31, 2009. As of September 30, 2008, there were no borrowings outstanding under the agreement and with the amendment of the financial covenants executed in November 2008, but effective September 30, 2008, we were in compliance with all financial covenants as of September 30, 2008.

In the third quarter of 2008, our Board of Directors authorized a share repurchase program for the purchase of up to 4,000,000 shares of our common stock over a three-year period. As of September 30, 2008, 50,000 shares had been purchased pursuant to this program at an average price of $1.53 per share, calculated inclusive of commissions and fees, and 3,950,000 shares remained available for purchase.

At September 30, 2008, we had four outstanding standby letters of credit totaling $13.0 million, which secure our obligations to foreign suppliers for purchases of inventory. Two of the letters of credit, totaling $10.7 million, are to one supplier, with one letter of credit, for $10.0 million, expiring on February 28, 2009 and the second, for $0.7 million, expiring on November 30, 2008. The other two letters of credit, for $2.0 million and $0.3 million, expire on January 15, 2009 and February 28, 2009, respectively. The fair value of these letters of credit approximates their contract values. The letters of credit were collateralized by $13.7 million of cash and marketable securities at September 30, 2008, which were reported as restricted on the consolidated balance sheets. The remaining restricted cash and marketable securities of $1.5 million secures our merchant credit card processing account and deposits for value-added taxes in foreign jurisdictions.

Accounts receivable decreased $7.1 million to $39.2 million at September 30, 2008 compared to $46.3 million at December 31, 2007, due primarily to lower sales in the third quarter of 2008 compared to the fourth quarter of 2007, partially offset by a higher portion of the quarter’s sales being shipped in the third month of the third quarter of 2008 when compared to the fourth quarter of 2007. In the third quarter of 2008, 51% of the total revenue was shipped in the third month of the quarter compared to 43% shipped in

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the third month for the fourth quarter of 2007. Days sales outstanding (“DSO”) was 51 days at both September 30, 2008 and December 31, 2007.

Inventories decreased $0.6 million to $30.4 million at September 30, 2008 compared to $31.0 million at December 31, 2007. This decrease primarily resulted from a $2.5 million decrease in consigned inventories as we are exiting the “brick and mortar” retail channel in the U.S and a reduction of $0.8 million in lamps and accessories inventory. These reductions were offset by an increase in non-consigned finished goods of $2.7 million as we purchased inventories in anticipation of higher revenues than were actually achieved in the third quarter of 2008. See Note 2 of Notes to Consolidated Financial Statements for a summary of the components of inventory as of these dates.

At September 30, 2008 and December 31, 2007, we had approximately 6 weeks and 5 weeks of inventory, respectively, in the Americas channel. Annualized inventory turns were approximately 7 times for both the quarters ended September 30, 2008 and December 31, 2007.

Expenditures for property and equipment totaled $1.4 million in the first three quarters of 2008 and were primarily for purchases of product tooling and computer software. Total expenditures for property and equipment are expected to be between $2.0 million and $3.0 million in 2008.

Other assets, net increased $4.2 million to $5.3 million at September 30, 2008 compared to $1.1 million at December 31, 2007. Included in other assets are building deposits, cost-based investments, and investments in our joint venture with Motorola, Motif. The increase in the first nine months of 2008 was primarily due to a cost-based investment and an increase in the value of our investment in Motif, offset by a dividend from Motif received during the period.

Accrued warranty costs, both short and long-term, decreased $4.0 million to $5.8 million at September 30, 2008 compared to $9.8 million at December 31, 2007. The reduction in accrued warranty costs was due primarily to a reduction in failure rates we are experiencing and reductions in the warranty cost per unit associated with the transition in our warranty model toward purchasing two-year supplier warranties from our contract manufacturers. As our contract manufacturers have improved the manufacturing quality of the projectors we sell, we have begun the transition towards purchasing warranty coverage as part of the product we source. For the products procured from the contract manufacturer with the warranty coverage included, our future liability is calculated based on the difference between the warranty period offered from the supplier and the warranty period we offer to the end customer. As of September 30, 2008, all new product platforms are being procured with a two-year factory warranty from the contract manufacturer.

