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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2006
 Commission File Number 000-50289
 
 Syntax-Brillian Corporation
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    05-0567906(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 1600 N. Desert Drive
Tempe, Arizona 85281
(602) 389-8888  (Address including zip code, and telephone number,
 including area code, of principal executive offices)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $.001 per share 
Preferred Stock Purchase Rights
    
    The Nasdaq Global Market
The Nasdaq Global Market
 Securities registered pursuant to Section 12(g) of the Act:
 o þ
 þ o
 o
  o þ o
 o þ
   Documents Incorporated by Reference




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##### 



SYNTAX-BRILLIAN CORPORATION
 ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended June 30, 2006
 TABLE OF CONTENTS
 PagePART IITEM 1.
    
    BUSINESS
    
    1ITEM 1A.
    
    RISK FACTORS
    
    13ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    26ITEM 2.
    
    PROPERTIES
    
    26ITEM 3.
    
    LEGAL PROCEEDINGS
    
    26ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    27PART IIITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    28ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    30ITEM 7.
    
    MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    30ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    41ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    41ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    41ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    42ITEM 9B.
    
    OTHER INFORMATION
    
    42PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    43ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    43ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    43ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    43ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    43PART IVITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    43SIGNATURES
    
    48INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    F-1EX-21Ex-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  Statement Regarding Forward-Looking Information




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PART I
 
 Item 1. Business
 Introduction
    Industry Factors
 Industry Background




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HDTV Technologies
         2




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Near-to-Eye Applications
  3




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Strategy
  Expand Our Market Share Across Multiple HDTV Market Segments
  Leverage Our Global Virtual Manufacturing Model
  4




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Capitalize on Our Technological Expertise
  Pursue Additional Strategic Relationships
  Provide Value-Added Customer Service for OEMs
  Products
 High-Definition Televisions
   5




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Microdisplay Products
   Projection Applications
  Near-to-Eye Applications
    6




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Manufacturing
        7




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Suppliers
    Customers
     
    
    video game, personal video player, and medical head-mounted devices from I-Display Systems;
    
    a night vision headset by Trivisio;
    
    a headset for wearable computers designed by Shimadzu and currently offered in Hitachi
and Xybernaut products;
    
    an aircraft heads-up display for Rockwell;
    
    a viewer for a medical microscope by Zeiss; and
    
    a riflescope viewer by Brashear.
  8




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Sales and Marketing
       9




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Competition
     Research and Development
  
    
    silicon backplane design to reduce size and cost, increase resolution and performance, decrease
power consumption, and integrate driver functionality;
    
    projection optics, color science, and display characterization to optimize the link between the science
of LCoS and the end-user experience;
    
    ASIC design to combine and enhance functionality, reduce cost, and improve HDTV picture quality;
    
    basic research and development to characterize, test, and incorporate new liquid crystal solutions,
silicon substrates, and glass. Our engineers and scientists continue to investigate alternative combinations
of materials to improve picture quality, cost, and manufacturability;
 10




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
    
    printed circuit board design; and
    
    LCoS package and test development programs.
  Intellectual Property
   Government Regulation
   Backlog
  Employees
   11




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Executive Officers
  Name
    
    Age
    
    PositionVincent F. Sollitto, Jr.
    
    
    58
    
    
    Chairman of the Board, Chief Executive Officer, and DirectorJames Li
    
    
    39
    
    
    President, Chief Operating Officer, and DirectorWayne A. Pratt
    
    
    45
    
    
    Executive Vice President, Chief Financial Officer, Secretary, and TreasurerThomas Chow
    
    
    44
    
    
    Executive Vice President, Chief Procurement Officer and DirectorMichael Chan
    
    
    37
    
    
    Executive Vice President  OperationsRobert L. Melcher
    
    
    66
    
    
    Chief Technology Officer
 Vincent F. Sollitto, Jr.
 James Li
 Wayne A. Pratt
 Thomas Chow
 12




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Michael Chan
 Robert L. Melcher
 
 Item 1A. Risk Factors
 You should carefully consider the following risk factors in addition to those discussed
elsewhere in this prospectus in evaluating our company and our business.
 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.
   13




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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.
  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.
  14




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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.
     Our business depends on new products and technologies.
  15




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
    
    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.
   
    
    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;
 16




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
    
    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.
   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
 17




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
    
    political unrest, war, or terrorism in areas in which we do business.
    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;
 18




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
    
    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.
  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.
  We are subject to lengthy development periods and product acceptance cycles.
   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.
  19




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We do not sell our LCoS microdisplays to end users and depend on the market acceptance of the
products of our customers.
    
    
    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.
   20




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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;
    
    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.
 21




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Our Arizona facility and its high-volume LCoS microdisplay manufacturing line are important to our
success.
  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.
  22




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Any acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute
stockholder value, and harm our operating results.
   
    
    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-downs 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 each company 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.
 23




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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.
  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;
 24




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
    
    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.
    Our effective tax rate may increase or fluctuate, which could increase our income tax expense and
reduce our net income.
  25




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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.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
   26




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Item 4. Submission of Matters to a Vote of Security Holders.
  27




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Item 5.
    
    Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
  High
    
    Low2004First quarter
    
    $
    12.40
    
    
    $
    7.41Second quarter
    
    $
    11.55
    
    
    $
    7.25Third quarter
    
    $
    9.10
    
    
    $
    3.88Fourth quarter
    
    $
    4.59
    
    
    $
    1.492005First quarter
    
    $
    3.57
    
    
    $
    1.69Second quarter
    
    $
    3.20
    
    
    $
    1.12Third quarter
    
    $
    3.86
    
    
    $
    2.37Fourth quarter
    
    $
    7.21
    
    
    $
    3.022006First quarter
    
    $
    5.75
    
    
    $
    3.35Second quarter
    
    $
    4.50
    
    
    $
    2.02Third quarter (through September 8, 2006)
    
    $
    4.50
    
    
    $
    2.20
  Dividends
   28




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Equity Compensation Plan Information
  (c)(a)
    
    
    
    
    
    
    
    
    
    Number of SecuritiesNumber of
    
    (b)
    
    Remaining AvailableSecurities to
    
    Weighted-
    
    for Future Issuancebe Issued
    
    Average
    
    Under Share-BasedUpon
    
    Exercise
    
    Compensation PlansExercise of
    
    Price of
    
    [Excluding SecuritiesOutstanding
    
    Outstanding
    
    Reflected in ColumnPlan Category
    
    Options
    
    Options
    
    (a)]Share-Based
Compensation
Plans Approved by
Stockholders
    
    
    3,047,733
    
    
    
    
    
    $4.17
    
    
    
    
    
    2,048,454Share-Based
Compensation
Plans Not Approved
By Stockholders (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,047,733
    
    
    
    
    
    $4.17
    
    
    
    
    
    2,048,454
 29




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##### Table of Contents



Item 6. Selected Financial Data
  Years Ended June 30,2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands, except per share data)Statement of
Operations Data:Net sales
    
    $
    192,990
    
    
    $
    82,586
    
    
    $
    30,616
    
    
    $
    2,428Costs and expenses:Cost of sales
    
    
    169,096
    
    
    
    71,825
    
    
    
    28,351
    
    
    
    2,690Selling,
distribution, and
marketing
    
    
    8,320
    
    
    
    2,801
    
    
    
    842
    
    
    
    6General and
administrative
    
    
    18,123
    
    
    
    7,616
    
    
    
    2,167
    
    
    
    103Research and
development
    
    
    4,416
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Operating income
(loss)
    
    
    (6,965
    )
    
    
    344
    
    
    
    (744
    )
    
    
    (371
    )Income tax expense
(benefit)
    
    
    
    
    
    
    78
    
    
    
    (357
    )
    
    
    (152
    )Net loss
    
    $
    (18,879
    )
    
    $
    (17
    )
    
    $
    (605
    )
    
    $
    (235
    )Loss per share
    
    $
    (0.46
    )
    
    $
    (0.00
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )
 June 30,2006
    
    2005
    
    2004
    
    2003(in thousands)Balance Sheet Data:Cash and cash
equivalents
    
    $
    7,375
    
    
    $
    1,804
    
    
    $
    769
    
    
    $
    297Total assets
    
    $
    127,656
    
    
    $
    37,634
    
    
    $
    14,038
    
    
    $
    5,045Total stockholders
equity
    
    $
    64,802
    
    
    $
    8,234
    
    
    $
    585
    
    
    $
    98
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion and analysis in conjunction with our financial
statements and related notes contained elsewhere in this report. This discussion contains
forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of a
variety of factors, including those set forth under Item 1A. Risk Factors.
 Overview
  30




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Net Sales
 Cost of Sales.
 Selling, Distribution, and Marketing Expense.
 General and Administrative Expense.
 Research and Development Expense.
 Critical Accounting Policies and Estimates
     31




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Results of Operations
  Years Ended June 30,2006
    
    
    2005
    
    
    2004Net sales
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Costs and expenses:Cost of sales
    
    
    87.6
    
    
    
    87.0
    
    
    
    92.6Selling, distribution, and marketing
    
    
    4.3
    
    
    
    3.4
    
    
    
    2.8General and administrative
    
    
    9.4
    
    
    
    9.2
    
    
    
    7.1Research and development
    
    
    2.3
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    103.6
    
    
    
    99.6
    
    
    
    102.5Operating income (loss)
    
    
    (3.6
    )
    
    
    .4
    
    
    
    (2.5
    )Income (loss) before income taxes
    
    
    (9.8
    )%
    
    
    0
    %
    
    
    (3.1
    )%
 Year ended June 30, 2006 compared with year ended June 30, 2005
     33




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Selling, Distribution, and Marketing Expense.
 General and Administrative Expense.
 Research and Development Expense.
 Interest Expense.
 Income Taxes.
 35




