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

• our financial risks;

• our ability to maintain our listing on the NASDAQ Global Market;

• 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;

• 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;

• expectations regarding the outcome of the tender offer and subsequent merger; the parties' ability to satisfy the conditions to the Offer and the Merger and to consummate the transactions contemplated thereby;

• our ability to maintain sufficient liquidity to fund continuing operations;

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

• 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, and the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2008, 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. The Company's digital projectors make bright ideas brilliant everywhere people gather to communicate and be entertained - in meetings, presentations, classrooms and living rooms around the world. Backed by more than twenty years of experience and innovation in digital projection, as well as approximately 245 U.S. and additional corresponding foreign patents, InFocus is dedicated to

setting the industry standard for large format visual display. InFocus is based in Wilsonville, Oregon with operations in North America, Europe and Asia.

Merger Agreement

On April 10, 2009, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Image Holdings Corporation, an Oregon corporation ("Parent"), and IC Acquisition Corp., an Oregon corporation and a wholly owned subsidiary of Parent ("Purchaser"). Pursuant to the terms of the Merger Agreement, on April 27, 2009, Purchaser commenced a tender offer (the "Offer") to purchase all of our outstanding shares of common stock (the "Common Stock"), at a purchase price of $0.95 per share in cash (the "Offer Price"). Following the successful completion of the Offer, Purchaser will be merged (the "Merger") with and into InFocus, with each remaining outstanding share of Common Stock not purchased in the Offer being converted into the right to receive the Offer Price in cash. We will survive the Merger as a wholly owned subsidiary of Parent. See Note 16 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Results of Operations



                                                Three Months Ended March 31,(1)                  Three Months Ended
                                                2009                       2008                 December 31, 2008(1)
                                                       % of                       % of                          % of
(Dollars in thousands)                  Dollars      revenues      Dollars      revenues        Dollars       revenues
Revenues                                $ 44,405        100.0 %    $ 61,025        100.0 %    $    51,391        100.0 %
Cost of revenues                          38,153         85.9        48,590         79.6           42,747         83.2

Gross margin                               6,252         14.1        12,435         20.4            8,644         16.8
Operating expenses:
Marketing and sales                        5,522         12.4         8,291         13.6            7,133         13.9
Research and development                   2,304          5.2         2,784          4.6            2,725          5.3
General and administrative                 4,012          9.0         4,442          7.3            4,116          8.0
Restructuring costs                        1,000          2.3            -            -             4,200          8.2
Impairment of long-lived assets            1,236          2.8            -            -             2,628          5.1
Value added tax assessment                   468          1.1            -            -                -            -

                                          14,542         32.7        15,517         25.4           20,802         40.5

Loss from operations                      (8,290 )      (18.7 )      (3,082 )       (5.1 )        (12,158 )      (23.7 )
Other income (expense):
Interest expense                            (248 )       (0.6 )        (148 )       (0.2 )            (36 )       (0.1 )
Interest income                               89          0.2           472          0.8              198          0.4
Other, net                                    31          0.1         1,186          1.9             (807 )       (1.6 )

Loss before income taxes                  (8,418 )      (19.0 )      (1,572 )       (2.6 )        (12,803 )      (24.9 )
(Provision) benefit for income taxes         350          0.8          (236 )       (0.4 )           (281 )       (0.5 )

Net loss                                $ (8,068 )      (18.2 )%   $ (1,808 )       (3.0 )%   $   (13,084 )      (25.5 )%

(1) Percentages may not add due to rounding.

Revenues

Revenues decreased $16.6 million, or 27.2%, in the three months ended March 31, 2009 compared to the three months ended March 31, 2008.

This decrease in revenues was due to a 13% decrease in total units sold to 60,000 units in the first quarter of 2009 compared to 69,000 units in the first quarter of 2008, as well as a 16% decrease in overall average selling prices ("ASPs"). The decline in units sold was primarily due to the continuing global economic slow-down and affected all geographical regions in which the Company operates. The impact was most significant in our European operation which incurred the greatest percentage decrease in units sold. The decrease in overall ASPs was primarily due to a shift in product mix, the sale of end-of-life products and aggressive pricing pressure by our competitors.

We also experienced a $7.0 million, or 13.6%, decrease in revenue in the first quarter of 2009 compared to the fourth quarter of 2008, primarily due to a 5% decrease in units sold to 60,000 units in the first quarter of 2009 compared to 63,000 units in the fourth quarter of 2008, as well as a 10% decrease in overall ASPs. The decline in units sold was primarily due to seasonality from the fourth quarter of one year to the first quarter of the next and the continuing effect of the economic downturn. The decrease in ASPs was primarily due to the sale of end-of-life products in the first quarter of 2009 and pricing pressure from our competitors.

