10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant To Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the Quarter Ended December 31, 2005

Commission file number 0-50289

Syntax-Brillian Corporation

(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 North Desert Drive, Tempe, Arizona 85281

(Address of Principal Executive Offices) (Zip Code)

(602) 389-8888

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

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

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

CLASS	OUTSTANDING AS OF FEBRUARY 14, 2006
Common		45,013,587
Par value $.001 per share

SYNTAX-BRILLIAN CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED DECEMBER 31, 2005

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS:
	Condensed Consolidated Balance Sheets -
	December 31, 2005 (unaudited) and June 30, 2005		1
	Condensed Consolidated Statements of Operations (unaudited) -
	Three Months and Six Months Ended December 31, 2005 and 2004		2
	Condensed Consolidated Statements of Cash Flows (unaudited) -
	Six Months Ended December 31, 2005 and 2004		3
	Notes to Condensed Consolidated Financial Statements (unaudited)		4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		12
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		23
ITEM 4.	CONTROLS AND PROCEDURES		23
Exhibit 4.15
Exhibit 10.38
Exhibit 10.39
Exhibit 10.40
Exhibit 10.41
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

ITEM 1A.	RISK FACTORS	24
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	38
ITEM 5.	OTHER INFORMATION	39
ITEM 6.	EXHIBITS	39
SIGNATURES		40

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SYNTAX-BRILLIAN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SYNTAX-BRILLIAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)

	Three Months						Six Months
	Ended December 31,						Ended December 31,
	2005			2004			2005			2004
Net sales	$	60,155		$	28,809		$	87,512		$	38,466
Cost of sales		53,321			25,836			75,059			34,252
		6,834			2,973			12,453			4,214
Operating expenses:
Selling, distribution, and marketing		1,988			698			2,926			1,070
General and administrative		4,460			1,521			9,586			2,549
Research and development		627			—			627			—
		7,075			2,219			13,139			3,619
Operating income (loss)		(241	)		754			(686	)		595
Interest, net		(991	)		(85	)		(1,283	)		(117	)
Net income (loss) before income taxes		(1,232	)		669			(1,969	)		478
Income tax expense		(79	)		(255	)		—			(256	)
Net income (loss)	$	(1,311	)	$	414		$	(1,969	)	$	222
Income (loss) per common share:
Basic and diluted	$	(0.04	)	$	0.01		$	(0.06	)	$	0.01
Weighted average number of common shares:
Basic and diluted		37,219			29,860			35,529			29,063

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SYNTAX-BRILLIAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

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  SYNTAX-BRILLIAN CORPORATION

                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note A Organization, Basis of Presentation, and Use of Estimates

     We are a leading designer, developer, and distributor of high-definition televisions, or HDTVs, in liquid crystal display, or LCD, and liquid crystal on silicon, or LCoS, formats. Our LCD HDTVs and our popular priced LCoS HDTVs are sold under our Olevia brand name, and our premium large-screen, rear-projection HDTVs, utilizing our proprietary LCoS microdisplay technology, are sold under our brand names and the brand names of retailers, including high-end audio/video manufacturers, distributors of high-end consumer electronics products, and consumer electronics retailers. Our price-conscious Olevia product line includes flat panel LCD models in diagonal sizes from 20 inches to 42 inches designed for the high-volume home entertainment market; our price-performance, full feature Olevia product line includes 42-inch and 47-inch high-end HDTVs for the home entertainment and home theater markets; and our Gen II LCoS rear projection 65-inch screen size HDTVs address the premium audio/video market. We have established a virtual manufacturing model utilizing Asian sourced components and third-party contract manufacturers and assemblers located in close proximity to our customers to assemble our HDTVs. We also offer a broad line of LCoS microdisplay products and subsystems, including LCoS light engines and imagers, that original equipment manufacturers, or OEMs, can integrate into proprietary HDTV products, home theater projectors, and near-to-eye applications, such as head-mounted monocular or binocular headsets and viewers, for industrial, medical, military, commercial, and consumer applications.