Seasonality

Given the buying patterns of various geographies and market segments, our revenues are subject to certain elements of seasonality during various portions of the year. The first quarter of each year is typically down from the immediately preceding fourth quarter due to corporate buying trends and typical aggressive competition from our Asian competitors with March 31 fiscal year ends. In addition, we sell our products into the education and government markets that typically see seasonal peaks in the U.S. in the second and third quarter of each year. Historically, between 20% and 30% of our revenues have come from Europe and, as such, we typically experience a seasonal downturn due to the vacation season in July and August, which results in decreased revenues from that region in the third quarter compared to the second quarter. Conversely, we typically experience an increase in revenue from Europe in the fourth quarter.

Critical Accounting Policies and Estimates

We reaffirm the critical accounting policies and estimates as reported in our 2007 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 12, 2008.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks since the filing of our 2007 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 12, 2008.

Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a- 15(b) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

A restated description of the risk factors associated with our business is set forth below. This description includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2007.

Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

We may need to raise additional financing if our financial results do not improve.

We sustained an operating loss of $10.5 million and $27.5 million, respectively; during the nine-month period ended September 30, 2008 and the year ended December 31, 2007, contributing to a decrease in net working capital of $17.2 million and $15.0 million during the respective time periods. If we continue to experience significant operating losses and reductions in net working capital, we may need to obtain additional debt or equity financing to continue current business operations. There is no guarantee that we will be able to raise additional funds on favorable terms, if at all.

Our restructuring plans may not be successful.

Over the last three years, we have implemented a series of restructuring plans with the goal of simplifying the business and returning the company to profitability. As part of the restructuring plans, we have implemented actions to reduce our cost to serve customers, improve our supply chain efficiency, reduce our product costs and reduce our operating expenses. Our goal as a result of these actions was to improve gross margins and reduce our operating expenses to a level that will allow us to achieve breakeven or better results. We have faced a number of challenges related to our restructuring plans including uncertainties associated with the impact of our actions on revenues and gross margins as well as factors outside our control such as changes in the economic environment. If our restructuring plans are not successful, our business and results of operations may be negatively impacted.

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If our contract manufacturers or other outsourced service providers experience any delay, disruption or quality control problems in their operations, we could lose market share and revenues, and our reputation may be harmed.

We have outsourced the manufacturing of our products to third party manufacturers. We rely on our contract manufacturers to procure components, provide spare parts in support of our warranty and customer service obligations, perform warranty repair activities on our behalf, and in some cases, subcontract engineering work. We generally commit the manufacturing of each product platform to a single contract manufacturer. In addition, going forward, we will be placing more reliance on our contract manufacturers for design activities related to our core projection products, as we move to outsource a larger percentage of our research and development work.

Our reliance on contract manufacturers exposes us to the following risks over which we may have limited control:

• Unexpected increases in manufacturing and repair costs;

• Interruptions in shipments if our contract manufacturer is unable to complete production;

• Inability to completely control the quality of finished products;

• Inability to completely control delivery schedules;

• Unpredictability of manufacturing yields;

• Changes in our contract manufacturer’s business models or operations;

• Our contract manufacturer’s willingness to extend us sufficient credit;

• Potential loss of differentiation in our products compared to our competitors;

• Potential lack of adequate capacity to manufacture all or a part of the products we require; and

• Reduced control over the availability of our products.

Our contract manufacturers are located in Asia and may be subject to disruption by natural disasters, as well as political, social or economic instability. The temporary or permanent loss of the services of any of our primary contract manufacturers could cause a significant disruption in our product supply chain and operations and delays in product shipments. In addition, we do not have long-term contracts with any of our third-party contract manufacturers and these contracts are terminable by either party on relatively short notice.

In addition, we outsourced a portion of our U.S. customer service and technical support call center to a third party provider. We rely on this third party to provide efficient and effective support to our customers and partners. To the extent our customers are not satisfied with the level of service provided by our third party provider we may lose market share and our revenues and corporate reputation could be negatively affected.

Our competitors may have greater resources and technology, and we may be unable to compete with them effectively.

The markets for our products are highly competitive and we expect aggressive price competition in our industry, especially from Asian manufacturers, to continue into the foreseeable future. Some of our current and prospective competitors have, or may have, significantly greater financial, technical, manufacturing and marketing resources than we have.

In order to compete effectively, we must continue to reduce the cost of our products, our manufacturing and other overhead costs, incorporate differentiating features in our products that are valued by our customers, focus on the right channel sales models and reduce our operating expenses in order to offset declining selling prices for our products, while at the same time growing our presence in the markets we are in and driving our products into new markets. There is no assurance we will be successful with respect to these factors.

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Our products face competition from alternate technologies and we may be unable to compete with them effectively.