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Net Loss.
 Year ended June 30, 2005 compared with year ended June 30, 2004
 Net Sales.
 Cost of Sales.
    Selling, Distribution, and Marketing Expense.
 General and Administrative Expense.
 Interest Expense .
 36




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Net Loss.
 Quarterly Results of Operations
  Quarters Ended2006
    
    
    2005
    
    
    2004Jun.30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sep. 30
    
    
    Jun. 30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sep. 30(in thousands)Net sales
    
    $
    59,807
    
    
    $
    45,671
    
    
    $
    60,155
    
    
    $
    27,357
    
    
    $
    22,864
    
    
    $
    21,255
    
    
    $
    28,809
    
    
    $
    9,656Cost and expenses:Cost of sales
    
    
    52,523
    
    
    
    41,514
    
    
    
    53,321
    
    
    
    21,738
    
    
    
    20,003
    
    
    
    17,570
    
    
    
    25,836
    
    
    
    8,416Selling, distribution, and
marketing
    
    
    2,867
    
    
    
    2,527
    
    
    
    1,988
    
    
    
    937
    
    
    
    805
    
    
    
    926
    
    
    
    698
    
    
    
    371General and administrative
    
    
    4,477
    
    
    
    4,060
    
    
    
    4,460
    
    
    
    5,127
    
    
    
    2,590
    
    
    
    2,476
    
    
    
    1,521
    
    
    
    1,027Research and development
    
    
    1,853
    
    
    
    1,936
    
    
    
    627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,197
    
    
    
    8,523
    
    
    
    7,075
    
    
    
    6,064
    
    
    
    3,395
    
    
    
    3,402
    
    
    
    2,219
    
    
    
    1,398Operating income (loss)
    
    
    (1,913
    )
    
    
    (4,366
    )
    
    
    (241
    )
    
    
    (445
    )
    
    
    (534
    )
    
    
    283
    
    
    
    754
    
    
    
    (158
    )Income tax benefit (expense)
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    79
    
    
    
    273
    
    
    
    (95
    )
    
    
    (255
    )
    
    
    (1
    )Net income (loss)
    
    $
    (5,498
    )
    
    $
    (11,412
    )
    
    $
    (1,311
    )
    
    $
    (658
    )
    
    $
    (382
    )
    
    $
    143
    
    
    $
    414
    
    
    $
    (192
    )Net income (loss) per share
    
    $
    (0.11
    )
    
    $
    (0.26
    )
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    0.00
  37




---



##### Table of Contents



Liquidity and Capital Resources
        38




---



##### Table of Contents



39




---



##### Table of Contents



Aggregate Contractual Obligations and Commercial Commitments
  Payments due by periodLessThan
    
    1-3
    
    4-5
    
    More than 5Total
    
    1 Year
    
    Years
    
    Years
    
    YearsLong-term debt
    
    $
    6,393
    
    
    
    
    
    
    
    6,393
    
    
    
    
    
    
    
    Interest payments on
long-term
debt
    
    $
    949
    
    
    
    494
    
    
    
    455
    
    
    
    
    
    
    
    Loans
payable  bank
    
    $
    30,800
    
    
    
    30,800
    
    
    
    
    
    
    
    
    
    
    
    Redeemable convertible
preferred stock
redemptions
    
    $
    15,000
    
    
    
    7,500
    
    
    
    7,500
    
    
    
    
    
    
    
    Redeemable convertible
preferred stock
dividends
    
    $
    938
    
    
    
    806
    
    
    
    132
    
    
    
    
    
    
    
    Facilities leases
    
    $
    4,121
    
    
    
    1,400
    
    
    
    2,721
    
    
    
    
    
    
    
    Purchase orders
    
    $
    97,379
    
    
    
    97,379
    
    
    
    
    
    
    
    
    
    
    
    Advertising commitments
    
    $
    11,760
    
    
    
    11,760
    
    
    
    
    
    
    
    
    
    
    
    Investment commitments
    
    $
    530
    
    
    
    530
    
    
    
    
    
    
    
    
    
    
    
    
 Off-Balance Sheet Arrangements
  Impact of Recently Issued Standards
    40




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments
  Primary Market Risk Exposures
      
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  41




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##### Table of Contents



Item 9A. Controls and Procedures
  
 Item 9B. Other Information.
  42




---



##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  
 PART IV
 
 Item 15. Exhibit and Financial Statement Schedules
     43




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##### Table of Contents



ExhibitNumber
    
    Exhibit2
    
    
    Master Separation and Distribution Agreement (1)2.1
    
    
    Agreement and Plan of Reorganization, dated as of July 12, 2005, by and among
the Registrant, BRMC Corporation, and Syntax Groups Corporation (2)3.1
    
    
    Certificate of Incorporation of the Registrant (3)3.2
    
    
    Certificate of Designation of Series A Junior Participating Preferred Stock (1)3.3
    
    
    Bylaws of the Registrant (3)3.4
    
    
    Certificate of Designation of 6% Redeemable Convertible Preferred Stock (4)3.5
    
    
    Certificate of Amendment to Certificate of Incorporation of the Registrant (5)4.1
    
    
    Specimen of Common Stock Certificate (6)4.2
    
    
    Rights Agreement between the Registrant and The Bank of New York, as Rights
Agent, including Form of Right Certificate (1)4.3
    
    
    Form of Amended and Restated 7% Convertible Debenture due April 20, 2008,
executed in favor of Gamma Opportunity Capital Partners LP, Enable Growth
Partners LP, Enable Opportunity Partners LP, Bushido Capital Master Fund LP,
and SRG Capital LLC (7)4.4
    
    
    Form of Amended and Restated Warrant issued to Gamma Opportunity Capital
Partners LP, Enable Growth Partners LP, Enable Opportunity Partners LP,
Bushido Capital Master Fund LP, SRG Capital LLC, and Regenmacher Holdings Ltd.
(7)4.5
    
    
    Registration Rights Agreement, dated as of April 18, 2005, by and among the
Registrant, Gamma Opportunity Capital Partners, LP, Enable Growth Partners,
LP, Enable Opportunity Partners, LP, Bushido Capital Master Fund LP, SRG
Capital LLC, and Regenmacher Holdings Ltd. (8)4.6
    
    
    Registration Rights Agreement, dated as of July 12, 2005, by and among the
Registrant, Enable Growth Partners LP, Enable Opportunity Partners LP, Bushido
Capital Master Fund LP, SRG Capital LLC, Gryphon Master Fund, L.P., GSSF
Master Fund, L.P., and Regenmacher Holdings Ltd. (7)4.7
    
    
    Form of 4% Convertible Debenture due July 12, 2008, in favor of Enable Growth
Partners, LP, Enable Opportunity Partners LP, Bushido Capital Master Fund LP,
SRG Capital LLC, Gryphon Master Fund, L.P., and GSSF Master Fund, L.P. (7)4.8
    
    
    Form of Warrant issued on July 12, 2005 to Enable Growth Partners, LP, Enable
Opportunity Partners LP, Bushido Capital Master Fund LP, SRG Capital LLC,
Gryphon Master Fund, L.P., GSSF Master Fund, L.P., and Regenmacher Holdings
Ltd. (7)4.9
    
    
    9% Senior Secured Debenture Due July 12, 2008, in favor of Regenmacher
Holdings Ltd. (7)4.10
    
    
    Junior Secured Subordinated Note due September 16, 2008, in favor of Syntax
Groups Corporation (9)4.11
    
    
    Form of Warrant to be issued to Syntax Groups Corporation in connection with
the Note and Warrant Purchase Agreement forming Exhibit 10.34 (9)4.12
    
    
    Amendment No. 1 to Rights Agreement, dated as of November 8, 2005, between the
Registrant and The Bank of New York, as Rights Agent (10)4.13
    
    
    Form of warrant issued in connection with the Securities Purchase Agreement
forming Exhibit 10.36. (4)
 44




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##### Table of Contents



ExhibitNumber
    
    Exhibit4.14
    
    
    Registration Rights Agreement, dated as of December 29, 2005, by and among the
Registrant and the purchasers named therein. (4)4.15
    
    
    Specimen of 6% Redeemable Convertible Preferred Stock Certificate (11)4.16
    
    
    Warrant issued in connection with the Securities Purchase Agreement
constituting Exhibit 10.42. (12)4.17
    
    
    Registration Rights Agreement, dated as of March 29, 2006, between the
Registrant and Taiwan Kolin Co. Ltd. (12)10.1
    
    
    Assignment and Assumption Agreement (1)10.2
    
    
    Intellectual Property Agreement (1)10.3
    
    
    Tax Sharing Agreement (1)10.4
    
    
    First Amended and Restated Real Property Sublease Agreement (13)10.5
    
    
    Transition Services Agreement (1)10.6
    
    
    2003 Incentive Compensation Plan (14)10.7
    
    
    Profit Sharing/401(k) Plan (1)10.8
    
    
    2003 Employee Stock Purchase Plan (15)10.9
    
    
    Form of Indemnity Agreement for directors and executive officers (3)10.10
    
    
    Amendment No. 1 to the First Amended and Restated Real Property Sublease
Agreement between the Registrant and Three-Five Systems, Inc. (16)10.11
    
    
    Share Purchase Agreement dated as of December 10, 2004, by and between the
Registrant and JDS Uniphase Corporation (17)10.12
    
    
    Non-Exclusive License Agreement dated as of December 10, 2004, by and between
the Registrant and JDS Uniphase Corporation (17)**10.13
    
    
    Letter Agreement dated as of December 10, 2004, by and between the Registrant
and JDS Uniphase Corporation (17)**10.14
    
    
    Equipment Loan Agreement dated as of December 10, 2004, by and between the
Registrant and JDS Uniphase Corporation (17)**10.15
    
