##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 Quarterly Report Pursuant To Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For
the Quarter Ended December 31, 2005
 Commission
file number 0-50289
 Syntax-Brillian Corporation
 
  Delaware
    
    05-0567906(State or Other Jurisdiction
of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
  
   
  þ o
  o o þ
 o þ
  CLASS
    
    OUTSTANDING AS OF FEBRUARY 14, 2006Common
    
    
    45,013,587Par value $.001 per share




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##### 



SYNTAX-BRILLIAN
CORPORATION
 QUARTERLY REPORT ON FORM 10-Q
 FOR QUARTER ENDED DECEMBER 31, 2005
 TABLE OF CONTENTS
  
 PagePART I  FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS:Condensed Consolidated Balance Sheets -December 31, 2005 (unaudited) and June 30, 2005
    
    
    1Condensed Consolidated Statements of Operations (unaudited) -Three Months and Six Months Ended December 31, 2005 and 2004
    
    
    2Condensed Consolidated Statements of Cash Flows (unaudited) -Six Months Ended December 31, 2005 and 2004
    
    
    3Notes to Condensed
Consolidated Financial Statements (unaudited)
    
    
    4ITEM 2.
    
    MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS
    
    
    12ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    23ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    23Exhibit 4.15Exhibit 10.38Exhibit 10.39Exhibit 10.40Exhibit 10.41Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  PART
II  OTHER INFORMATION
 ITEM
1A.
    
    RISK FACTORS
    
    
    24ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    38ITEM 5.
    
    OTHER INFORMATION
    
    
    39ITEM 6.
    
    EXHIBITS
    
    
    39SIGNATURES
    
    
    40




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##### Table of Contents



PART
I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 SYNTAX-BRILLIAN CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 DECEMBER 31,
    
    
    JUNE 30,2005
    
    
    2005(unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    10,140
    
    
    $
    1,804Accounts receivable and due from factor, net
    
    
    43,057
    
    
    
    15,573Inventories, net
    
    
    29,021
    
    
    
    15,139Deferred income taxes, current portion
    
    
    1,060
    
    
    
    2,060Other current assets
    
    
    1,663
    
    
    
    1,772Total Current Assets
    
    
    84,941
    
    
    
    36,348Property, plant and equipment, net
    
    
    11,707
    
    
    
    816Deferred income taxes, non-current portion
    
    
    1,000
    
    
    
    Investment
    
    
    424
    
    
    
    424Intangible
assets, net
    
    
    21,365
    
    
    
    Goodwill
    
    
    2,645
    
    
    
    Other assets
    
    
    4,368
    
    
    
    46Total Assets
    
    $
    126,450
    
    
    $
    37,634LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Loan payable, bank
    
    $
    20,793
    
    
    $
    12,049Notes payable
    
    
    1,300
    
    
    
    461Accounts payable
    
    
    22,277
    
    
    
    9,287Accrued rebates payable
    
    
    7,097
    
    
    
    1,382Deferred warranty revenue
    
    
    3,645
    
    
    
    1,995Income taxes payable
    
    
    96
    
    
    
    1,510Other current liabilities
    
    
    5,423
    
    
    
    2,667Total Current Liabilities
    
    
    60,631
    
    
    
    29,351Long-term debt (net of $6,970 discount)
    
    
    3,186
    
    
    
    Redeemable, convertible preferred stock (net of $8,547 discount)
    
    
    6,453
    
    
    
    Deferred income taxes
    
    
    49
    
    
    
    49Stockholders Equity:Contributed
capital  Syntax Groups Corporation
    
    
    
    
    
    
    8,234Common stock
    
    
    43
    
    
    
    Additional paid-in capital
    
    
    58,057
    
    
    
    Accumulated deficit
    
    
    (1,969
    )
    
    
    Total stockholders equity
    
    
    56,131
    
    
    
    8,234Total Liabilities and Stockholders Equity
    
    $
    126,450
    
    
    $
    37,634
  1




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SYNTAX-BRILLIAN CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three Months
    