     On November 30, 2005, we completed our merger with Syntax Groups Corporation, a privately held California corporation (“Syntax”), whereby a wholly owned subsidiary of our company was merged with and into Syntax and Syntax became a wholly-owned subsidiary of our company (the “Merger”). As consideration for the Merger, Syntax shareholders received 1.5379 shares of our common stock for each share of Syntax common stock held by them on November 30, 2005 (the “Exchange Rate”). In the aggregate, shareholders of Syntax received approximately 34,309,988 shares of our common stock. The Exchange Rate was calculated so that former shareholders of Syntax owned approximately 70% of the fully diluted shares of the combined company at the closing of the Merger. Therefore, the Merger has been accounted for as a reverse merger wherein Syntax is deemed to be the acquiring entity from an accounting perspective. As such, the historical financial statements of Syntax became the historical financial statements of the combined company upon completion of the Merger.

     The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In our opinion, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The results of operations for the three- and six-month periods ended December 31, 2005 are not necessarily indicative of the operating results that may be expected for the entire fiscal year ending June 30, 2006. These financial statements should be read in conjunction with our June 30, 2005 financial statements and the accompanying notes thereto.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate estimates and judgments, including those related to revenue, accounts receivable, inventories, property and equipment, income taxes, and contingencies. Estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

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Note B Related Party Transactions

     Our primary supplier of LCD television products and components is Taiwan Kolin Co., Ltd. (“Kolin”). Kolin and its subsidary own approximately 7.2% of our common stock. We are currently and have historically been significantly dependent upon Kolin as a supplier of product. Although we believe we could obtain product from other sources, the loss of Kolin as a supplier could have a material impact on our financial condition and results of operations as the products that we currently purchase from Kolin may not be available on the same terms from another supplier.

      We receive rebates from Kolin equal to 3% of purchases for providing technical know how to Kolin, 2.5% for market development funds, and volume incentive rebates up to 2.75% of purchases. These rebates are issued by Kolin monthly based upon units shipped to us from Kolin. We record these rebates as a reduction to the price of the products purchased. These rebates are recorded upon receipt of the product and we allocate these rebates to inventory and cost of sales based upon the proportion of units purchased from Kolin that we have sold to our customers and units still in our inventory.

      We agreed upon additional monthly lump sum rebates for price protection of $16.6 million and $10.6 million, representing 28.9% and 38.1% of actual purchases, for the three months ended December 31, 2005 and 2004, respectively, and $29.2 million and $11.2 million, representing 25.1% and 24.5% of actual purchases, for the six months ended December 31, 2005 and 2004, respectively. Price protection rebates were credited to cost of sales as these rebates related to products purchased from Kolin that we had sold to our customers during the respective periods. In April 2005, we entered into an agreement with Kolin whereby Kolin agreed that in no event shall the amount of price protection to be issued to us for any calendar month be less than 18% of the amount invoiced by us to our customers for such month. Accordingly, we record this 18% guaranteed price protection as a reduction in the value of inventory purchased from Kolin and a corresponding reduction in the accounts payable balance to Kolin. As of December 31, 2005, the amount of reduction in the value of inventory purchased from Kolin and the corresponding reduction in accounts payable to Kolin was $4.9 million.

      Kolin has agreed to reimburse us in varying amounts ranging from $10 to $100 per unit to cover the cost of warranty expenses as well as our costs in administering the warranty program and for servicing units that cannot be serviced by third party warranty providers. Kolin provides these per unit reimbursements at the time they ship products to us. We record these reimbursements from Kolin for units that we have sold to our customers, first, as a reduction to the third party warranty costs, with the excess reimbursement recorded as deferred warranty revenue, a current liability, and amortized as a reduction in cost of sales over the succeeding twelve month period. Warranty reimbursements we receive for units that we have not sold to our customers are recorded as deferred warranty revenue. As of December 31, 2005, deferred warranty revenue was $3.6 million. Recognized warranty reimbursements that were recorded as a reduction in cost of sales totaled $1.1 million and $105,000 for the three months ended December 31, 2005 and 2004, respectively, and $1.9 million and $187,000 for the six months ended December 31, 2005 and 2004, respectively.

5

The following table shows the amount of our transactions with Kolin for the six months ended December 31, 2005 and 2004 (in thousands):

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

     Beginning in May 2005 through September 2005, we purchased tuners and AV module components used in the assembly of LCD TV products from the Riking Group, a Hong Kong based exporter and a related party. For the six months ended December 31, 2005, purchases from Riking Group totaled $885,000. As of December 31, 2005, the accounts payable balance included $523,000 in outstanding invoices to Riking. In addition, loan payable due to the Riking Group totaled $850,000 as of December 31, 2005.