    
    Restricted Stock Unit Agreement dated February 2005 by and between the
Registrant and Vincent F. Sollitto, Jr. (18)10.16
    
    
    Restricted Stock Unit Agreement dated February 2005 by and between the
Registrant and Wayne A. Pratt (18)10.17
    
    
    Restricted Stock Unit Agreement dated February 2005 by and between the
Registrant and Robert L. Melcher (18)10.18
    
    
    Second Amended and Restated Real Property Sublease Agreement (19)10.19
    
    
    Securities Purchase Agreement, dated as of April 18, 2005, by and among the
Registrant, Gamma Opportunity Capital Partners, LP, Enable Growth Partners,
LP, Enable Opportunity Partners, LP, Bushido Capital Master Fund LP, and SRG
Capital LLC (8)10.20
    
    
    Securities Purchase Agreement, dated as of April 18, 2005, by and between the
Registrant and Regenmacher Holdings Ltd. (8)10.21
    
    
    9% Senior Secured Debenture Due April 18, 2008, in favor of Regenmacher
Holdings Ltd. (8)10.22
    
    
    Security Agreement, dated as of April 18, 2008, by and between the Registrant
and Regenmacher Holdings Ltd. (8)
 45




---



##### Table of Contents



ExhibitNumber
    
    Exhibit10.23
    
    
    Voting and Lock-Up Agreement, dated as of July 12, 2005, by and among the
Registrant, Tzu Ping Ho, Man Kit Chow, Lily Lau, Taiwan Kolin Company Limited,
Lin-Li Wu, Ching Hua Li, and Michael Chan (2)10.24
    
    
    Stockholders Voting Agreement, dated as of July 12, 2005, by and among the
Registrant, Vincent Sollitto, Wayne Pratt, Ching Hua Li, Man Kit Chow, Roger
Kao, Tzu Ping Ho, Lily Lay Taiwan Kolin Company Limited, Lin-Li Wu, and
Michael Chan (2)10.25
    
    
    Employment Agreement by and between the Registrant and Vincent Sollitto (2)10.26
    
    
    Employment Agreement by and between the Registrant and Wayne Pratt (2)10.27
    
    
    Employment Agreement by and between the Registrant and James Li (2)10.28
    
    
    Employment Agreement by and between the Registrant and Thomas Chow (2)10.29
    
    
    Employment Agreement by and between the Registrant and Michael Chan (2)10.30
    
    
    Employment Agreement by and between the Registrant and Robert Melcher (2)10.31
    
    
    Amendment, Extension and Waiver Agreement dated July 12, 2005, between the
Registrant and Regenmacher Holdings Ltd. (7)10.32
    
    
    Agreement to Amend Debentures and Warrants dated July 12, 2005, among the
Registrant, Gamma Opportunity Capital Partners LP, Enable Growth Partners LP,
Enable Opportunity Partners LP, Bushido Capital Master Fund LP, and SRG
Capital LLP (7)10.33
    
    
    Securities Purchase Agreement, dated as of July 12, 2005, by and among the
Registrant, Enable Growth Partners LP, Enable Opportunity Partners LP, Bushido
Capital Master Fund LP, SRG Capital LLC, Gryphon Master Fund, L.P., and GSSF
Master Fund, L.P. (7)10.34
    
    
    Note and Warrant Purchase Agreement dated September 16, 2005, between the
Registrant and Syntax Groups Corporation (9)10.35
    
    
    Security Agreement dated September 16, 2005, between the Registrant and Syntax
Groups Corporation (9)10.36
    
    
    Securities Purchase Agreement, dated as of December 28, 2005, among the
Registrant and the purchasers named therein (4)10.37
    
    
    Syntax Groups Corporation 2005 Stock Incentive Plan 2005 Deferred and
Restricted Stock Plan (20)10.38
    
    
    Business Loan and Security Agreement dated as of September 28, 2005 among
Preferred Bank, Syntax Groups Corporation, and Syntax Corporation (11)10.39
    
    
    Change in Terms Agreement dated as of December 14, 2005 among Preferred Bank,
Syntax Groups Corporation, and Syntax Corporation (11)10.40
    
    
    Second Amendment to Business Loan and Security Agreement dated as of January
31, 2006 among Preferred Bank, Syntax Groups Corporation, and Syntax
Corporation (11)10.41
    
    
    Form of Continuing Guaranty entered into in connection with Exhibit 10.40, and
schedule listing signatories (11)10.42
    
    
    Securities Purchase Agreement, dated as of March 29, 2006, between the
Registrant and Taiwan Kolin Co. Ltd. (12)21
    
    
    Subsidiaries *23.1
    
    
    Consent of Grobstein, Horwath & Company LLP *31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) *31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) *32.1
    
    
    Section 1350 Certification of Chief Executive Officer *
 46




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##### Table of Contents



ExhibitNumber
    
    Exhibit32.2
    
    
    Section 1350 Certification of Chief Financial Officer *
 
 (1)
    
    Incorporated by reference to the Registration Statement on Form 10/A (Amendment No. 4) as
filed with the SEC on September 3, 2003.(2)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated July 12, 2005,
as filed with the SEC on July 18, 2005.(3)
    
    Incorporated by reference to the Registration Statement on Form 10/A (Amendment No. 1) as
filed with the SEC on June 27, 2003.(4)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated December 28,
2005, as filed with the SEC on January 3, 2006.(5)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated March 17,
2006, as filed with the SEC on March 21, 2006.(6)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated November 30,
2005, as filed with the SEC on December 6, 2005.(7)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated July 12, 2005,
as filed with the SEC on July 18, 2005.(8)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated April 20,
2005, as filed with the SEC on April 26, 2005.(9)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated September 16,
2005, as filed with the SEC on September 22, 2005.(10)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated November 8,
2005, as filed with the SEC on November 10, 2005.(11)
    
    Incorporated by reference to the Registrants Form 10-Q for the quarterly period ended
December 31, 2005, as filed with the SEC on February 21, 2006.(12)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated March 29,
2006, as filed with the SEC on April 3, 2006.(13)
    
    Incorporated by reference to the Registrants Form 10-Q for the quarterly period ended June
30, 2004, as filed with the SEC on August 12, 2004.(14)
    
    Incorporated by reference to the Registration Statement on Form S-8 (Registration No.
333-108362) as filed with the SEC on August 29, 2003.(15)
    
    Incorporated by reference to the Registration Statement on Form S-8 (Registration No.
333-108363) as filed with the SEC on August 29, 2003.(16)
    
    Incorporated by reference to the Registrants Form 10-Q for the quarterly period ended
September 30, 2004, as filed with the SEC on November 15, 2004.(17)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K/A dated December 10,
2004, as filed with the SEC on September 16, 2005.(18)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated February 28,
2005, as filed with the SEC on March 4, 2005.(19)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
December 31, 2004, as filed with the SEC on March 31, 2005.(20)
    
    Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8
(Registration No. 333-132479) as filed with the SEC on March 16, 2006.*
    
    Filed herewith.**
    
    Portions of this exhibit have been omitted pursuant to a confidential treatment request that
was granted by the Securities and Exchange Commission pursuant to Rule 24b-2 of the Exchange
Act. 47




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##### Table of Contents



SIGNATURES
  syntax-brillian corporationDate: September 13, 2006
    /s/ vincent f. sollitto, jr.Vincent F. Sollitto, Jr.Chairman and Chief Executive Officer  Signature
    
    Position
    
    Date/s/ Vincent F. Sollitto, Jr.
    
    Chairman and Chief Executive Officer
    
    September 13, 2006Vincent F. Sollitto, Jr.
    
    (Principal Executive Officer)/s/ Wayne A. Pratt
    
    Chief Financial Officer and Treasurer
    
    September 13, 2006Wayne A. Pratt
    
    (Principal Accounting and Financial Officer)/s/ James Ching Hua Li
    
    President, Chief Operating Officer, and Director
    
    September 13, 2006James Ching Hua Li/s/ Man Kit Chow
    
    Chief Procurement Officer and Director
    
    September 13, 2006Man Kit Chow/s/ Christopher C.L. Liu
    
    Director
    
    September 13, 2006Christopher C.L. Liu/s/ David P. Chavoustie
    
    Director
    
    September 13, 2006David P. Chavoustie/s/ John S. Hodgson
    
    Director
    
    September 13, 2006John S. HodgsonDirectorYasushi Chikagami/s/ Shih-Jye Cheng
    
    Director
    
    September 13, 2006Shih-Jye Cheng/s/ Max Fang
    
    Director
    
    September 13, 2006Max Fang
 48




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##### Table of Contents



SYNTAX-BRILLIAN CORPORATION
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Accounting Firm
    
    F-2Consolidated
Balance Sheets as of June 30, 2006 and 2005
    
    F-3Consolidated Statements of Operations for the years ended June 30, 2006, 2005, and 2004
    
    F-4Consolidated Statements of Stockholders Equity for the years ended June 30, 2006, 2005, and 2004
    
    F-5Consolidated Statements of Cash Flows for the years ended June 30, 2006, 2005, and 2004
    
    F-6Notes to Consolidated Financial Statements
    
    F-7Schedule II  Valuation and Qualifying Accounts for the years
ended June 30, 2006, 2005, and 2004
    
    S-1
 F-1




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##### Table of Contents



F-2




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##### Table of Contents



SYNTAX-BRILLIAN CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 JUNE 30,
    
    
    JUNE 30,2006
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    7,375
    
    
    $
    1,804Accounts receivable and due from factor, net
    
    
    50,829
    
    
    
    15,573Inventories, net
    
    
    13,151
    
    
    
    15,139Deposit with Kolin (a related party)
    
    
    5,067
    
    
    