    
    Six MonthsEnded December 31,
    
    
    Ended December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    60,155
    
    
    $
    28,809
    
    
    $
    87,512
    
    
    $
    38,466Cost of sales
    
    
    53,321
    
    
    
    25,836
    
    
    
    75,059
    
    
    
    34,2526,834
    
    
    
    2,973
    
    
    
    12,453
    
    
    
    4,214Operating expenses:Selling, distribution, and marketing
    
    
    1,988
    
    
    
    698
    
    
    
    2,926
    
    
    
    1,070General and administrative
    
    
    4,460
    
    
    
    1,521
    
    
    
    9,586
    
    
    
    2,549Research and development
    
    
    627
    
    
    
    
    
    
    
    627
    
    
    
    7,075
    
    
    
    2,219
    
    
    
    13,139
    
    
    
    3,619Operating income (loss)
    
    
    (241
    )
    
    
    754
    
    
    
    (686
    )
    
    
    595Interest, net
    
    
    (991
    )
    
    
    (85
    )
    
    
    (1,283
    )
    
    
    (117
    )Net income (loss) before income taxes
    
    
    (1,232
    )
    
    
    669
    
    
    
    (1,969
    )
    
    
    478Income tax expense
    
    
    (79
    )
    
    
    (255
    )
    
    
    
    
    
    
    (256
    )Net income (loss)
    
    $
    (1,311
    )
    
    $
    414
    
    
    $
    (1,969
    )
    
    $
    222Income
(loss) per common share:Basic and diluted
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    0.01Weighted average number of common shares:Basic and diluted
    
    
    37,219
    
    
    
    29,860
    
    
    
    35,529
    
    
    
    29,063
 
  2




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SYNTAX-BRILLIAN CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





Six Months EndedDecember 31,2005
    
    
    2004Cash Flows from Operating Activities:Net income (loss)
    
    $
    (1,969
    )
    
    $
    222Adjustments to reconcile net income (loss) to net cash used
in operating activities:Depreciation and amortization
    
    
    485
    
    
    
    77Provision for inventory write-downs
    
    
    (872
    )
    
    
    (249
    )Amortization of debenture discount and offering costs
    
    
    521
    
    
    
    Stock compensation
    
    
    3,670
    
    
    
    Stock issued to pay interest
    
    
    175
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    (669
    )Provision for doubtful accounts
    
    
    54
    
    
    
    175Changes in assets and liabilities:Increase in accounts receivable and due from factor
    
    
    (27,150
    )
    
    
    (6,662
    )Increase in inventories
    
    
    (8,539
    )
    
    
    (615
    )Other current assets
    
    
    688
    
    
    
    (204
    )Other assets
    
    
    (1,642
    )
    
    
    Accrued rebates payable
    
    
    5,715
    
    
    
    352Deferred warranty revenue
    
    
    1,650
    
    
    
    418Income taxes payable
    
    
    (1,414
    )
    
    
    924Accounts payable
    
    
    10,146
    
    
    
    4,150Other accrued liabilities
    
    
    143
    
    
    
    (465
    )Net cash used in operating activities
    
    
    (18,339
    )
    
    
    (2,546
    )Cash Flows from Investing Activities:Purchases of property, plant, and equipment
    
    
    (456
    )
    
    
    (447
    )Restricted cash
    
    
    
    
    
    
    500Net cash provided by (used in) investing activities
    
    
    (456
    )
    
    
    53Cash Flows from Financing Activities:Proceeds of redeemable convertible preferred stock offering
    
    
    13,893
    
    
    
    Proceeds from issuance of common stock
    
    
    2,528
    
    
    
    Net proceeds from bank loan payable
    
    
    8,744
    
    
    
    Proceeds from issuance of notes payable
    
    
    850
    
    
    
    Repayments of long-term debt and notes payable
    
    
    (11
    )
    
    
    (1,599
    )Net cash transfers from Syntax Groups Corporation
    
    
    
    
    
    
    3,960Cash
acquired from Brillian
    
    
    1,035
    
    
    
    Warrants exercised
    
    
    69
    
    
    