     Riking USA, a U.S. based investment holding company, is owned by an officer of our company. At December 31, 2005, total accounts payable and loan payable due to Riking USA was $2,000 and $200,000, respectively.

Note C Accounts Receivable and Due from Factor

     We have entered into an agreement with CIT Commercial Services (“CIT”) pursuant to which we have assigned collection of all of our existing and future accounts receivable to CIT, subject to CIT’s approval of the account. The credit risk for all accounts approved by CIT is assumed by CIT. We have agreed to pay fees to CIT of 0.06% of gross invoice amounts approved by CIT plus 0.005% for each thirty day period such invoices are outstanding, subject to a minimum fee per calendar quarter of $45,000. We have entered into a line of credit agreement with a bank which requires us to apply 80% of collections from CIT to reduce the balance of outstanding borrowings under the line. Under the agreement with CIT, accounts assigned for which CIT has assumed credit risk are referred to as “non-recourse” and accounts assigned for which CIT has not assumed credit risk are referred to as “recourse”.

6

We do not assign certain of our accounts to CIT, primarily because the accounts are outside of the United States or because CIT has not approved the customer or the terms of sale to such customer or invoice terms are not within the parameters acceptable to CIT.

     Accounts receivable and due from factor consisted of the following (in thousands):

	December 31,			June 30,
	2005			2005
Due from factor (including $6,205 and $2,176 with recourse)	$	30,895		$	8,553
Accounts receivable not assigned to factor		12,275			7,180
Other receivables		119			7,180
Allowance for doubtful accounts		(232	)		(160	)
	$	43,057		$	15,573

     At December 31, 2005, the accounts receivable balance from one of our Asian customers totaled $9.2 million, or 51.2% of the outstanding balance of accounts that had not been assigned to CIT.

Note D Inventories, at net realizable value, consisted of the following (in thousands)

	December 31,		June 30,
	2005		2005
Raw materials	$	3,769	$	1,429
Work-in-process	137			—
Finished goods	25,115			13,710
	$	29,021	$	15,139

We write down inventories for estimated obsolescence and to the lower of cost or market. These write-downs are based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected, then additional inventory write-downs may be required. Inventory write-downs totaled $732,000 and $630,000 for the three months ended December 31, 2005 and 2004, respectively, and $732,000 and $630,000 for the six months ended December 31, 2005 and 2004, respectively.

Note E Property, plant, and equipment consisted of the following (in thousands)

	December 31,			June 30,
	2005			2005
Leasehold and building improvements	$	1,138		$	180
Machinery and equipment	10,587				550
Software	309				252
Furniture and fixtures	288				70
	12,322				1,052
Less accumulated depreciation	(615		)		(236	)
	$	11,707		$	816

Note F Investment

          On June 30, 2004, we acquired 473,337 shares of DigiMedia Technology Co., Ltd., representing 3.6% interest, in exchange for 141,439 shares of common stock of Syntax valued at $424,000. DigiMedia is the research and development subsidiary of Kolin, our principal supplier of LCD televisions. We collaborate with DigiMedia on product development efforts. At December 31, 2005, our ownership in DigiMedia was less than 1%.

7

Note G Goodwill and Intangible Assets

          In connection with the Merger, the assets acquired and liabilities assumed from Brillian were recorded at fair value on our consolidated balance sheet. In connection with the Merger, we recorded intangible assets as follows (in thousands):

	December 31,		Amortizable
	2005		Life
LCoS trademark and trade names	$	1,208	7.5 years
Brillian trademark and trade name		148	4.0 years
Patented technology		20,114	19.0 years
	$	21,470
Less accumulated amortization		(105)
	$	21,365

     In connection with the Merger, we also recorded goodwill in the amount of $2.6 million.

     These intangible assets and goodwill are subject to periodic review to determine if an impairment has occurred and, if so, the amount of such impairment. If we determine that an impairment exists, we will be required to reduce the carrying value of the impaired asset by the amount of the impairment and to record a corresponding charge to operations in the period of impairment.

Note H Loan Payable, Bank

     As of December 31, 2005 we were party to a business loan agreement with Preferred Bank. The total amount of borrowings permitted under this agreement was $20 million subject to a borrowing base equal to 80% of eligible accounts receivable approved and assigned to CIT plus 40% of eligible inventory, up to a maximum of $10 million, with the following limitations:

a)	$10 million limitation for the issuance of letters of credit, subject to the borrowing base;
b)	$5 million for trust receipts and acceptances up to 90 days, subject to the borrowing base;
c)	$10 million for trust receipts and general working capital for up to 60 days, subject to the borrowing base;
d)	The amounts in a) plus b) shall not exceed $10 million;
e)	The amounts in a) plus b) plus c) shall not exceed $20 million; and
f)	The borrowings under the facility bear interest at Preferred Bank’s prime rate plus 0.5% (7.75% at December 31, 2005).