    847Deferred income taxes, current portion
    
    
    2,666
    
    
    
    2,060Other current assets
    
    
    1,370
    
    
    
    925Total current assets
    
    
    80,458
    
    
    
    36,348Property, plant and equipment, net
    
    
    16,703
    
    
    
    816Investments
    
    
    1,307
    
    
    
    424Intangible assets, net
    
    
    20,737
    
    
    
    Goodwill
    
    
    6,990
    
    
    
    Other assets
    
    
    1,461
    
    
    
    46Total Assets
    
    $
    127,656
    
    
    $
    37,634LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Loans payable, bank
    
    $
    30,800
    
    
    $
    12,049Notes payable
    
    
    650
    
    
    
    461Accounts payable
    
    
    3,924
    
    
    
    9,287Accrued rebates payable
    
    
    4,043
    
    
    
    1,382Deferred warranty revenue
    
    
    4,551
    
    
    
    1,995Income taxes payable
    
    
    96
    
    
    
    1,510Other current liabilities
    
    
    5,540
    
    
    
    2,667Current portion of redeemable convertible preferred stock
    
    
    3,432
    
    
    
    Total Current Liabilities
    
    
    53,036
    
    
    
    29,351Long-term debt (net of $2,635 discount)
    
    
    3,758
    
    
    
    Redeemable convertible preferred stock (net of $8,137 discount)
    
    
    3,432
    
    
    
    Deferred income taxes
    
    
    2,628
    
    
    
    49Stockholders Equity:Common stock, $.001 par value; 120,000,000 shares
authorized, 48,845,912 and 32,156,950 shares issued at
June 30, 2006 and 2005, respectively
    
    
    49
    
    
    
    32Additional paid-in capital
    
    
    84,489
    
    
    
    9,059Accumulated deficit
    
    
    (19,736
    )
    
    
    (857
    )Total stockholders equity
    
    
    64,802
    
    
    
    8,234Total Liabilities and Stockholders Equity
    
    $
    127,656
    
    
    $
    37,634
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




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##### Table of Contents



SYNTAX-BRILLIAN CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Years EndedJune 30,2006
    
    
    2005
    
    
    2004Net sales
    
    $
    192,990
    
    
    $
    82,586
    
    
    $
    30,616Cost of sales
    
    
    169,096
    
    
    
    71,825
    
    
    
    28,35123,894
    
    
    
    10,761
    
    
    
    2,265Operating expenses:Selling, distribution, and marketing
    
    
    8,320
    
    
    
    2,801
    
    
    
    842General and administrative
    
    
    18,123
    
    
    
    7,616
    
    
    
    2,167Research and development
    
    
    4,416
    
    
    
    
    
    
    
    30,859
    
    
    
    10,417
    
    
    
    3,009Operating income (loss)
    
    
    (6,965
    )
    
    
    344
    
    
    
    (744
    )Other income (expense):Interest, net
    
    
    (11,914
    )
    
    
    (326
    )
    
    
    (217
    )Other income (expense)
    
    
    
    
    
    
    43
    
    
    
    (11,914
    )
    
    
    (283
    )
    
    
    (217
    )Income (loss) before income taxes:
    
    
    (18,879
    )
    
    
    61
    
    
    
    (961
    )Income tax benefit (expense)
    
    
    
    
    
    
    (78
    )
    
    
    356Net loss
    
    $
    (18,879
    )
    
    $
    (17
    )
    
    $
    (605
    )Loss per common share:Basic and diluted
    
    $
    (.46
    )
    
    $
    (0.00
    )
    
    $
    (.02
    )Weighted average number of common shares:Basic and diluted
    
    
    40,978
    
    
    
    30,013
    
    
    
    25,571
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




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##### Table of Contents



SYNTAX-BRILLIAN CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended June, 2006, 2005, and 2004
(in thousands, except share data)
 Additional
    
    
    
    
    
    
    TotalCommon
    
    
    Common
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares Issued
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance at June 30, 2003
    
    
    19,439,056
    
    
    $
    
    
    
    $
    333
    
    
    $
    (235
    )
    
    $
    98Net cash transfers from Syntax Groups Corporation
    
    
    
    
    
    
    
    
    
    
    668
    
    
    
    
    
    
    
    668Investment in Digimedia Corporation
    
    
    
    
    
    
    
    
    
    
    424
    
    
    
    
    
    
    
    424Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (605
    )
    
    
    (605
    )Balance at June 30, 2004
    
    
    19,439,056
    
    
    
    
    
    
    
    1,425
    
    
    
    (840
    )
    
    
    585Issuance of
common stock
    
    
    12,717,894
    
    
    
    32
    
    
    
    7,219
    
    
    
    
    
    
    
    7,251Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Balance at June 30, 2005
    
    
    32,156,950
    
    
    
    32
    
    
    
    9,059
    
    
    
    (857
    )
    
    
    8,234Issuance of
common stock
    
    
    2,153,780
    
    
    
    2
    
    
    
    4,200
    
    
    
    
    
    
    
    4,202Shares retained by public shareholders in reverse merger
transaction
    
    
    8,506,186
    
    
    
    9
    
    
    
    32,912
    
    
    
    
    
    
    
    32,921Conversion of debt to equity
    
    
    1,631,294
    
    
    
    2
    
    
    
    4,052
    
    
    
    
    
    
    
    4,054Conversion of preferred shares to common shares
    
    
    200,000
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Shares issued in offering to Kolin, net of issuance costs
    
    
    3,000,000
    
    
    
    3
    
    
    
    14,730
    
    
    
    
    
    
    
    14,733Discount on preferred stock issuance
    
    
    
    
    
    
    
    
    
    
    11,572
    
    
    
    
    
    
    
    11,572Shares issued upon option exercises
    
    
    76,703
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    150Restricted shares issued
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    4,360
    
    
    
    
    
    
    
    4,360Shares issued to pay interest
    
    
    75,250
    
    
    
    
    
    
    
    312
    
    
    
    
    
    
    
    312Shares issued for preferred stock dividends
    
    
    186,664
    
    
    
    
    
    
    
    564
    
    
    
    
    
    
    
    564Shares issued pursuant to Employee Stock Purchase Plan
    
    
    39,928
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    85Shares issued upon exercise of warrants
    
    
    719,157
    
    
    
    1
    
    
    
    1,367
    
    
    
    
    
    
    
    1,368Warrant issued for commission
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    126Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,879
    )
    
    
    (18,879
    )Balance at June 30, 2006
    
    
    48,845,912
    
    
    $
    49
    
    
    $
    84,489
    
    
    $
    (19,736
    )
    
    $
    64,802
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




---



##### Table of Contents



SYNTAX-BRILLIAN CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal Years Ended June 30,2006
    
    
    2005
    
    
    2004Cash Flows from Operating Activities:Net loss
    
    $
    (18,879
    )
    
    $
    (17
    )
    
    $
    (605
    )Adjustments to reconcile net income (loss) to net cash used in operating activities:Depreciation and amortization
    
    
    2,474
    
    
    
    186
    
    
    
    48Provision for inventory reserves
    
    
    2,876
    
    
    
    726
    
    
    
    704Provision for doubtful accounts
    
    
    49
    
    
    
    117
    
    
    
    13Write-off of non-cash deferred offering costs
    
    
    
    
    
    
    415
    
    
    
    Amortization of debenture discount and offering costs
    
    
    5,303
    
    
    
    
    
    
    
    Amortization of convertible preferred stock discount and costs
    
    
    3,781
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    (1,429
    )
    
    
    (430
    )Stock compensation expense
    
    
    4,360
    
    
    
    
    
    
    
    Changes in assets and liabilities:Increase in accounts receivable and due from factor
    
    
    (35,028
    )
    
    
    (11,518
    )
    
    
    (1,951
    )Decrease (increase) in inventories
    
    
    3,584
    
    
    
    (8,782
    )
    
    
    (6,516
    )Increase in other current assets
    
    
    (3,975
    )
    
    
    (1,522
    )
    
    
    773Decrease (increase) in other assets
    
    
    69
    
    
    
    
    
    
    
    Increase in accrued rebates payable
    
    
    2,661
    
    
    
    300
    
    
    
    1,083Increase in deferred warranty revenue
    
    
    2,556
    
    
    
    1,717
    
    
    
    278Increase (decrease) in income taxes payable
    
    
    (1,414
    )
    
    
    1,436
    
    
    
    73Increase (decrease) in accounts payable
    
    
    (8,207
    )
    
    
    1,396
    
    
    
    4,557Increase in other accrued liabilities
    
    
    1,007
    
    
    
    1,404
    
    
    
    1,261Net cash used in operating activities
    
    
    (38,783
    )
    
    
    (15,571
    )
    
    
    (712
    )Cash Flows from Investing Activities:Purchases of property, plant, and equipment
    
    
    (6,823
    )
    
    
    (817
    )
    
    
    (215
    )Merger costs
    
    
    (2,081
    )
    
    
    
    
    
    
    Investment in joint venture
    
    
    (883
    )
    
    
    
    
    
    
    Restricted cash
    
    
    
    
    
    
    500
    
    
    
    (500
    )Net cash used in investing activities
    
    
    (9,787
    )
    
    
    (317
    )
    
    
    (715
    )Cash Flows from Financing Activities:Proceeds of redeemable convertible preferred stock offering
    
    
    14,614
    
    
    
    
    
    
    
    Proceeds of stock offering
    
    
    14,750
    
    
    
    
    
    
    
    Stock issued pursuant to Employee Stock Purchase Plan
    
    
    85
    
    
    
    
    
    
    
    Net proceeds from bank loans payable
    
    
    18,786
    
    
    
    12,049
    
    
    
    Proceeds from issuance of long-term debt and notes payable
    
    
    850
    
    
    
    600
    
    
    