In addition to competition within the projector industry, our products also face competition from alternate technologies such as LCD and plasma televisions and displays. Our ability to compete depends on factors within and outside our control, including the success and timing of product introductions, product performance and price, product distribution and customer support and adoption of our products. Our inability to successfully manage these factors could lead to reduced revenues or a greater chance of our customers shifting their purchases to alternate technologies.

If we are unable to manage the cost of older products or successfully introduce new products with higher gross margins, our revenues may decrease or our gross margins may decline.

The market in which we compete is subject to technological advances with continual new product releases and aggressive 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 is sold is generally referred to as the average selling price (“ASP”). In order to sell products that have a declining ASP and still maintain our gross margins, we need to continually reduce our product costs. To manage product-sourcing costs, we must collaborate with our contract manufacturers to engineer the most cost-effective design for our products. In addition, we must carefully monitor the price paid by our contract manufacturers for the significant 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 improved features and increased performance at lower costs in order to maintain our overall gross margins. Our inability to successfully manage these factors could reduce revenues or result in declining gross margins. In addition, our increased reliance on our contract manufacturers for design and development work could enhance the risks described above.

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

Our results of operations for any individual quarter or for the 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 selling prices and costs and the mix of products sold;

• The size and timing of customer orders, including government and education tenders, which, in turn, often depend upon the success of our customers’ business or specific products or services;

• Changes in the economic conditions in the markets for projectors and alternative technologies;

• The impacts of fluctuations in foreign currencies against the United States Dollar in the foreign markets we serve;

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

• Conditions in the broader markets for information technology and communications equipment;

• The timing and availability of products coming from our offshore contract manufacturing partners;

• Changes in the supply of components; and

• Seasonality of markets such as education, government and consumer retail, which vary quarter to quarter and are influenced by outside factors such as overall consumer confidence, budgets and political party changes.

These trends and factors could harm our business, operating results and financial condition in any particular period.

Our operating expenses and portions of our costs of revenues are relatively fixed and we may have limited ability to reduce expenses quickly in response to any revenue shortfalls.

Our operating expenses, inbound freight and inventory handling costs are relatively fixed. Because we typically recognize a significant portion of our revenues in the last month of each quarter, we may not be able to adjust our operating expenses or other costs sufficiently to adequately respond to any revenue shortfalls. If we are unable to reduce operating expenses or other costs quickly in response to any revenue shortfall, it could negatively impact our financial results.

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If we are unable to accurately predict the future needs of our customer base as it relates to sales channel inventory levels we may incur unexpected declines in revenues and gross margins.

If factors in the marketplace change that negatively impact the purchase of our products or we are not able to accurately predict the sales channel inventory needs of our larger customers, we may experience declines in our revenue and gross margins. If demand for our products declines or is not sufficient to deplete existing inventory in our sales channels this will generally have an adverse effect on future revenues.

If we do not effectively manage our sales channel inventory and product mix, we may incur costs associated with excess inventory or experience declining gross margins.

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 within our sales channels, we may incur increased and unexpected costs associated with this inventory. We generally allow distributors, dealers and retailers to return a limited amount of our products in exchange for placing an order for other new products. In addition, under our price protection policy, subject to certain conditions, which vary around the globe, if we reduce the list price of a product, we may issue a credit in an amount equal to the price reduction for each of the products held in inventory by our distributors, dealers and retailers. If these events occur, we could incur increased expenses associated with rotating and reselling product, or inventory reserves associated with writing down returned inventory, or suffer declining gross margins.

If we cannot continually develop new and innovative products and integrate them into our business, we may be unable to compete effectively in the marketplace.

Our industry is characterized by continuing improvements in technology and rapidly evolving industry standards. Consequently, short product life cycles and significant price fluctuations are common. Product transitions present challenges and risks for all companies involved in the data/video digital projector and display markets. Demand for our products and the profitability of our operations may be adversely affected if we fail to effectively manage product transitions.

Advances in product technology require continued investment in research and development and product engineering to maintain our market position. There are no guarantees that such investment will result in the right products being introduced to the market at the right time. In addition, our increased reliance on our contract manufacturers for design and development work could enhance the risks described above.

If we are unable to provide our contract manufacturers with an accurate forecast of our product requirements, we may experience delays in the manufacturing of our products and the costs of our products may increase.

We provide our 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 supply and demand for a component at a given time. Some of our components have long lead times measuring as much as 4 to 6 months from the point of order.