          Accounts receivable eligible to be included in the borrowing base include gross amounts assigned to CIT in accordance with the CIT Agreement. Pursuant to the terms of the credit facility, funds collected by CIT are to be utilized by Preferred Bank as follows: a) 25% to retire existing trust receipt loans on a first in, first out basis; b) 60% to repay advances under the working capital portion of the loan facility; and c) 15% to us. Additional requirements of the credit facility are that we maintain our primary operating accounts at Preferred Bank, and that we maintain positive annual taxable net income and submit quarterly internal financial statements within 60 days of the end of each quarter, and audited annual financial statements within 120 days of the end of the fiscal year.

          The credit facility was personally guaranteed jointly and severally by certain of our officers and directors as well as one of our largest stockholders and an executive of Kolin. In addition, Kolin has provided to Preferred Bank a $10 million standby letter of credit as additional security for this facility.

          On January 31, 2006, we entered into an amended agreement with Preferred Bank which provides for total borrowings of up to $28 million subject to the borrowing base.

8

Note I Net Income (Loss) per Share

     Basic and diluted income (loss) per common share was computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the three- and six-month periods ended December 31, 2005 and 2004. For periods prior to the completion of the Merger, the weighted average number of shares outstanding is based on the number of shares of Syntax Groups Corporation common stock outstanding, retroactively adjusted for the Merger exchange ratio. For the three- and six-month periods ended December 31, 2005, the effect of approximately 2.4 million and 2.4 million stock options, respectively, was excluded from the calculation of diluted loss per share as their effect would have been antidilutive. In addition, for the three- and six-month periods ended December 31, 2005, approximately 2.6 million warrants and approximately 2.6 million shares of stock issuable upon conversion of convertible promissory notes were excluded from the calculation of diluted loss per share as their effect would also have been antidilutive. For the three- and six-month periods ended December 31, 2004, there were no potentially dilutive securities outstanding. Therefore basic and diluted earnings per share are the same.

Note J Segment Reporting, Sales to Major Customers, and Geographic Information

     Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information” establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers.

     We operate in two segments: the Liquid Crystal Display (LCD) televisions segment and the Liquid Crystal on Silicon (LCoS) segment. The following table presents revenues and operating income (loss) for each of our segments (in thousands).

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

     Operating costs included in one segment may benefit other segments, and therefore these segments are not designed to measure operating income or loss directly related to the products included in each segment.

     We had two non-related party customers that accounted for $9.2 million, or 51.2% and $4.7 million, or 26.2%, respectively, of our outstanding and unassigned accounts receivable at December 31, 2005. Accounts receivable that are assigned to CIT are not included herein as the credit risk for such accounts has been assumed by CIT. We had two customers which accounted for $9.1 million or 15.2% and $7.5 million or 12.5%, respectively, of our net sales for the three months ended December 31, 2005 and $6.1 million or 21.1% and $5.7 million or 20.0% of our net sales for the three months ended December 31 2004.

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     Net sales by geographic area are determined based upon the location of the end customer. The following sets forth net sales (in thousands) for these geographic areas:

	North
	America		Asia		Europe		Total
Three months ended December 31, 2005
Net sales	$	52,659	$	7,460	$	36	$	60,155
Three months ended December 31, 2004
Net sales	$	22,484	$	6,325	$	—	$	28,809
Six months ended December 31, 2005
Net sales	$	76,400	$	11,076	$	36	$	87,512
Six months ended December 31, 2004
Net sales	$	32,141	$	6,325	$	—	$	38,466

Note K Commitments and Contingencies

     We are currently party to various claims. The ultimate outcome of these claims, individually and in the aggregate, are not expected to have a material adverse effect on our financial position or overall trends in results of operations. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our net income in the period in which the ruling occurs or first becomes probable and estimable. The estimate of the potential impact from the various legal proceedings on our financial position or overall results of operations and cash flows could change in the future.