Geographic Revenues

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



                            Three Months Ended March 31,            Three Months Ended
                              2009                 2008             December 31, 2008
        United States   $   23,493   52.9 %   $ 29,813   48.8 %   $     23,489      45.7 %
        Europe              11,249   25.3 %     18,600   30.5 %         17,978      35.0 %
        Asia                 6,215   14.0 %      8,708   14.3 %          6,254      12.2 %
        Other                3,448    7.8 %      3,904    6.4 %          3,670       7.1 %

                        $   44,405            $ 61,025            $     51,391

U.S. revenues decreased 21% in the first quarter of 2009 compared to the first quarter of 2008 and were flat compared to the fourth quarter of 2008. The decrease compared to the first quarter of 2008 was primarily due to a 13% decrease in overall ASPs combined with a 9% decrease in units shipped. The relative flatness compared to the fourth quarter of 2008 was primarily due to lower ASPs as a result of the sale of end-of-life products, offset by a 5% increase in units sold.

European revenues decreased 40% in the first quarter of 2009 compared to the first quarter of 2008 and 37% compared to the fourth quarter of 2008. The decrease compared to the first quarter of 2008 was primarily due to a 23% decrease in overall ASPs combined with a 21% decrease in units shipped. The decrease compared to the fourth quarter of 2008 was primarily due to a 25% decrease in units sold as a result of economic factors in the region, combined with a 17% decrease in overall ASPs as a result of the sale of end-of-life products.

Asian revenues decreased 29% in the first quarter of 2009 compared to the first quarter of 2008 and 1% compared to the fourth quarter of 2008. The decrease compared to the first quarter of 2008 was primarily due to a 16% decrease in both overall ASPs and units shipped. The decrease compared to the fourth quarter of 2008 was primarily due to lower ASPs, mostly offset by a 12% increase in units sold. The increase in units sold primarily resulted from the sale of end-of-life products.

Other revenues primarily consist of sales in Canada and Latin America. Other revenues decreased 12% in the first quarter of 2009 compared to the first quarter of 2008 and decreased 6% compared to the fourth quarter of 2008. The decrease compared to the first quarter of 2008 was primarily due to a 22% decrease in overall ASPs, partially offset by a 13% increase in units shipped. The decrease compared to the fourth quarter of 2008 was primarily due to a 19% decrease in overall ASPs, partially offset by a 16% increase in units shipped.

Backlog

At March 31, 2009, we had backlog of approximately $3.3 million, compared to approximately $5.2 million at December 31, 2008. Given current supply and demand estimates, it is anticipated that a majority of the current backlog will turn over by the end of the second quarter of 2009. 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 the orders.

Gross Margin

We achieved gross margins of 14.1% in the first quarter of 2009, compared to 20.4% in the first quarter of 2008 and 16.8% in the fourth quarter of 2008.

The decrease in gross margin in the first quarter of 2009 compared to both the first and fourth quarters of 2008 was due to lower volume and the sale of end-of-life products.

Marketing and Sales Expense

Marketing and sales expense decreased $2.8 million, or 33.4%, to $5.5 million in the first quarter of 2009 compared to $8.3 million in the first quarter of 2008. The decrease in marketing and sales expense was primarily due to lower variable sales and marketing costs. These expense reductions were the result of lower advertising-related spending, decreases in certain marketing programs, which decreased in connection with decreased sales, and decreases resulting from the implementation of restructuring plans throughout 2008.

Research and Development Expense

Research and development expense decreased $0.5 million, or 17.3%, to $2.3 million in the first quarter of 2009 compared to $2.8 million in the first quarter of 2008. This decrease was primarily due to the implementation of our restructuring plans throughout 2008, partially offset by an increase in non-recurring engineering expenses related to the co-development of new products.

General and Administrative Expense

General and administrative expense decreased $0.4 million, or 9.7%, to $4.0 million in the first quarter of 2009 compared to $4.4 million in the first quarter of 2008. This decrease was primarily due to the implementation of our restructuring plans throughout 2008, partially offset by increases in expenses for investment advisory and legal services related to the strategic process that we publicly announced on December 10, 2008, including services related to the negotiation of the Merger Agreement.

Restructuring

Restructuring charges of $1.0 million in the first quarter of 2009 were primarily related to lease losses on vacated facilities we ceased using.

At March 31, 2009, we had $5.8 million of restructuring costs accrued on our consolidated balance sheet classified as other current liabilities. See further detail in Note 9 of Notes to Consolidated Financial Statements.

Impairment of Long-Lived Assets

In the first quarter of 2009, we recorded impairment charges related to long lived assets to be disposed of by sale. The long lived assets impaired were related primarily to tooling and software purchased during the first quarter of 2009. The long lived assets were grouped with the other assets and liabilities of the company as a whole as there were not identifiable cash flows for these long lived assets which were largely independent of the cash flows of the entire company. We measured the fair value of the Company using a Level 2 input. See Note 14 of Notes to Consolidated Financial Statements for further discussion of regarding fair value. The analysis indicated that the carrying value of our long-lived assets exceeded their fair value. Accordingly, we recorded an impairment charge totaling $1.2 million in the first quarter of 2009 to write off all property and equipment acquired in the first quarter. The majority of these long-lived assets continue to be used in operations.

Value Added Tax Assessment

The value added tax assessment of $0.5 million and interest expense of $0.1 million, totaling $0.6 million in the first quarter of 2009, relates to the accrual of value added taxes, penalties and interest which are potentially owed as identified in an audit performed by the German tax authorities.