    7,215Repayments of long-term debt and notes payable
    
    
    (661
    )
    
    
    (2,977
    )
    
    
    (5,984
    )Net transfers from Syntax Groups Corporation
    
    
    4,200
    
    
    
    7,251
    
    
    
    668Warrants exercised
    
    
    1,367
    
    
    
    
    
    
    
    Stock options exercised
    
    
    150
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    54,141
    
    
    
    16,923
    
    
    
    1,899Net increase (decrease) in cash and cash equivalents
    
    
    5,571
    
    
    
    1,035
    
    
    
    472Cash and cash equivalents, beginning of period
    
    
    1,804
    
    
    
    769
    
    
    
    297Cash and cash equivalents, end of period
    
    $
    7,375
    
    
    $
    1,804
    
    
    $
    769Supplemental Cash Flow Information:Cash paid for interest
    
    $
    1,953
    
    
    $
    310
    
    
    $
    209Cash paid for income taxes
    
    $
    1,645
    
    
    $
    70
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements.
 F-6




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##### Table of Contents



SYNTAX-BRILLIAN CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006, 2005, and 2004
 Note A
   Note B
 Basis of Presentation
 Use of Estimates.
 F-7




---



##### Table of Contents



.
 Fair Value of Financial Instruments
 Reclassification.
 Cash and Cash Equivalents
 Accounts Receivable / Due from Factor.
 Inventories.
 Vendor Allowances.
 Property and Equipment
 F-8




---



##### Table of Contents



YearsMachinery and equipment
    
    
    3  5Office furniture and fixtures
    
    
    5Building improvements
    
    
    4
  Capitalized Software Costs.
 Goodwill and Intangibles.
 Investments.
 Impairment of Long-Lived Assets.
 Deferred Income Taxes. .
 Warranties.
 Stock-Based Compensation.
 F-9




---



##### Table of Contents



Revenue Recognition
 Shipping and Handling Costs.
 Advertising Costs.
 Segment Reporting.
 Recent Accounting Pronouncements.
  F-10




---



##### Table of Contents



Note C
     F-11




---



##### Table of Contents



Balance SheetIncrease to
    
    
    Increase toIncrease
    
    
    Deferred
    
    
    Unearned(Decrease) to
    
    
    Warranty
    
    
    TradeTotal Purchases
    
    
    Cost of Sales
    
    
    Inventory
    
    
    Revenue
    
    
    DiscountFiscal year ended June 30, 2004Purchases
    
    $
    9,359
    
    
    $
    3,356
    
    
    $
    6,003
    
    
    $
    
    
    
    
    Rebates, based on percentage of purchases:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market development
    
    
    (244
    )
    
    
    (97
    )
    
    
    (147
    )
    
    
    
    
    
    
    Technical development
    
    
    (293
    )
    
    
    (116
    )
    
    
    (177
    )
    
    
    
    
    
    
    Volume incentive
    
    
    (157
    )
    
    
    (62
    )
    
    
    (95
    )
    
    
    
    
    
    
    Excess warranty expense reimbursements
    
    
    (327
    )
    
    
    (49
    )
    
    
    
    
    
    
    (278
    )
    
    
    Price protection
    
    
    (1,260
    )
    
    
    (1,260
    )
    
    
    
    
    
    
    
    
    
    
    Market development funds
    
    
    (1,400
    )
    
    
    (336
    )
    
    
    (512
    )
    
    
    
    
    
    
    (552
    )Balance, June
30,
2004
    
    $
    5,679
    
    
    
    1,435
    
    
    $
    5,073
    
    
    $
    (278
    )
    
    $
    (552
    )Year ended June 30, 2005Purchases
    
    $
    109,821
    
    
    $
    93,303
    
    
    $
    16,518
    
    
    $
    
    
    
    
    Rebates, based on percentage of purchases:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market development
    
    
    (2,939
    )
    
    
    (2,508
    )
    
    
    (431
    )
    
    
    
    
    
    
    Technical development
    
    
    (3,527
    )
    
    
    (3,010
    )
    
    
    (517
    )
    
    
    
    
    
    
    Volume incentive
    
    
    (3,247
    )
    
    
    (2,774
    )
    
    
    (474
    )
    
    
    
    
    
    
    Excess warranty expense reimbursements
    
    
    (3,173
    )
    
    
    (1,178
    )
    
    
    
    
    
    
    (1,995
    )
    
    
    Price protection
    
    
    (27,910
    )
    
    
    (27,910
    )
    
    
    
    
    
    
    
    
    
    
    Price protection guaranteed minimum
    
    
    (3,612
    )
    
    
    
    
    
    
    (3,612
    )
    
    
    
    
    
    
    Net activity, fiscal year ended June 30, 2005
    
    
    65,413
    
    
    
    55,923
    
    
    
    11,484
    
    
    
    (1,995
    )
    
    
    Prior year balances charged to cost of sales
    
    
    5,073
    
    
    
    5,073
    
    
    
    
    
    
    
    
    
    
    
    Balance, June
30,
2005
    
    $
    70,486
    
    
    $
    60,996
    
    
    $
    11,484
    
    
    $
    (1,995
    )
    
    
    Year ended June 30, 2006Purchases
    
    $
    223,767
    
    
    $
    210,846
    
    
    $
    12,921
    
    
    $
    
    
    
    
    Rebates, based on percentage of purchases:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market development
    
    
    (6,247
    )
    
    
    (5,981
    )
    
    
    (266
    )
    
    
    
    
    
    
    Technical know how
    
    
    (7,496
    )
    
    
    (7,177
    )
    
    
    (319
    )
    
    
    
    
    
    
    Volume incentive
    
    
    (6,872
    )
    
    
    (6,579
    )
    
    
    (293
    )
    
    
    
    
    
    
    Excess warranty expense reimbursements
    
    
    (7,403
    )
    
    
    (4,847
    )
    
    
    
    
    
    
    (2,556
    )
    
    
    Price protection
    
    
    (60,953
    )
    
    
    (60,953
    )
    
    
    
    
    
    
    
    
    
    
    Price protection guaranteed minimum
    
    
    (2,144
    )
    
    
    
    
    
    
    (2,144
    )
    
    
    
    
    
    
    Net activity, fiscal year ended June 30, 2006
    
    
    132,652
    
    
    
    125,309
    
    
    
    9,899
    
    
    
    (2,556
    )
    
    
    Prior year balances charged to cost of sales
    
    
    17,203
    
    
    
    17,203
    
    
    
    
    
    
    
    
    
    
    
    Balance, June
30,
2006
    
    $
    149,855
    
    
    $
    142,512
    
    
    $
    9,899
    
    
    $
    (2,556
    )
    
    
    
  F-12




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##### Table of Contents



Note D
    June 30,
    
    
    June 30,2006
    
    
    2005Due from factor, net
    
    $
    17,049
    
    
    $
    8,553Accounts receivable not assigned to
factor, net
    
    
    34,097
    
    
    
    7,180Other receivables
    
    
    77
    
    
    
    Allowance for doubtful accounts
    
    
    (394
    )
    
    
    (160
    )$
    50,829
    
    
    $
    15,573
  Note E
 June 30,
    
    
    June 30,2006
    
    
    2005Raw materials
    
    $
    2,468
    
    
    $
    1,429Work-in-process
    
    
    425
    
    
    
    Finished goods
    
    
    10,258
    
    
    
    13,710$
    13,151
    
    
    $
    15,139
  F-13




---



##### Table of Contents



Note F
 June 30,
    
    
    June 30,2006
    
    
    2005Leasehold and building improvements
    
    $
    1,163
    
    
    $
    180Machinery and equipment
    
    
    11,068
    
    
    
    550Software
    
    
    348
    
    
    
    252Furniture and fixtures
    
    
    292
    
    
    
    70Equipment
not yet placed in service
    
    
    5,810
    
    
    
    18,681
    
    
    
    1,052Less accumulated depreciation
    
    
    (1,978
    )
    
    
    (236
    )$
    16,703
    
    
    $
    816
 Note G
    Note H
    F-14




---



##### Table of Contents



Year Ended June 30,2006
    
    2005Revenue
    
    $
    193,663
    
    
    $
    85,526Net loss
    
    $
    (35,052
    )
    
    $
    (35,138
    )Net loss per share
    
    $
    (0.86
    )
    
    $
    (1.17
    )
  Fair value of Brillian Stock
    
    $
    29,302Merger related costs
    
    
    4,709Total purchase price
    
    $
    34,011Cash
    
    $
    1,035Accounts receivable
    
    
    277Inventories
    
    
    4,472Other current assets
    
    
    579Property, plant and equipment
    
    
    10,805Intangible assets
    
    
    21,470Other assets
    
    
    921Total assets acquired
    
    
    39,559Less liabilities assumed
    
    
    (12,538
    )Fair value of net assets acquired
    
    
    27,021Goodwill
    
    
    6,990Total purchase price
    
    $
    34,011
  June 30,
    
    
    Amortizable2006
    
    
    LifeLCoS trade mark and trade
names
    
    $
    1,208
    
    
    7.5 yearsBrillian trade mark and
trade name
    
    
    148
    
    
    4.0 yearsPatented
technology
    
    
    20,114
    
    
    19.0 years$
    21,470Less accumulated
amortization
    
    
    (733
    )$
    20,737
   Fiscal Year2007
    
    $
    1,2572008
    
    
    1,2572009
    
    
    1,2572010
    
    
    1,2322011
    
    
    1,220Thereafter
    
    
    14,514$
    20,737
 F-15




---



##### Table of Contents



Note I
  (a)
    
    $18 million limitation for the issuance of letters of credit, subject
to the borrowing base;(b)
    