     On June 6, 2005, Kolin, our principal source of LCD television products and components, received a notice from Sony Corporation asserting two alleged patent infringements. We are assisting Kolin in evaluating the assertions made as well as the potential impact, if any, on our business. Based upon information received to date, we believe that these assertions will not have a material impact on our financial condition or results of operations and cash flows.

     We received a notification from the U.S. Customs Service claiming approximately $3.5 million in additional import duties due for our products imported from Kolin. We intend to vigorously defend our position regarding the import classifications used for the products in question. Further, since our purchase terms from Kolin include all costs of delivery including duties, Kolin has affirmed in writing its agreement to reimburse us for any additional duty that may be deemed due and payable by the U.S. Customs Service. Accordingly, we do not believe that this claim will have a material impact on our financial condition or results of operations and cash flows.

     We made a guarantee in connection with a Small Business Administration loan to VoiceViewer Technology, Inc., a private company developing microdisplay products. VoiceViewer is unable to meet its current obligations under the loan agreement. We and the other guarantors are making payments as they become due. We have determined that it is probable that VoiceViewer will be unable to meet its future obligations under the loan agreement. Therefore, at December 31, 2005, we had accrued $247,000, which represents our maximum remaining obligation under the guarantee. We have a security interest in, and second rights to, the intellectual property of VoiceViewer, while the lending institution has the first rights. However, we do not believe we can realize any significant value from VoiceViewer’s intellectual property.

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Note L Stock Compensation

     We adopted SFAS No. 123 (revised 2004), “Share-Based Payment (SFAS 123R),” effective July 1, 2005. SFAS 123R requires the recognition of the fair value of stock-based compensation in net income. Stock-based compensation primarily consists of stock options, stock awards, and performance awards. Stock options are granted to employees at exercise prices equal to the fair market value of our stock at the dates of grant. Generally, options fully vest twelve to fifty months from the grant date and have a term of 10 years. We recognize the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. We reserve shares to satisfy stock option exercises and for the issuance of performance awards.

     As a result of the adoption of SFAS 123R, the incremental impact on our stock compensation expense caused our net loss for the three- and six-month periods ended December 31, 2005, to be $1.4 million; ($0.04 per share) and $3.7 million ($0.10 per share), respectively, more than if we had continued to account for our equity compensation programs under Accounting Principle Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees.”

     Prior to July 1, 2005, Syntax had not granted any stock options. Therefore, there was no impact from stock-based compensation on our operating results for the three- and six-month periods ended December 31, 2004.

     We have computed compensation cost, for reporting and disclosure purposes, based on the fair value of all options awarded on the date of grant, utilizing the Black-Scholes option pricing method.

     The weighted-average fair value of the options granted during the six-month period ended December 31, 2005 was $1.61 per share, determined using the following assumptions:

Dividend yield:	N/A
Volatility:	123	%
Risk-free interest rate:	3.81	%
Expected life in years:	10

Note M Recently Issued Accounting Standards

     In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. In addition, it carries forward without change, the guidance contained in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle in most circumstances. The provisions of SFAS 154 are effective in fiscal years beginning after December 15, 2005. We adopted the provisions of SFAS 154 effective July 1, 2005.

Note N Long-term Debt

Long-term debt consisted of the following (in thousands):

	December 31,			June 30,
	2005			2005
April 2005 7% Convertible Debentures maturing April 20, 2008, convertible at $1.57 per share	$	1,081		$	—
April 2005 9% Senior Secured Debentures maturing April 20, 2008, secured by a first lien on our assets		2,000			—
July 2005 4% Convertible Debentures maturing July 12, 2008, convertible at $2.63 per share	5,000				—
July 2005 9% Senior Secured Debentures maturing July 12, 2008, secured by a first lien on our assets		2,075			—
	10,156				—
Less:
Discount and beneficial conversion feature on convertible debentures	(5,884		)		—
Discount on secured debentures	(1,086		)		—
Total	$	3,186		$	—

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     Amortization of debt discount and beneficial conversion feature of approximately $491,000 is included in interest expense for the three- and six-month periods ended December 31, 2005. Interest on the 7% and 4% Convertible Debentures is payable, at our option, in either stock or cash. Due to the beneficial conversion feature and the value allocated to warrants issued with the convertible debt, the effective interest rate on the convertible debt is approximately 40%. Due to the value allocated to warrants issued with the secured debt, the effective interest rate on the secured debt is approximately 13%.