    Stock options exercised
    
    
    23
    
    
    
    Net cash provided by financing activities
    
    
    27,131
    
    
    
    2,361Net increase (decrease) in cash and cash equivalents
    
    
    8,336
    
    
    
    (132
    )Cash and cash equivalents, beginning of period
    
    
    1,804
    
    
    
    769Cash and cash equivalents, end of period
    
    $
    10,140
    
    
    $
    637Supplemental Cash Flow Information:Cash paid for interest
    
    $
    21
    
    
    $
    158Cash paid for income taxes
    
    $
    21
    
    
    $
    





3




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SYNTAX-BRILLIAN CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note A
     4




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Note B
     5




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Balance SheetIncrease toIncrease
    
    
    DeferredTotal
    
    
    
    
    
    
    (Decrease) to
    
    
    WarrantySix months ended December 31, 2004
    
    Purchases
    
    
    Cost of Sales
    
    
    Inventory
    
    
    RevenuePurchases
    
    $
    45,821
    
    
    $
    38,477
    
    
    $
    7,344
    
    
    $
    Rebates, based on percentage of purchases:Market development
    
    
    (2,433
    )
    
    
    (2,252
    )
    
    
    (181
    )
    
    
    Technical development
    
    
    (1,643
    )
    
    
    (1,426
    )
    
    
    (217
    )
    
    
    Volume incentive
    
    
    (1,196
    )
    
    
    (1,027
    )
    
    
    (169
    )
    
    
    Excess warranty expense reimbursements
    
    
    (616
    )
    
    
    (198
    )
    
    
    
    
    
    
    (418
    )Price protection
    
    
    (11,210
    )
    
    
    (11,210
    )
    
    
    
    
    
    
    Price protection guaranteed minimum
    
    
    (983
    )
    
    
    
    
    
    
    (983
    )
    
    
    Net activity, six months ended December 31,
2004
    
    
    27,740
    
    
    
    22,364
    
    
    
    5,794
    
    
    
    (418
    )Prior year balances charged to cost of sales
    
    
    5,072
    
    
    
    5,072
    
    
    
    
    
    
    
    Balance, December 31, 2004
    
    $
    32,812
    
    
    $
    27,436
    
    
    $
    5,794
    
    
    $
    (418
    )Six months ended December 31, 2005Purchases
    
    $
    116,725
    
    
    $
    85,341
    
    
    $
    31,384
    
    
    $
    Rebates, based on percentage of purchases:Market development
    
    
    (3,451
    )
    
    
    (2,696
    )
    
    
    (755
    )
    
    
    Technical development
    
    
    (4,142
    )
    
    
    (3,235
    )
    
    
    (907
    )
    
    
    Volume incentive
    
    
    (3,797
    )
    
    
    (2,966
    )
    
    
    (831
    )
    
    
    Excess warranty expense reimbursements
    
    
    (3,538
    )
    
    
    (1,887
    )
    
    
    
    
    
    
    (1,651
    )Price protection
    
    
    (29,239
    )
    
    
    (29,239
    )
    
    
    
    
    
    
    Price protection guaranteed minimum
    
    
    (4,931
    )
    
    
    
    
    
    
    (4,931
    )
    
    
    Net activity, six months ended December 31,
2005
    
    
    67,627
    
    
    
    45,318
    
    
    
    23,960
    
    
    
    (1,651
    )Prior year balances charged to cost of sales
    
    
    17,203
    
    
    
    17,203
    
    
    
    
    
    
    
    Balance, December 31, 2005
    
    $
    84,830
    
    
    $
    62,521
    
    
    $
    23,960
    
    
    $
    (1,651
    )
   Note C
  6




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December 31,
    
    
    June 30,2005
    
    
    2005Due from
factor (including $6,205 and $2,176 with recourse)
    
    $
    30,895
    
    
    $
    8,553Accounts receivable not assigned to
factor
    
    
    12,275
    
    
    
    7,180Other receivables
    
    
    119
    
    
    
    7,180Allowance for doubtful accounts
    
    
    (232
    )
    