Other Income (Expense)

Interest income decreased $0.4 million to $0.1 million in the first quarter of 2009 compared to $0.5 million in the first quarter of 2008 primarily due to lower cash and investment balances and lower

interest rates. Average cash and investment balances were $12.7 million and $29.4 million, respectively, in the first quarter of 2009 and 2008.

Other, net consisted of the following (in thousands):

   Three Months Ended March 31,                                   2009       2008
   Income related to the profits of Motif, 50-50 joint venture   $  209     $ 1,225
   Losses related to foreign currency transactions                 (127 )        (3 )
   Other                                                            (51 )       (36 )

                                                                 $   31     $ 1,186

Income Taxes

We recorded an income tax benefit of $350,000 in the first quarter of 2009 and expense of $236,000 in the first quarter of 2008. The income tax benefit in the current quarter primarily related to expected income tax benefit in certain foreign tax jurisdictions, offset by income tax expense in the U.S jurisdictions. The income tax expense in the first quarter of 2008 primarily related tax expense in certain foreign tax jurisdictions.

Liquidity and Capital Resources

As a result of losses incurred in the past several years and the current quarter, we had an accumulated deficit of $154.4 million at March 31, 2009. The continuing challenging economic climate may lead to adverse changes in our working capital levels and funding requirements, which may have a direct impact on our results of operations and financial position. These and other factors may adversely affect our liquidity and our ability to generate positive cash flow and profits in the future.

We anticipate that our existing capital resources and availability under our line of credit, will be adequate to satisfy our liquidity requirements through March 31, 2010. However, there is no assurance that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity, which, in turn, may have an adverse effect on our results of operations and financial position.

Total cash, cash equivalents, restricted cash and marketable securities were $22.3 million at March 31, 2009 compared to $33.4 million at December 31, 2008. Working capital totaled $37.2 million and $46.2 million at March 31, 2009 and December 31, 2008, respectively. Working capital at March 31, 2009 included $8.0 million of unrestricted cash and cash equivalents. The current ratio at March 31, 2009 and December 31, 2008 was 2.0 to 1 and 1.8 to 1, respectively.

During the first quarter of 2009, we entered into an agreement with Wells Fargo to amend our line of credit facility. The amendment waived the event of default arising from the covenant violation as of December 31, 2008, restated the Base Rate Margin to 4.50 percentage points, reset financial covenants related to Minimum EBITDA for the first half of 2009, and extended the term of the agreement until August 31, 2010. As of March 31, 2009, $2.5 million was outstanding under the line of credit facility and we were in compliance with all financial covenants.

At March 31, 2009, we had two outstanding standby letters of credit totaling $10.3 million, which secure our obligations to foreign suppliers for purchases of inventory. The fair value of these letters of credit approximates their contract values. The letters of credit were collateralized by $10.8 million of cash and cash equivalents at March 31, 2009, which were reported as restricted on the consolidated balance sheets. The remaining restricted cash and cash equivalents of $3.5 million secures our merchant credit card processing account, deposits for value-added taxes in foreign jurisdictions, and other various bank guarantees in foreign jurisdictions.

Accounts receivable decreased $1.1 million to $24.2 million at March 31, 2009 compared to $25.3 million at December 31, 2008, due primarily to lower sales in the first quarter of 2009 compared to

the fourth quarter of 2008, partially offset by an increase in days sales outstanding ("DSO") to 49 days at March 31, 2009 compared to 45 days at December 31, 2008.

Inventories decreased $14.7 million to $23.8 million at March 31, 2009 compared to $38.5 million at December 31, 2008. This decrease primarily resulted from lower purchases of finished goods from our contract manufacturers and the sale of excess inventory that resulted from the lower than expected sales in the second half of 2008. See Note 2 of Notes to Consolidated Financial Statements for a summary of the components of inventory as of these dates.

At March 31, 2009 and December 31, 2008, we had approximately 4 weeks and 7 weeks of inventory, respectively, in the Americas channel. Annualized inventory turns were approximately 5 times for the quarter ended March 31, 2009 and 6 times for the quarter ended December 31, 2008.

Expenditures for property and equipment totaled $1.2 million in the first quarter of 2009 and were primarily for purchases of product tooling and computer software. Total expenditures for property and equipment are expected to be between $3.0 million and $4.0 million in 2009, primarily for IT infrastructure, tooling and equipment.

Accounts payable decreased $18.7 million to $20.1 million at March 31, 2009 compared to $38.8 million at December 31, 2008. This decrease primarily resulted from the payment of invoices for inventory purchased in prior periods, compounded by lower inventory purchases made in the first quarter of 2009.

Accrued warranty costs, both short and long-term, decreased $1.0 million to $3.7 million at March 31, 2009 compared to $4.7 million at December 31, 2008. The reduction in accrued warranty costs was due primarily to 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 and a reduction in failure rates. 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.

Seasonality

Given the buying patterns of various geographies and market segments, our revenues are subject to certain elements of seasonality over the course 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 2008 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 16, 2009.

New Accounting Pronouncements

See Note 15 of Notes to Consolidated Financial Statements