Note O Redeemable Convertible Preferred Stock

     On December 29, 2005, we issued 3 million shares of 6% redeemable convertible preferred stock and received gross proceeds of $15 million. The holders of our 6% redeemable convertible preferred stock are entitled to cumulative dividends that accrue monthly, beginning on March 29, 2006, at a rate of $0.30 per share. The dividends are payable in cash or, if certain conditions are met, we may elect to pay the dividends in shares of our common stock. No dividends may be paid on our common stock until all dividends owed to the holders of our 6% redeemable convertible preferred stock have been paid in full.

     Holders of our 6% redeemable convertible preferred stock have the right to convert their shares into shares of our common stock at any time, at an initial conversion price of $5.00 per share. The conversion price is subject to adjustment upon the occurrence of certain dilutive events, including if we issue any shares of capital stock at a per share price of less than $5.00 while any shares of 6% redeemable convertible preferred stock are outstanding.

     The 6% redeemable convertible preferred stock is mandatorily redeemable. Beginning on January 29, 2007, we are required to redeem outstanding shares of the 6% redeemable convertible preferred stock at a rate of 250,000 shares each month at a price of $5.00 per share (subject to certain adjustments) plus any accrued but unpaid dividends until all outstanding shares are redeemed. We may elect to pay the dividends and redemption payments in shares of our common stock instead of cash, provided we meet certain conditions.

     The 6% redeemable convertible preferred stock has a liquidation preference over the holders of our common stock so that, if we liquidate, dissolve, or wind up our business, the holders of our 6% redeemable convertible preferred stock are entitled to a liquidation payment of $5.00 per share (subject to certain adjustments) plus any accrued but unpaid dividends prior to any distribution being made to our common stockholders. The holders of our 6% redeemable convertible preferred stock are also entitled to this liquidation payment upon any change of control of our business.

     On January 3, 2006, we issued an additional 200,000 shares of 6% redeemable convertible preferred stock and received gross proceeds of $1.0 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS

     The statements contained in this report on Form 10-Q which are not purely historical are forward-looking statements within the meaning of applicable securities laws. Forward-looking statements include statements regarding our “expectations,” “anticipation,” “intentions,” “beliefs,” or “strategies” regarding the future. Forward-looking statements also include statements regarding revenue, margins, expenses, and earnings analysis for fiscal 2006 and thereafter; the amounts, prices, timing, or terms under which we sell HDTVs to our customers; technological innovations; future products or product development; our product development strategies; potential acquisitions or strategic alliances; the success of particular product or marketing programs; the amounts of revenue generated as a result of sales to significant customers; and liquidity and anticipated cash needs and availability. All forward-looking statements included in this report are based on information available to us as of the filing date of this report, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from the forward-looking statements.

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Overview

     We are a leading designer, developer, and distributor of high-definition televsions, or HDTVs, in liquid crystal display, or LCD, and liquid crystal on silicon, or LCoS, formats. Our LCD and our popular priced LCoS HDTVs are sold under our Olevia brand name, and our premium large-screen, rear-projection HDTVs, utilizing our proprietary LCoS microdisplay technology, are sold under our brand names and the brand names of retailers, including high-end audio/video manufacturers, distributors of high-end consumer electronics products, and consumer electronics retailers. Our price-conscious Olevia product line includes flat panel LCD models in diagonal sizes from 20 inches to 42 inches designed for the high-volume home entertainment market; our price-performance, full feature Olevia product line includes 42-inch and 47-inch high-end HDTVs for the home entertainment and home theater markets; and our Gen II LCoS rear projection 65-inch screen size HDTVs address the premium audio/video market. We have established a virtual manufacturing model utilizing Asian sourced components and third-party contract manufacturers and assemblers located in close proximity to our customers to assemble our HDTVs. We also offer a broad line of LCoS microdisplay subsystems, including LCoS light engines and imagers, that original equipment manufacturers, or OEMs, can integrate into proprietary HDTV products, home theater projectors, and near-to-eye applications, such as head-mounted monocular or binocular headsets and viewers, for industrial, medical, military, commercial, and consumer applications.