    $9 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 $18 million;(e)
    
    the amounts in (a) plus (b) plus (c) shall not exceed $28 million; and(f)
    
    the borrowings under the facility bear interest at Preferred Banks
prime rate (8.25% at June 30, 2006) plus 0.50%.
     Note J
  Note K
  F-16




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##### Table of Contents



LCD
    
    LCoS
    
    TotalFiscal year ended
June 30, 2006Net sales
    
    $
    191,184
    
    
    $
    1,806
    
    
    $
    192,990Operating income (loss)
    
    $
    8,465
    
    
    $
    (15,430
    )
    
    $
    (6,965
    )Depreciation
and amortization
    
    $
    454
    
    
    $
    2,020
    
    
    $
    2,474Total assets
    
    $
    86,691
    
    
    $
    40,965
    
    
    $
    127,656Fiscal year ended
June 30, 2005Net sales
    
    $
    82,586
    
    
    $
    
    
    
    $
    82,586Operating income (loss)
    
    $
    344
    
    
    $
    
    
    
    $
    344Depreciation
and amortization
    
    $
    186
    
    
    $
    
    
    
    $
    186Total assets
    
    $
    37,634
    
    
    $
    
    
    
    $
    37,634Fiscal year ended
June 30, 2004Net sales
    
    $
    30,616
    
    
    $
    
    
    
    $
    30,616Operating income (loss)
    
    $
    (744
    )
    
    $
    
    
    
    $
    (744
    )Depreciation
and amortization
    
    $
    48
    
    
    $
    
    
    
    $
    48Total assets
    
    $
    14,038
    
    
    $
    
    
    
    $
    14,038
     NorthAmerica
    
    Asia
    
    Europe
    
    TotalFiscal year ended
June 30, 2006Net sales
    
    $
    156,994
    
    
    $
    35,675
    
    
    $
    321
    
    
    $
    192,990Fiscal year ended
June 30, 2005Net sales
    
    $
    62,574
    
    
    $
    20,012
    
    
    $
    
    
    
    $
    82,586Fiscal year ended
June 30, 2004Net sales
    
    $
    28,795
    
    
    $
    1,821
    
    
    $
    
    
    
    $
    30,616
  F-17




---



##### Table of Contents



Note L
         Years Ending June 30,2007
    
    $
    1,4002008
    
    
    1,4002009
    
    
    9352010
    
    
    386$
    4,121
  Note M
   F-18




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##### Table of Contents



Year EndedJune 30,2006
    
    2005Expected life (in years)
    
    
    5
    
    
    
    Expected volatility
    
    
    113
    %
    
    
    Risk-free interest rate
    
    
    4.04
    %
    
    
    Dividend yield
    
    
    N/A
    
    
    
    
   Options OutstandingWeightedAverageExerciseNumber of
    
    Price PerShares
    
    ShareOutstanding at June 30, 2005
    
    
    
    
    
    
    Granted
    
    
    1,870,821
    
    
    $
    2.20Added as result of merger
    
    
    1,410,091
    
    
    $
    6.81Exercised
    
    
    76,703
    
    
    $
    1.96Forfeited and expired
    
    
    156,476
    
    
    $
    5.68Outstanding at June 30, 2006
    
    
    3,047,733
    
    
    $
    4.17Exercisable at June 30, 2006
    
    
    2,437,027
    
    
    $
    4.54
 F-19




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted
    
    
    
    
    
    
    NumberOutstanding
    
    
    Average
    
    
    Weighted
    
    
    Exercisable
    
    
    WeightedRange of
    
    
    at
    
    
    Remaining
    
    
    Average
    
    
    at
    
    
    AverageExercise
    
    
    June 30,
    
    
    Contractual
    
    
    Exercise
    
    
    June 30,
    
    
    ExercisePrices
    
    
    2006
    
    
    Life
    
    
    Price
    
    
    2006
    
    
    Price$
    1.61  2.30
    
    
    
    1,748,935
    
    
    
    9.1
    
    
    $
    1.99
    
    
    
    1,308,802
    
    
    $
    1.952.42    4.60
    
    
    
    392,991
    
    
    
    8.3
    
    
    
    3.30
    
    
    
    245,377
    
    
    
    3.254.63  9.36
    
    
    
    754,266
    
    
    
    7.4
    
    
    
    7.06
    
    
    
    736,306
    
    
    
    7.08$
    10.20  67.60
    
    
    
    151,541
    
    
    
    7.2
    
    
    
    17.12
    
    
    
    146,542
    
    
    
    17.063,047,733
    
    
    
    8.5
    
    
    $
    4.17
    
    
    
    2,437,027
    
    
    $
    4.54
 Note N
 2003 Employee Stock Purchase Plan
  OfferingPeriod
    
    Start Date
    
    End Date
    
    Offering Price
    
    Shares issued
    
    Date Issued1st
    
    
    9/16/2003
    
    
    
    12/31/2003
    
    
    $
    7.14
    
    
    
    13,502
    
    
    
    1/2/20042nd
    
    
    1/1/2004
    
    
    
    6/30/2004
    
    
    $
    6.83
    
    
    
    21,389
    
    
    
    7/1/20043rd
    
    
    7/1/2004
    
    
    
    12/31/2004
    
    
    $
    2.93
    
    
    
    43,903
    
    
    
    1/3/20054th
    
    
    1/1/2005
    
    
    
    6/30/2005
    
    
    $
    2.24
    
    
    
    36,329
    
    
    
    7/1/20055th
    
    
    7/1/2005
    
    
    
    12/31/2005
    
    
    $
    2.13
    
    
    
    39,928
    
    
    
    1/3/20066th
    
    
    1/1/2006
    
    
    
    6/30/2006
    
    
    $
    2.04
    
    
    
    49,538
    
    
    
    7/3/2006
 4 01(k) Profit Sharing Plan
  F-20




---



##### Table of Contents



Note O
  June 30,
    
    
    June 30,2006
    
    

2005April 2005 7% Convertible Debentures maturing
April 20, 2008, convertible at $1.57 per share
    
    $
    985
    
    
    $
    April 2005 9% Senior Secured Debentures maturing
April 20, 2008, secured by a lien on certain
assets
    
    
    2,000
    
    
    
    July 2005 4% Convertible Debentures maturing July
12, 2008, convertible at $2.63 per share
    
    
    1,300
    
    
    
    July 2005 9% Senior Secured Debentures maturing
July 12, 2008, secured by a lien on certain
assets
    
    
    2,075
    
    
    
    Other long-term debt
    
    
    33
    
    
    
    6,393
    
    
    
    Less:Discount and beneficial conversion feature on
convertible debentures
    
    
    (1,763
    )
    
    
    Discount on secured debentures
    
    
    (872
    )
    
    
    Total
    
    $
    3,758
    
    
    $
    
  Note P
     F-21




---



##### Table of Contents



Note Q
  Note R
  Shares of Common
    
    Per ShareExpiration
    
    Stock Issuable
    
    ExerciseWarrants relating to issuance of :
    
    Date
    
    Under Warrants
    
    PriceApr. 2005 7% Convertible Debentures
    
    
    10/10/2010
    
    
    
    743,837
    
    
    $
    1.57Jul. 2005 4% Convertible Debentures
    
    
    01/08/2011
    
    
    
    770,571
    
    
    $
    2.63Jul. 2005 9% Secured Debentures
    
    
    01/08/2011
    
    
    
    415,000
    
    
    $
    2.63Dec. 2005 Convertible Preferred
Stock
    
    
    06/27/2011
    
    
    
    1,533,000
    
    
    $
    5.00Jan. 2006 Convertible Preferred
Stock
    
    
    07/02/2011
    
    
    
    100,000
    
    
    $
    5.00Mar. 2006 Common Stock
    
    
    09/26/2010
    
    
    
    750,000
    
    
    $
    5.00Total Warrants Outstanding:
    
    
    
    
    
    
    4,312,408
 Note S
  F-22




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##### Table of Contents



Note T :
  2006
    
    
    2005
    
    
    2004Federal tax at statutory rates
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %State tax at statutory rates
    
    
    5
    %
    
    
    20
    %
    
    
    5
    %Meals and entertainment
    
    
    
    
    
    
    85
    %
    
    
    (4
    %)Stock option expense
    
    
    (2
    %)
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (9
    %)
    
    
    Increase in valuation allowance
    
    
    (37
    %)
    
    
    
    
    
    
    Total
    
    
    0
    %
    
    
    130
    %
    
    
    35
    %
  2006
    
    
    2005Deferred tax assets:Inventories reserve
    
    $
    3,748
    
    
    $
    688Inventory capitalization
    
    
    158
    
    
    
    116Accrued expenses
    
    
    487
    
    
    
    Allowances and reserves
    
    
    778
    
    
    
    193Deferred offering costs
    
    
    177
    
    
    
    177Other
    
    
    99
    
    
    
    31Deferred warranty
    
    
    1,963
    
    
    
    855Depreciation and amortization
    
    
    3,575
    
    
    
    Net operating loss
    
    
    13,040
    
    
    
    24,025
    
    
    
    2,060Deferred tax valuation allowance
    
    
    (21,359
    )
    
    
    Total
    
    $
    2,666
    
    
    $
    2,060Deferred tax
liabilities:Depreciation and amortization
    
    $
    
    
    
    $
    (71
    )Prepaid expenses
    
    
    (142
    )
    
    
    Step-up basis from merger
    
    
    (1,973
    )
    
    
    Other
    
    
    (513
    )
    
    
    22Total
    
    $
    (2,628
    )
    
    $
    (49
    )
  F-23




---



##### Table of Contents



Note U
  Quarters Ended2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Jun. 30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sep. 30
    
    
    Jun. 30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sep. 30(in thousands)Net sales
    