If our forecasts are less than our actual requirements, our contract manufacturers may be unable to manufacture sufficient products to meet actual demand in a timely manner. If our forecasts are too high, our contract manufacturers may be unable to use the components they have purchased. The cost of the components used in our products tends to decline as the product platform and technologies mature. Therefore, if our contract manufacturers are unable to promptly use components purchased on our behalf, our cost of producing products may be higher than our competitors due to an over-supply of higher-priced components. Moreover, if they are unable to use certain components, we may be required to reimburse them for any potential inventory exposure they incur within lead time.

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

Substantially all of our products are made for immediate delivery on the basis of purchase orders rather than long-term agreements. As a result, contract manufacturing activities are scheduled according to a monthly sales and production forecast rather than on the receipt of product orders or purchase commitments. From time to time in the past, we have experienced significant variations between actual orders and our forecasts.

If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of rapidly changing prices of product components, rapidly changing technology and customer requirements or an increase in the supply of products in the marketplace, we could be required to write-down our inventory and our gross margins could be adversely affected.

Our contract manufacturers may be unable to obtain critical components from suppliers, which could disrupt or delay our ability to procure our products.

We rely on a limited number of third party manufacturers for the product components used by our contract manufacturers. Reliance on suppliers raises several risks, including the possibility of defective parts, reduced control over the availability and delivery schedule for parts and the possibility of increases in component costs. Manufacturing efficiencies and our profitability can be adversely affected by each of these risks.

Certain components used in our products are now available only from single sources. Most importantly, DLP^® devices are only available from Texas Instruments. The majority of our current products are based on DLP^® technology making the continued availability of DLP^® devices very important.

Our contract manufacturers also purchase other single or limited-source components for which we have no guaranteed alternative source of supply, and an extended interruption in the supply of any of these components could adversely affect our results of operations. We have worked to improve the availability of lamps and other key components to meet our future needs, but there is no guarantee that we will secure all the supply we need to meet demand for our products.

Furthermore, many of the components used in our products are purchased from suppliers located outside the U.S. Trading policies adopted in the future by the U.S. or foreign governments could restrict the availability of components or increase the cost of obtaining components. Any significant increase in component prices or decrease in component availability could have an adverse effect on our results of operations.

Product defects resulting in a large-scale product recall or successful product liability claims against us could result in significant costs or negatively impact our reputation and could adversely affect our business results and financial condition.

As with any high tech manufacturing company, we are sometimes exposed to warranty and potential product liability claims in the normal course of business. There can be no assurance that we will not experience material product liability losses arising from such potential claims in the future and that these will not have a negative impact on our reputation and, consequently, our revenues. We generally maintain insurance against most product liability risks and record warranty provisions based on historical defect rates, but there can be no assurance that this insurance coverage and these warranty provisions will be adequate for any potential liability ultimately incurred. In addition, there is no assurance that insurance will continue to be available on terms acceptable to us. A successful claim that exceeds our available insurance coverage or a significant product recall could have a material adverse impact on our financial condition and results of operations.

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SMT, our joint venture with TCL Corporation, has not been successful in implementing its business plan and is in the process of winding down its business.

SMT, our 50-50 joint venture with TCL Corporation, has not been successful in executing its business plan, primarily a result of failing to secure third party OEM customers for its products. As a result, the parent companies sought alternatives for funding ongoing operations at SMT without success. During the third quarter of 2006, SMT began the process of winding down its operations in an orderly fashion, including the sale of its assets and the negotiation of the settlement of its outstanding liabilities. At September 30, 2008, the majority of SMT employees had been laid off and only those employees working on the wind-down of the company remained. During 2006, we completely wrote off our initial investment in SMT and also recorded a charge for our share of estimated additional wind-down costs. We are uncertain how long it may take to complete the liquidation of SMT. There can be no assurance that we will not incur additional costs as SMT completes the wind-down process.

Customs or other issues involving product delivery from our contract manufacturers could prevent us from timely delivering our products to our customers.

Our business depends on the free flow of products. Due to continuing threats of terrorist attacks, U.S. Customs has increased security measures for products being imported into the U.S. In addition, increased freight volumes and work stoppages at west coast ports have, in the past, and may, in the future, cause delays in freight traffic. Each of these situations could result in delay of receipt of products from our contract manufacturers and delay fulfillment of orders to our customers. Any significant disruption in the free flow of our products may result in a reduction of revenues, an increase of in-transit inventory, or an increase in administrative and shipping costs.

Deterioration in general global economic conditions could adversely affect demand for our products.