    
    (160
    )$
    43,057
    
    
    $
    15,573
  Note D
 December 31,
    
    
    June 30,2005
    
    
    2005Raw materials
    
    $
    3,769
    
    
    $
    1,429Work-in-process
    
    137
    
    
    
    Finished goods
    
    25,115
    
    
    
    13,710$
    29,021
    
    
    $
    15,139
  Note E
 December 31,
    
    
    June 30,2005
    
    
    2005Leasehold and building improvements
    
    $
    1,138
    
    
    $
    180Machinery and equipment
    
    10,587
    
    
    
    550Software
    
    309
    
    
    
    252Furniture and fixtures
    
    288
    
    
    
    7012,322
    
    
    
    1,052Less accumulated depreciation
    

    (615
    )
    
    
    (236
    )$
    11,707
    
    
    $
    816
 Note F
  7




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Note G
  December 31,
    
    
    Amortizable2005
    
    
    LifeLCoS trademark and trade
names
    
    $
    1,208
    
    
    7.5 yearsBrillian trademark and
trade name
    
    
    148
    
    
    4.0 yearsPatented
technology
    
    
    20,114
    
    
    19.0 years$
    21,470Less
accumulated amortization
    
    
    (105)$
    21,365
   Note H
  a)
    
    $10 million limitation for the issuance of letters of credit, subject
to the borrowing base;b)
    
    $5 million for trust receipts and acceptances up to 90 days, subject to
the borrowing base;c)
    
    $10 million for trust receipts and general working capital for up to 60
days, subject to the borrowing base;d)
    
    The amounts in a) plus b) shall not exceed $10 million;e)
    
    The amounts in a) plus b) plus c) shall not exceed
$20 million; andf)
    
    The borrowings under the facility bear interest at Preferred Banks
prime rate plus 0.5% (7.75% at December 31, 2005).
    8




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Note I
  Note J
   LCD
    
    
    LCoS
    
    
    TotalThree months ended
December 31, 2005Net sales
    
    $
    59,861
    
    
    $
    294
    
    
    $
    60,155Operating income (loss)
    
    $
    2,535
    
    
    $
    (2,776
    )
    
    $
    (241
    )Three months ended
December 31, 2004Net sales
    
    $
    28,809
    
    
    $
    
    
    
    $
    28,809Operating income (loss)
    
    $
    754
    
    
    $
    
    
    
    $
    754Six months ended
December 31, 2005Net sales
    
    $
    87,218
    
    
    $
    294
    
    
    $
    87,512Operating income (loss)
    
    $
    2,090
    
    
    $
    (2,776
    )
    
    $
    (686
    )Six months ended
December 31, 2004Net sales
    
    $
    38,466
    
    
    $
    
    
    
    $
    38,466Operating income (loss)
    
    $
    595
    
    
    $
    
    
    
    $
    595
   9




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NorthAmerica
    
    
    Asia
    
    
    Europe
    
    
    TotalThree months ended
December 31, 2005Net sales
    
    $
    52,659
    
    
    $
    7,460
    
    
    $
    36
    
    
    $
    60,155Three months ended
December 31, 2004Net sales
    
    $
    22,484
    
    
    $
    6,325
    
    
    $
    
    
    
    $
    28,809Six months ended
December 31, 2005Net sales
    
    $
    76,400
    
    
    $
    11,076
    
    
    $
    36
    
    
    $
    87,512Six months ended
December 31, 2004Net sales
    
    $
    32,141
    
    
    $
    6,325
    
    
    $
    
    
    
    $
    38,466
 Note K
     10




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Note L
      Dividend yield:
    
    
    N/AVolatility:
    
    
    123
    %Risk-free interest rate:
    
    
    3.81
    %Expected life in years:
    
    
    10
 Note M
  Note N
  December 31,
    
    
    June 30,2005
    
    
    2005April 2005 7% Convertible Debentures maturing
April 20, 2008, convertible at $1.57 per
share
    
    $
    1,081
    
    
    $
    April 2005 9% Senior Secured Debentures
maturing April 20, 2008, secured by a first
lien on our assets
    