    $
    59,807
    
    
    $
    45,671
    
    
    $
    60,155
    
    
    $
    27,357
    
    
    $
    22,864
    
    
    $
    21,255
    
    
    $
    28,809
    
    
    $
    9,656Cost and expenses:Cost of sales
    
    
    52,523
    
    
    
    41,514
    
    
    
    53,321
    
    
    
    21,738
    
    
    
    20,003
    
    
    
    17,570
    
    
    
    25,836
    
    
    
    8,416Selling, distribution, and
marketing
    
    
    2,867
    
    
    
    2,527
    
    
    
    1,988
    
    
    
    937
    
    
    
    805
    
    
    
    926
    
    
    
    698
    
    
    
    371General and administrative
    
    
    4,477
    
    
    
    4,060
    
    
    
    4,460
    
    
    
    5,127
    
    
    
    2,590
    
    
    
    2,476
    
    
    
    1,521
    
    
    
    1,027Research and development
    
    
    1,853
    
    
    
    1,936
    
    
    
    627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,197
    
    
    
    8,523
    
    
    
    7,075
    
    
    
    6,064
    
    
    
    3,395
    
    
    
    3,402
    
    
    
    2,219
    
    
    
    1,398Operating income (loss)
    
    
    (1,913
    )
    
    
    (4,366
    )
    
    
    (241
    )
    
    
    (445
    )
    
    
    (534
    )
    
    
    283
    
    
    
    754
    
    
    
    (158
    )Other income
(expense)
    
    
    (3,585
    )
    
    
    (7,046
    )
    
    
    (991
    )
    
    
    (292
    )
    
    
    (121
    )
    
    
    (45
    )
    
    
    (85
    )
    
    
    (33
    )Income tax benefit (expense)
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    79
    
    
    
    273
    
    
    
    (95
    )
    
    
    (255
    )
    
    
    (1
    )Net income (loss)
    
    $
    (5,498
    )
    
    $
    (11,412
    )
    
    $
    (1,311
    )
    
    $
    (658
    )
    
    $
    (382
    )
    
    $
    143
    
    
    $
    414
    
    
    $
    (192
    )Net income (loss) per share
    
    $
    (0.11
    )
    
    $
    (0.26
    )
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    0.00
 F-24




---



##### Table of Contents



SYNTAX-BRILLIAN CORPORATION
 
 SCHEDULE II
 VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June 30, 2006, 2005, and 2004
 Increases(Reductions)Charged to
    
    Charged toBalance at
    
    Costs and
    
    Other
    
    
    
    
    
    Balance atbeginning of Period
    
    Expenses
    
    Accounts
    
    Write-offs
    
    End of Period(in thousands)Allowance for doubtful accounts :Fiscal year ended 6/30/06
    
    $
    160
    
    
    $
    318
    
    
    $
    
    
    
    $
    (84
    )
    
    $
    394Fiscal year ended 6/30/05
    
    
    42
    
    
    
    120
    
    
    
    
    
    
    
    (2
    )
    
    
    160Fiscal year ended 6/30/04
    
    
    29
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    42Valuation allowance for deferred tax
asset:Fiscal year ended 6/30/06
    
    $
    
    
    
    $
    
    
    
    $
    21,359
    
    
    $
    
    
    
    $
    21,359Fiscal year ended 6/30/05
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal year ended 6/30/04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 S-1




---



##### Table of Contents



Exhibit Index

ExhibitNumber
    
    Exhibit2
    
    
    Master Separation and Distribution Agreement (1)2.1
    
    
    Agreement and Plan of Reorganization, dated as of July 12, 2005, by and among
the Registrant, BRMC Corporation, and Syntax Groups Corporation (2)3.1
    
    
    Certificate of Incorporation of the Registrant (3)3.2
    
    
    Certificate of Designation of Series A Junior Participating Preferred Stock (1)3.3
    
    
    Bylaws of the Registrant (3)3.4
    
    
    Certificate of Designation of 6% Redeemable Convertible Preferred Stock (4)3.5
    
    
    Certificate of Amendment to Certificate of Incorporation of the Registrant (5)4.1
    
    
    Specimen of Common Stock Certificate (6)4.2
    
    
    Rights Agreement between the Registrant and The Bank of New York, as Rights
Agent, including Form of Right Certificate (1)4.3
    
    
    Form of Amended and Restated 7% Convertible Debenture due April 20, 2008,
executed in favor of Gamma Opportunity Capital Partners LP, Enable Growth
Partners LP, Enable Opportunity Partners LP, Bushido Capital Master Fund LP,
and SRG Capital LLC (7)4.4
    
    
    Form of Amended and Restated Warrant issued to Gamma Opportunity Capital
Partners LP, Enable Growth Partners LP, Enable Opportunity Partners LP,
Bushido Capital Master Fund LP, SRG Capital LLC, and Regenmacher Holdings Ltd.
(7)4.5
    
    
    Registration Rights Agreement, dated as of April 18, 2005, by and among the
Registrant, Gamma Opportunity Capital Partners, LP, Enable Growth Partners,
LP, Enable Opportunity Partners, LP, Bushido Capital Master Fund LP, SRG
Capital LLC, and Regenmacher Holdings Ltd. (8)4.6
    
    
    Registration Rights Agreement, dated as of July 12, 2005, by and among the
Registrant, Enable Growth Partners LP, Enable Opportunity Partners LP, Bushido
Capital Master Fund LP, SRG Capital LLC, Gryphon Master Fund, L.P., GSSF
Master Fund, L.P., and Regenmacher Holdings Ltd. (7)4.7
    
    
    Form of 4% Convertible Debenture due July 12, 2008, in favor of Enable Growth
Partners, LP, Enable Opportunity Partners LP, Bushido Capital Master Fund LP,
SRG Capital LLC, Gryphon Master Fund, L.P., and GSSF Master Fund, L.P. (7)4.8
    
    
    Form of Warrant issued on July 12, 2005 to Enable Growth Partners, LP, Enable
Opportunity Partners LP, Bushido Capital Master Fund LP, SRG Capital LLC,
Gryphon Master Fund, L.P., GSSF Master Fund, L.P., and Regenmacher Holdings
Ltd. (7)4.9
    
    
    9% Senior Secured Debenture Due July 12, 2008, in favor of Regenmacher
Holdings Ltd. (7)4.10
    
    
    Junior Secured Subordinated Note due September 16, 2008, in favor of Syntax
Groups Corporation (9)4.11
    
    
    Form of Warrant to be issued to Syntax Groups Corporation in connection with
the Note and Warrant Purchase Agreement forming Exhibit 10.34 (9)4.12
    
    
    Amendment No. 1 to Rights Agreement, dated as of November 8, 2005, between the
Registrant and The Bank of New York, as Rights Agent (10)4.13
    
    
    Form of warrant issued in connection with the Securities Purchase Agreement
forming Exhibit 10.36. (4)4.14
    
    
    Registration Rights Agreement, dated as of December 29, 2005, by and among the
Registrant and the purchasers named therein. (4)4.15
    
    
    Specimen of 6% Redeemable Convertible Preferred Stock Certificate (11)4.16
    
    
    Warrant issued in connection with the Securities Purchase Agreement
constituting Exhibit 10.42. (12)4.17
    
    
    Registration Rights Agreement, dated as of March 29, 2006, between the
Registrant and Taiwan Kolin Co. Ltd. (12)10.1
    
    
    Assignment and Assumption Agreement (1)10.2
    
    
    Intellectual Property Agreement (1)10.3
    
    
    Tax Sharing Agreement (1)10.4
    
    
    First Amended and Restated Real Property Sublease Agreement (13)10.5
    
    
    Transition Services Agreement (1)10.6
    
    
    2003 Incentive Compensation Plan (14)10.7
    
    
    Profit Sharing/401(k) Plan (1)10.8
    
    
    2003 Employee Stock Purchase Plan (15)10.9
    
    
    Form of Indemnity Agreement for directors and executive officers (3)10.10
    
    
    Amendment No. 1 to the First Amended and Restated Real Property Sublease
Agreement between the Registrant and Three-Five Systems, Inc. (16)10.11
    
    
    Share Purchase Agreement dated as of December 10, 2004, by and between the
Registrant and JDS Uniphase Corporation (17)10.12
    
    
    Non-Exclusive License Agreement dated as of December 10, 2004, by and between
the Registrant and JDS Uniphase Corporation (17)**10.13
    
    
    Letter Agreement dated as of December 10, 2004, by and between the Registrant
and JDS Uniphase Corporation (17)**10.14
    
    
    Equipment Loan Agreement dated as of December 10, 2004, by and between the
Registrant and JDS Uniphase Corporation (17)**10.15
    
    
    Restricted Stock Unit Agreement dated February 2005 by and between the
Registrant and Vincent F. Sollitto, Jr. (18)10.16
    
    
    Restricted Stock Unit Agreement dated February 2005 by and between the
Registrant and Wayne A. Pratt (18)10.17
    
    
    Restricted Stock Unit Agreement dated February 2005 by and between the
Registrant and Robert L. Melcher (18)10.18
    
    
    Second Amended and Restated Real Property Sublease Agreement (19)10.19
    
    
    Securities Purchase Agreement, dated as of April 18, 2005, by and among the
Registrant, Gamma Opportunity Capital Partners, LP, Enable Growth Partners,
LP, Enable Opportunity Partners, LP, Bushido Capital Master Fund LP, and SRG
Capital LLC (8)10.20
    
    
    Securities Purchase Agreement, dated as of April 18, 2005, by and between the
Registrant and Regenmacher Holdings Ltd. (8)10.21
    
    
    9% Senior Secured Debenture Due April 18, 2008, in favor of Regenmacher
Holdings Ltd. (8)10.22
    
    
    Security Agreement, dated as of April 18, 2008, by and between the Registrant
and Regenmacher Holdings Ltd. (8)