Our business is subject to the overall health of the U.S. and global economy. Purchase decisions for our products are made by corporations, governments, educational institutions and consumers based on their overall available budget for information technology products. Any number of factors impacting the global economy including geopolitical issues, balance of trade concerns, inflation, interest rates, currency fluctuations and consumer confidence can impact the overall spending climate, both positively and negatively, in one or more geographies for our products. Deterioration in any one or combination of these factors could change overall industry dynamics and demand for discretionary products like ours and negatively impact our results of operations.

We are subject to risks associated with exporting products outside the U.S.

To the extent we export products outside the U.S., we are subject to U.S. laws and regulations governing international trade and exports, including, but not limited to, the International Traffic in Arms Regulations, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury. A determination that we have failed to comply with one or more of these export controls could result in civil and/or criminal sanctions, including the imposition of fines upon us, the denial of export privileges, and debarment from participation in U.S. government contracts. Any one or more of such sanctions could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to risks associated with our international operations.

Revenues outside the U.S. accounted for approximately 51% of our revenues in the first nine months of 2008 and 43% of our revenues in all of 2007. The success and profitability of our international operations are subject to numerous risks and uncertainties, including:

• local economic and labor conditions;

• political instability;

• terrorist acts;

• unexpected changes in the regulatory environment;

• trade protection measures;

• tax laws; and

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• foreign currency exchange rates.

Currency exchange rate fluctuations may adversely affect our financial results.

To the extent that we incur costs in one currency and make our sales in another, our gross margins may be affected by changes in the exchange rates between the two currencies. Although our general policy is to hedge against balance sheet currency transaction risks on a monthly basis, given the volatility of currency exchange rates, we cannot provide assurance that we will be able to effectively manage these risks. Volatility in currency exchange rates may generate foreign exchange losses, which could have an adverse effect on our financial condition or results of operations.

Our reliance on third-party logistics and customer service providers may result in customer dissatisfaction or increased costs.

We have outsourced all of our logistics and service repair functions worldwide. We are reliant on our third-party providers to effectively and accurately manage our inventory, service repair, and logistics functions. This reliance includes timely and accurate shipment of our products to our customers and quality service repair work. Reliance on third parties requires proper training of employees, creating and maintaining proper controls and procedures surrounding both forward and reverse logistics functions, and timely and accurate inventory reporting. In addition, reliance on third parties requires adherence to product specifications in order to ensure quality and reliability of our products. Failure of our third parties to deliver in any one of these areas could have an adverse effect on our results of operations.

In addition, we outsourced our U.S. customer service and technical support call center to a third-party provider. We rely on this third party to provide efficient and effective support to our customers and partners. To the extent our customers are not satisfied with the level of service provided by our third-party provider we may lose market share and our revenues and corporate reputation could be negatively impacted.

We may be unsuccessful in protecting our intellectual property rights.

Our ability to compete effectively against other companies in our industry depends, in part, on our ability to protect our current and future proprietary technology under patent, copyright, trademark, trade secret and other intellectual property laws. We utilize contract manufacturers in China and Taiwan, and anticipate doing increased business in these markets and elsewhere around the world including other emerging markets. These emerging markets may not have the same protections for intellectual property that are available in the U.S. We cannot make assurances that our means of protecting our intellectual property rights in the U.S. or abroad will be adequate, or that others will not develop technologies similar or superior to our trade secrets or design around our patents. In addition, management may be distracted by, and we may incur substantial costs in, attempting to protect our intellectual property.

Also, despite the steps taken by us to protect our intellectual property rights, it may be possible for unauthorized third parties to copy or reverse-engineer trade secret aspects of our products, develop similar technology independently or otherwise obtain and use information that we regard as our trade secrets, and we may be unable to successfully identify or prosecute unauthorized uses of our intellectual property rights. Further, with respect to our issued patents and patent applications, we cannot provide assurance that pending patent applications (or any future patent applications) will be issued, that the scope of any patent protection will exclude competitors or provide competitive advantages to us, that any of our patents will be held valid if subsequently challenged, or that others will not claim rights in or ownership of the patents (and patent applications) and other intellectual property rights held by us.

If we become subject to intellectual property infringement claims, we could incur significant expenses and could be prevented from selling specific products.