    
    2,000
    
    
    
    July 2005 4% Convertible Debentures maturing
July 12, 2008, convertible at $2.63 per share
    
    5,000
    
    
    
    July 2005 9% Senior Secured Debentures
maturing July 12, 2008, secured by a first
lien on our assets
    
    
    2,075
    
    
    
    10,156
    
    
    
    Less:Discount and beneficial conversion feature
on convertible debentures
    
    (5,884
    )
    
    
    Discount on secured debentures
    
    (1,086
    )
    
    
    Total
    
    $
    3,186
    
    
    $
    
 11




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Note O
      
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   12




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Overview
        13




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Critical Accounting Policies and Estimates
        14




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Results of Operations
 Three months ended December 31, 2005 compared to three months ended December 31, 2004
 Net Sales.
    Cost of Sales.
   15




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16




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Selling, Distribution, and Marketing Expense.
 General and Administrative Expense.
 Research and Development Expense.
 Interest Expense .
 Net Income (Loss).
 Six months ended December 31, 2005 compared to six months ended December 31, 2004
 Net Sales.
   17




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Cost of Sales.
       18




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Selling, Distribution, and Marketing Expense.
 General and Administrative Expense.
 Research and Development Expense.
 Interest Expense .
 19




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Net Income (Loss).
 Liquidity and Capital Resources
         20




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21




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Aggregate Contractual Obligations
  Payments
Due by PeriodTotalAmounts
    
    Less Than
    
    
    
    
    
    
    
    
    
    6 YearsOther
Contractual Commitments
    
    Committed
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    and Over(In thousands)Facilities leases
    
    $
    1,048
    
    
    $
    331
    
    
    $
    662
    
    
    $
    55
    
    
    $
    Purchase orders
    
    $
    16,400
    
    
    $
    16,400
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Off Balance Sheet Arrangements
  22




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Impact of Recently Issued Standards
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  Foreign Currency Risk
  Equity Price Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
  23




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Part
II-OTHER INFORMATION
 Item
1A. Risk Factors
  We have never achieved profitability on an annual basis.
  We derive substantially all of our revenue from sales of HDTVs, particularly LCD HDTVs, and any
decline in demand for these products could severely harm our ability to generate revenue.
  We will be required to attain and maintain profitability through a combination of increased revenue
or lower expenses or to raise additional funds.
    Our revenue depends on sales by various retailers and distributors.
   
    
    our ability to secure and maintain favorable relationships with retailers and distributors;
    
    our lack of control over the timing of delivery of our products to end-users;
    
    our retailers and distributors are not subject to minimum sales requirements or any
obligation to market our products to their customers;
    
    our retailers and distributors may terminate their relationships with us at any time; and
    
    our retailers and distributors market and distribute competing products.
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Competing companies and technologies could reduce the demand for our products.
   We rely on contract manufacturers and assemblers for a portion of our HDTV production requirements,
and any interruptions of these arrangements could disrupt our ability to fill customer orders.
  Our contract manufacturers and assemblers must maintain satisfactory delivery schedules and their
inability to do so could increase our costs, disrupt our supply chain, and result in our inability
to deliver our HDTV products, which would adversely affect our results of operations.
  Shortages of components and materials may delay or reduce our sales and increase our costs.
  25




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Our business depends on new products and technologies.
  
    
    designing and developing new products and product enhancements that appeal to
consumers;
    
    meeting the expectations of our retail and OEM customers in terms of product design,
product cost, performance, and service;
    
    expanding our manufacturing resources;
    
    continuing research and development activities on existing and potential products;
    
    engaging additional engineering and other technical personnel;
    
    purchasing advanced design, production, and test equipment; and
    
    maintaining and enhancing our technological capabilities.
  26




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
    
    innovative development of new products;
    
    efficient, timely, and cost-effective manufacture of our products;
    
    the acceptance of our technology; and
    
    utilization of advances in technology.
  We must protect our intellectual property and could be subject to infringement claims by others.
  