10.23
    
    
    Voting and Lock-Up Agreement, dated as of July 12, 2005, by and among the
Registrant, Tzu Ping Ho, Man Kit Chow, Lily Lau, Taiwan Kolin Company Limited,
Lin-Li Wu, Ching Hua Li, and Michael Chan (2)10.24
    
    
    Stockholders Voting Agreement, dated as of July 12, 2005, by and among the
Registrant, Vincent Sollitto, Wayne Pratt, Ching Hua Li, Man Kit Chow, Roger
Kao, Tzu Ping Ho, Lily Lay Taiwan Kolin Company Limited, Lin-Li Wu, and
Michael Chan (2)10.25
    
    
    Employment Agreement by and between the Registrant and Vincent Sollitto (2)10.26
    
    
    Employment Agreement by and between the Registrant and Wayne Pratt (2)10.27
    
    
    Employment Agreement by and between the Registrant and James Li (2)10.28
    
    
    Employment Agreement by and between the Registrant and Thomas Chow (2)10.29
    
    
    Employment Agreement by and between the Registrant and Michael Chan (2)10.30
    
    
    Employment Agreement by and between the Registrant and Robert Melcher (2)10.31
    
    
    Amendment, Extension and Waiver Agreement dated July 12, 2005, between the
Registrant and Regenmacher Holdings Ltd. (7)10.32
    
    
    Agreement to Amend Debentures and Warrants dated July 12, 2005, among the
Registrant, Gamma Opportunity Capital Partners LP, Enable Growth Partners LP,
Enable Opportunity Partners LP, Bushido Capital Master Fund LP, and SRG
Capital LLP (7)10.33
    
    
    Securities Purchase Agreement, dated as of July 12, 2005, by and among the
Registrant, Enable Growth Partners LP, Enable Opportunity Partners LP, Bushido
Capital Master Fund LP, SRG Capital LLC, Gryphon Master Fund, L.P., and GSSF
Master Fund, L.P. (7)10.34
    
    
    Note and Warrant Purchase Agreement dated September 16, 2005, between the
Registrant and Syntax Groups Corporation (9)10.35
    
    
    Security Agreement dated September 16, 2005, between the Registrant and Syntax
Groups Corporation (9)10.36
    
    
    Securities Purchase Agreement, dated as of December 28, 2005, among the
Registrant and the purchasers named therein (4)10.37
    
    
    Syntax Groups Corporation 2005 Stock Incentive Plan 2005 Deferred and
Restricted Stock Plan (20)10.38
    
    
    Business Loan and Security Agreement dated as of September 28, 2005 among
Preferred Bank, Syntax Groups Corporation, and Syntax Corporation (11)10.39
    
    
    Change in Terms Agreement dated as of December 14, 2005 among Preferred Bank,
Syntax Groups Corporation, and Syntax Corporation (11)10.40
    
    
    Second Amendment to Business Loan and Security Agreement dated as of January
31, 2006 among Preferred Bank, Syntax Groups Corporation, and Syntax
Corporation (11)10.41
    
    
    Form of Continuing Guaranty entered into in connection with Exhibit 10.40, and
schedule listing signatories (11)10.42
    
    
    Securities Purchase Agreement, dated as of March 29, 2006, between the
Registrant and Taiwan Kolin Co. Ltd. (12)21
    
    
    Subsidiaries *23.1
    
    
    Consent of Grobstein, Horwath & Company LLP *31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) *31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) *32.1
    
    
    Section 1350 Certification of Chief Executive Officer *


10.23
    
    
    Voting and Lock-Up Agreement, dated as of July 12, 2005, by and among the
Registrant, Tzu Ping Ho, Man Kit Chow, Lily Lau, Taiwan Kolin Company Limited,
Lin-Li Wu, Ching Hua Li, and Michael Chan (2)10.24
    
    
    Stockholders Voting Agreement, dated as of July 12, 2005, by and among the
Registrant, Vincent Sollitto, Wayne Pratt, Ching Hua Li, Man Kit Chow, Roger
Kao, Tzu Ping Ho, Lily Lay Taiwan Kolin Company Limited, Lin-Li Wu, and
Michael Chan (2)10.25
    
    
    Employment Agreement by and between the Registrant and Vincent Sollitto (2)10.26
    
    
    Employment Agreement by and between the Registrant and Wayne Pratt (2)10.27
    
    
    Employment Agreement by and between the Registrant and James Li (2)10.28
    
    
    Employment Agreement by and between the Registrant and Thomas Chow (2)10.29
    
    
    Employment Agreement by and between the Registrant and Michael Chan (2)10.30
    
    
    Employment Agreement by and between the Registrant and Robert Melcher (2)10.31
    
    
    Amendment, Extension and Waiver Agreement dated July 12, 2005, between the
Registrant and Regenmacher Holdings Ltd. (7)10.32
    
    
    Agreement to Amend Debentures and Warrants dated July 12, 2005, among the
Registrant, Gamma Opportunity Capital Partners LP, Enable Growth Partners LP,
Enable Opportunity Partners LP, Bushido Capital Master Fund LP, and SRG
Capital LLP (7)10.33
    
    
    Securities Purchase Agreement, dated as of July 12, 2005, by and among the
Registrant, Enable Growth Partners LP, Enable Opportunity Partners LP, Bushido
Capital Master Fund LP, SRG Capital LLC, Gryphon Master Fund, L.P., and GSSF
Master Fund, L.P. (7)10.34
    
    
    Note and Warrant Purchase Agreement dated September 16, 2005, between the
Registrant and Syntax Groups Corporation (9)10.35
    
    
    Security Agreement dated September 16, 2005, between the Registrant and Syntax
Groups Corporation (9)10.36
    
    
    Securities Purchase Agreement, dated as of December 28, 2005, among the
Registrant and the purchasers named therein (4)10.37
    
    
    Syntax Groups Corporation 2005 Stock Incentive Plan 2005 Deferred and
Restricted Stock Plan (20)10.38
    
    
    Business Loan and Security Agreement dated as of September 28, 2005 among
Preferred Bank, Syntax Groups Corporation, and Syntax Corporation (11)10.39
    
    
    Change in Terms Agreement dated as of December 14, 2005 among Preferred Bank,
Syntax Groups Corporation, and Syntax Corporation (11)10.40
    
    
    Second Amendment to Business Loan and Security Agreement dated as of January
31, 2006 among Preferred Bank, Syntax Groups Corporation, and Syntax
Corporation (11)10.41
    
    
    Form of Continuing Guaranty entered into in connection with Exhibit 10.40, and
schedule listing signatories (11)10.42
    
    
    Securities Purchase Agreement, dated as of March 29, 2006, between the
Registrant and Taiwan Kolin Co. Ltd. (12)21
    
    
    Subsidiaries *23.1
    
    
    Consent of Grobstein, Horwath & Company LLP *31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) *31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) *32.1
    
    
    Section 1350 Certification of Chief Executive Officer *32.2
    
    
    Section 1350 Certification of Chief Financial Officer *





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|(1)  |  | Incorporated by reference to the Registration Statement on Form 10/A (Amendment No. 4) as
filed with the SEC on September 3, 2003.                                                            
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|(2)  |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated July 12, 2005,
as filed with the SEC on July 18, 2005.                                                         
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|(3)  |  | Incorporated by reference to the Registration Statement on Form 10/A (Amendment No. 1) as
filed with the SEC on June 27, 2003.                                                                
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|(4)  |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated December 28,
2005, as filed with the SEC on January 3, 2006.                                                   
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|(5)  |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated March 17,
2006, as filed with the SEC on March 21, 2006.                                                       
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|(6)  |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated November 30,
2005, as filed with the SEC on December 6, 2005.                                                  
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|(7)  |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated July 12, 2005,
as filed with the SEC on July 18, 2005.                                                         
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|(8)  |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated April 20,
2005, as filed with the SEC on April 26, 2005.                                                       
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|(9)  |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated September 16,
2005, as filed with the SEC on September 22, 2005.                                               
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|(10) |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated November 8,
2005, as filed with the SEC on November 10, 2005.                                                  
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|(11) |  | Incorporated by reference to the Registrants Form 10-Q for the quarterly period ended
December 31, 2005, as filed with the SEC on February 21, 2006.                                         
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|(12) |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated March 29,
2006, as filed with the SEC on April 3, 2006.                                                        
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|(13) |  | Incorporated by reference to the Registrants Form 10-Q for the quarterly period ended June
30, 2004, as filed with the SEC on August 12, 2004.                                               
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|(14) |  | Incorporated by reference to the Registration Statement on Form S-8 (Registration No.
333-108362) as filed with the SEC on August 29, 2003.                                                   
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|(15) |  | Incorporated by reference to the Registration Statement on Form S-8 (Registration No.
333-108363) as filed with the SEC on August 29, 2003.                                                   
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|(16) |  | Incorporated by reference to the Registrants Form 10-Q for the quarterly period ended
September 30, 2004, as filed with the SEC on November 15, 2004.                                        
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|(17) |  | Incorporated by reference to the Registrants Current Report on Form 8-K/A dated December 10,
2004, as filed with the SEC on September 16, 2005.                                              
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|(18) |  | Incorporated by reference to the Registrants Current Report on Form 8-K dated February 28,
2005, as filed with the SEC on March 4, 2005.                                                     
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|(19) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
December 31, 2004, as filed with the SEC on March 31, 2005.                                       
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|(20) |  | Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8
(Registration No. 333-132479) as filed with the SEC on March 16, 2006.                                    
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|*    |  | Filed herewith.                                                                                                                                                                               
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|**   |  | Portions of this exhibit have been omitted pursuant to a confidential treatment request that
was granted by the Securities and Exchange Commission pursuant to Rule 24b-2 of the Exchange
Act.