We are periodically subject to claims that our products infringe the intellectual property rights of others. We cannot provide assurance that, if and when made, these claims will not be successful. Intellectual property litigation is, by its nature, expensive and unpredictable. Any claim of infringement could cause us to incur substantial costs defending against the claim even if the claim is invalid, and could distract management from other business. Any potential judgment against us could require substantial payment in

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damages and also could include an injunction or other court order that could prevent us from offering certain products.

We rely on large distributors and other large customers for a significant portion of our revenues, and changes in price or purchasing patterns could lower our revenues or gross margins.

We sell our products through large distributors such as Ingram Micro, Tech Data and CDW and through a number of other customers and channels. We rely on our larger distributors and other large customers for a significant portion of our total revenues in any particular period. We have no minimum purchase commitments or long-term contracts with any of these customers. Our customers, including our largest customers, could decide at any time to discontinue, decrease or delay their purchases of our products. In addition, the prices that our distributors pay for our products are subject to competitive pressures and change frequently.

If any of our major customers change their purchasing patterns or refuse to pay the prices that we set for our products, our net revenues and operating results could be negatively impacted. If our large 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 demand could be compromised. In addition, because our accounts receivable are concentrated within our largest customers, the failure of any of them to pay on a timely basis, or at all, could reduce our cash flow or result in a significant bad debt expense.

In order to compete, we must attract, retain and motivate key employees, and our failure to do so could have an adverse effect on our results of operations.

In order to compete, we must attract, retain and motivate key employees, including those in managerial, operations, engineering, service, sales, marketing, and support positions. Hiring and retaining qualified employees in all areas of the company is critical to our business. Each of our employees is an “at will employee” and may terminate his/her employment without notice and without cause or good reason.

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

Due to the specialized knowledge each of our officers possess with respect to our business and our operations, the loss of service of any of our officers could adversely affect our business. We do not carry key person life insurance on our officers. Each of our officers is an “at will employee” and may terminate his/her employment without notice and without cause or good reason.

During 2007 and early 2008, we experienced several changes in our executive officers, including our Chief Executive Officer and our Chief Financial Officer. Changes at the executive officer level may cause delays in achieving our operational goals and plans as new individuals learn the business.

Our results of operations could vary as a result of the methods, estimates and judgments we use in applying our accounting policies.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise that lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations. For example, we are required to make judgments or take certain tax positions in relation to income taxes in both U.S. and foreign tax jurisdictions. To the extent a taxing authority takes a position different from ours and we are unsuccessful in defending our position, the outcome of that decision could impact the amount of income tax expense recorded in the period these new positions are known.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On August 18 2008, our Board of Directors announced a share repurchase program for the purchase of up to 4,000,000 shares of our common stock over a three-year period. The repurchases are to be made at management’s discretion in the open market or in privately negotiated transactions in compliance with applicable securities laws and other legal requirements and are subject to market conditions, share price and other factors. During the third quarter of 2008, we repurchased 50,000 shares and an average price of $1.53 per share, calculated inclusive of commissions and fees. The acquired shares were immediately retired and became authorized and unissued shares, as required under Oregon corporate law.

The following table sets forth information about the share repurchase transactions in accordance with SEC Regulations S-K, Item 703:

	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plan	Maximum number of shares that may yet be purchased under the plan
July 1 to July 31	—		—	—	—
August 1 to August 31	50,000	$	1.53	50,000	3,950,000
September 1 to September 30	—		—	—	—
Total	50,000	$	1.53	50,000	3,950,000

Item 5. Other Information

Given the timing of the event, the following information is included in this Form 10-Q pursuant to Item 1.01 of Form 8-K, “Entry Into a Definitive Material Agreement,” in lieu of filing it on Form 8-K:

On November 4, 2008, we entered into an amendment of our credit facility agreement with Wells Fargo, National Association, as administrative agent, to adjust the financial covenants to which we are subject for September 30, 2008 and December 31, 2008. The full terms of the amendment are filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q.

Item 6. Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index:

10.1	Fourteenth Amendment, dated August 29, 2008, to Credit Agreement by and between the Company and Wells Fargo, NA dated October 25, 2004. Incorporated by reference to Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on September 2, 2008.
10.2	Fifteenth Amendment, dated November 4, 2008, to Credit Agreement by and between the Company and Wells Fargo, NA dated October 25, 2004.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

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SIGNATURES

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

Date: November 7, 2008	INFOCUS CORPORATION
	By:	/s/ ROBERT G. O’MALLEY
		Robert G. O’Malley
		Director, President and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ LISA K. PRENTICE
		Lisa K. Prentice
		Senior Vice President, Finance, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

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