    
    intellectual property laws may not protect our intellectual property rights;
    
    third parties may challenge, invalidate, or circumvent any patents issued to us;
    
    rights granted under patents issued to us may not provide competitive advantages to us;
    
    unauthorized parties may attempt to obtain and use information that we regard as
proprietary despite our efforts to protect our proprietary rights;
    
    others may independently develop similar technology or design around any patents
issued to us; and
    
    effective protection of intellectual property rights may be limited or unavailable
in some foreign countries in which we operate.
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Our operations in foreign countries expose us to a variety of risks.
  
    
    difficulties in staffing, managing, and operating an international operation;
    
    the burdens and costs of compliance with local laws and regulatory requirements as
well as changes in those laws and requirements;
    
    imposition of governmental controls, including trade and employment restrictions and
restrictions on currency conversion or the transfer of funds;
    
    transportation delays or interruptions and other effects of less developed
infrastructures;
    
    fluctuations in foreign currency exchange rates and difficulties in hedging foreign
currency transaction exposures;
    
    economic instability, such as higher interest rates and inflation, which could
reduce our customers ability to obtain financing for consumer electronic products or
which could make our products more expensive in those countries;
    
    employment and severance issues, including possible employee turnover or labor unrest;
    
    overlap of tax issues;
    
    tariffs and duties;
    
    potential loss of proprietary information as a result of piracy, misappropriation,
or laws that may be less protective of our intellectual property rights;
    
    limitations on future growth or inability to maintain current levels of revenue from
international operations if we do not invest sufficiently in our international
operations;
    
    longer payment cycles for sales in foreign countries and difficulties in collecting
accounts receivable;
    
    difficulties in coordinating the activities of our geographically dispersed and
culturally diverse operations;
    
    seasonal reductions in business activity in the summer months in Asia and in other
periods in other countries;
    
    costs and delays associated with developing our products in multiple languages; and
    
    economic instability, political unrest, war, or terrorism in areas in which we do business.
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The cyclical nature of the consumer electronics industry may cause substantial period-to-period
fluctuations in our operating results.
  Our operating results may have significant periodic and seasonal fluctuations.
  
    
    effectiveness in managing manufacturing processes;
    
    changes in cost and availability of labor and components;
    
    the timing and volume of orders relative to our capacity;
    
    market acceptance of our products;
    
    product introductions or enhancements by us and our competitors;
    
    evolution in the life cycles of products;
    
    timing of expenditures in anticipation of future orders;
    
    product mix;
    
    pricing and availability of competitive products;
    
    changes or anticipated changes in economic conditions;
    
    the cancellation or deferral of product purchases as a result of weak or uncertain
economic and industry conditions or the anticipation of new products or product updates
by us or our competitors;
    
    changes in the competitive landscape due to mergers, acquisitions, or strategic
alliances that could allow our competitors to gain market share;
    
    the unpredictability of the timing and magnitude of our sales through direct sales
channels and indirect sales channels;
    
    the seasonal nature of our sales;
    
    changes in our pricing and distribution terms or those of our competitors; and
    
    the possibility that our business will be adversely affected as a result of the
threat of terrorism or military actions taken by the United States or its allies.
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Our products are complex and may require modifications to resolve undetected errors or unforeseen
failures, which could lead to an increase in our costs, a loss of customers, or a delay in market
acceptance of our products.
  Our LCoS microdisplay products may not achieve commercial success or widespread market acceptance.
  
    
    difficulties with other suppliers of components for the products;
    
    superior technologies developed by our competitors;
    
    price considerations;
    
    lack of anticipated or actual market demand for the products; and
    
    unfavorable comparisons with products introduced by others.
 Various target markets for our LCoS microdisplays are uncertain, may be slow to develop, or could
use competing technologies.
  We do not sell our LCoS microdisplays to end users and depend on the market acceptance of the
products of our customers.
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
    
    our ability to supply products for customers on a timely and cost-effective basis;
    
    our success in maintaining customer satisfaction with our products;
    
    our ability to match our manufacturing capacity with customer demand and to maintain
satisfactory delivery schedules;
    
    customer order patterns, changes in order mix, and the level and timing of orders
placed by customers that we can complete in a quarter; and
    
    the cyclical nature of the industries and markets that we serve.
  We have not reached definitive agreements with any traditional consumer electronics retailers to
sell our LCoS HDTVs, and we do not have long-term purchase commitments from OEM customers for our
home theater or near-to-eye microdisplay products.
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We have encountered delays in the procurement and production of light engines, and additional
delays would harm our ability to manufacture LCoS HDTVs.
   
    
    our success in developing and producing new products;
    
    our ability to address the needs of our retail and OEM customers;
    
    the pricing, quality, performance, reliability, features, ease of use, and diversity of our products;
    
    the quality of our customer service;
    
    our efficiency of production;
    
    the rate at which customers incorporate our LCoS microdisplay products into their own products;
    
    product or technology introductions by our competitors; and
    
    foreign currency devaluations, especially in Asian currencies, such as the Japanese
yen, the Korean won, and the Taiwanese dollar, which may cause a foreign competitors
products to be priced significantly lower than our products.
 We are subject to lengthy development periods and product acceptance cycles.
   Our Arizona facility and its high-volume LCoS microdisplay manufacturing line are important to our
success.
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We have previously experienced low manufacturing yields in commencing production of LCoS
microdisplays, and we must achieve satisfactory manufacturing yields.
   
    
    the availability of a sufficient quantity of quality materials;
    
    the implementation of new manufacturing techniques;
    
    the incorporation of new handling procedures;
    
    the maintenance of clean manufacturing environments; and
    
    the ability to master precise tolerances in the manufacturing process.
  We must effectively manage our growth.
  
    
    enhance our operational, financial, and management systems;
    
    expand our facilities and equipment; and
    
    successfully hire, train, and motivate additional employees, including the technical
personnel necessary to operate our production facility in Tempe, Arizona.
 We depend on key personnel.
  Any acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute
stockholder value, and harm our operating results.
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
    
    problems integrating the purchased operations, technologies, products, or services with our own;
    
    unanticipated costs associated with the acquisition;
    
    diversion of managements attention from our core businesses;
    
    adverse effects on existing business relationships with suppliers and customers;
    
    risks associated with entering markets in which we have no or limited prior experience;
    
    potential loss of key employees and customers of purchased organizations;
    
    increased costs and efforts in connection with compliance with Section 404 of the
Sarbanes-Oxley Act; and
    
    risk of impairment charges related to potential write-down of acquired assets in
future acquisitions.
  We may not realize the benefits we expected from our merger with Syntax.
  
    
    integrating the business, operations, and technologies of the two companies;
    
    retaining and assimilating the key personnel of each company;
    
    retaining existing customers of both companies and attracting additional customers;
    
    retaining strategic partners of each company and attracting new strategic partners;
    
    creating uniform standards, controls, procedures, policies, and information systems; and
    
    the challenges inherent in efficiently managing an increased number of employees
over large geographic distances, including the need to implement appropriate systems,
policies, benefits, and compliance programs.
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
    
    the potential disruption of ongoing business and distraction of our management;
    
    the potential strain on our financial and managerial controls and reporting systems and procedures;
    
    unanticipated expenses and potential delays related to integration of the
operations, technology, and other resources of the two companies;
    
    the impairment of relationships with employees, suppliers, and customers as a result
of any integration of new management personnel;
    
    greater than anticipated costs and expenses related to the integration of our businesses; and
    
    potential unknown liabilities associated with the merger and the combined operations.
  Charges to earnings resulting from the application of the purchase method of accounting may
adversely affect the market value of our common stock.
  We incur costs as a result of being a public company.
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The market price for our common stock may be volatile, and many factors could cause the market
price of our common stock to fall.
  
    
    variations in our quarterly results;
    
    introductions of new products or new pricing policies by us or by our competitors;
    
    the gain or loss of significant orders;
    
    the gain or loss of significant customers;
    
    announcements of technological innovations by us or by our competitors;
    
    acquisitions or strategic alliances by us or by our competitors;
    
    recruitment or departure of key personnel;
    
    sales of our common stock in the public market, including sales by former Syntax shareholders;
    
    changes in the estimates of our operating performance or changes in recommendations
by any securities analysts that follow our stock; and
    
    market conditions in our industry, the industries of our customers, and the economy
as a whole.
  We are subject to governmental regulations.
  Provisions in our certificate of incorporation, our bylaws, and Delaware law could make it more
difficult for a third party to acquire us, discourage a takeover, and adversely affect existing
stockholders.
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Our effective tax rate may increase or fluctuate, which could increase our income tax expense and
reduce our net income.
  Changes to current accounting principles could have a significant effect on our reported financial
results or the way in which we conduct our business.
  
    
    stock-based compensation;
    
    accounting for variable interest entities;
    
    accounting for goodwill and other intangible assets; and
    
    accounting issues related to certain features of contingently convertible debt
instruments and their effect on diluted earnings per share.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Proposal 1
 Votes in Favor
    
    Votes Against
    
    Abstain
    
    Broker Non-Votes4,423,592
    
    
    54,280
    
    
    
    32,156
    
    
    
    
 Proposal 2:
 Votes in Favor
    
    Votes Against
    
    Abstain
    
    Broker Non-Votes4,275,260
    
    
    178,158
    
    
    
    56,610
    
    
    
    
 Proposal 3
 Votes in Favor
    
    Votes Against
    
    Abstain
    
    Broker Non-Votes4,423,611
    
    
    56,823
    
    
    
    29,594
    
    
    
    
 Proposal 4
 Votes in Favor
    
    Votes Against
    
    Abstain
    
    Broker Non-Votes4,261,529
    
    
    192,077
    
    
    
    56,422
    
    
    
    
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ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Exhibit4.15
    
    Specimen of 6% Redeemable Convertible Preferred Stock Certificate10.38
    
    Business Loan and Security Agreement dated as of September 28,
2005 among Preferred Bank, Syntax Groups Corporation, and Syntax
Corporation10.39
    
    Change in Terms Agreement dated as
of December 14, 2005 among Preferred Bank,
Syntax Groups Corporation, and Syntax Corporation10.40
    
    Second Amendment to Business Loan
and Security Agreement dated as of January 31, 2006 among
Preferred Bank, Syntax Groups Corporation, and Syntax Corporation10.41
    
    Form of Continuing Guaranty entered into in connection with
Exhibit 10.40, and schedule listing signatories31.1
    
    Certification of Chairman and Chief Executive Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a), promulgated under the
Securities Exchange Act of 1934, as amended31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act
of 1934, as amended32.1
    
    Certification of Chairman and Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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##### Table of Contents



SIGNATURES
  SYNTAX - BRILLIAN CORPORATIONDate:  February 21, 2006
    By:
    /s/ Vincent F. Sollitto Jr.Vincent F. Sollitto, Jr.Chairman and Chief Executive Officer By:
    /s/ Wayne A. PrattWayne A. PrattVice President, Chief Financial Officer, Secretary,
and Treasurer 40




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EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit4.15
    
    Specimen of 6% Redeemable
Convertible Preferred Stock Certificate10.38
    
    Business Loan and Security
Agreement dated as of September 28, 2005 among Preferred Bank,
Syntax Groups Corporation and Syntax Corporation10.39
    
    Change in Terms Agreement dated as
of December 14, 2005 among Preferred Bank, Syntax Groups
Corporation, and Syntax Corporation10.40
    
    Second Amendment to Business Loan
and Security Agreement dated as of January 31, 2006 among
Preferred Bank, Syntax Groups Corporation, and Syntax Corporation10.41
    
    Form of Continuing Guaranty entered
into in connection with Exhibit 10.40, and schedule listing
signatories31.1
    
    Certification of Chairman and Chief Executive Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a), promulgated under the
Securities Exchange Act of 1934, as amended31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act
of 1934, as amended32.1
    
    Certification of Chairman and Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002