     On November 30, 2005, we completed our merger with Syntax Groups Corporation, a privately held California corporation (“Syntax”), whereby a wholly owned subsidiary of our company was merged with and into Syntax and Syntax became a wholly-owned subsidiary of our company (the “Merger”). As consideration for the Merger, Syntax shareholders received 1.5379 shares of our common stock for each share of Syntax common stock held by them on November 30, 2005 (the “Exchange Rate”). In the aggregate, shareholders of Syntax received approximately 34,309,988 shares of our common stock. The Exchange Rate was calculated so that former shareholders of Syntax owned approximately 70% of the fully diluted shares of the combined company at the closing of the Merger. Therefore, the Merger has been accounted for as a reverse merger wherein Syntax is deemed to be the acquiring entity from an accounting perspective. As such, the historical financial statements of Syntax became the historical financial statements of the combined company upon completion of the Merger.

     We derive revenue from the sale of our LCD TV products as well as from our LCoS HDTV products, LCoS light engines, and LCoS imagers. During the six months ended December 31, 2005, we recorded revenue of $87.5 million, a 128% increase from the comparable period of the previous year. For the six months ended December 31, 2005, we recorded a net loss of $2.0 million compared with net income of $222,000 in the comparable period of the prior year.

     Syntax commenced operations in April 2003 as a reseller of home entertainment consumer electronics products, such as DVD players and audio equipment. In the second quarter of fiscal 2004, Syntax changed its business focus to concentrate on the sale of LCD TV products. In the third quarter of fiscal 2004, Syntax introduced its first LCD and LCoS HDTV products. Sales of LCD and LCoS TV products now account for virtually all of our revenue.

     In March 2004, we entered into a manufacturing arrangement with Taiwan Kolin Co. Ltd., or Kolin, a Taiwan publicly listed company (Taiwan: 1606.TW), pursuant to which Kolin produces certain of the electronic components and subassemblies of our LCD televisions. This manufacturing agreement had an initial term of one year and could be extended for up to five additional one-year periods at our option. We have elected to extend this Manufacturing Agreement for one additional year.

     In March 2004, we and Kolin also entered into three additional agreements that provide for rebates to Syntax on purchases from Kolin for technical development in the amount of 3%, market development in the amount of 2.5%, and volume incentive purchases in amounts ranging up to 2.75%. The foregoing rebates issued by Kolin are issued monthly based on units shipped. In accordance with the Emerging Issues Task Force (EITF) Issue 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” we record these rebates as a reduction to the price of the products purchased upon receipt of the products and allocate such rebates to inventory and cost of sales accordingly.

     Our cost of sales include the purchase price of TVs sold and freight costs offset by credits from the manufacturer for price protection, market development funds allowances, warranty and service allowances, and volume incentive rebates. Our gross margins are influenced by various factors, including product mix, sales volume, and negotiated credits and allowances from the manufacturer.

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     Sales, distribution, and marketing costs include sales commissions, advertising costs, marketing costs, such as trade show costs and ad development, outbound shipping costs, and warranty and service costs. We sell directly to national and regional retailers and online retailers. We also sell to certain retailers through distributors such as BDI Laguna, Inc.

     General and administrative expenses include salaries, wages, and employee benefits, accounting and legal expenses, facilities rent, utilities, and other necessary costs of doing business. As of December 31, 2005, we had 228 employees.

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States. During preparation of these consolidated financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue, bad debts, inventories, investments, fixed assets, intangible assets, income taxes, and contingencies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

     We recognize revenue from product sales, net of estimated returns, when persuasive evidence of a sale exists: that is, a product is shipped under an agreement with a customer; risk of loss and title has passed to the customer; the fee is fixed and determinable; and collection of the resulting receivable is reasonably assured. Sales allowances are estimated based upon historical experience of sales returns.

     We record estimated reductions to revenue for customer and distributor programs and incentive offerings, including price markdowns, promotions, other volume-based incentives, and expected returns. Future market conditions and product transitions may require us to take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. Additionally, certain incentive programs require us to estimate, based on industry experience, the number of customers that will actually redeem the incentive. We also record estimated reductions to revenue for end-user rebate programs, returns, and costs related to warranty services in excess of reimbursements from our principal manufacturer.

     We maintain an allowance for doubtful accounts not assigned to a factor and accounts assigned to a factor with recourse for estimated losses resulting from the inability of customers to make required payments. We determine the adequacy of this allowance by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. If the financial condition of a customer were to deteriorate, additional allowances could be required.

     We write down inventories for estimated obsolescence to estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected, then additional inventory write-downs may be required.

     We receive two types of vendor allowances: volume rebates, which are earned as a result of attaining certain purchase levels, and price protection, which is earned based upon the impact of market prices on a monthly basis. We also obtain incentives for technical assistance and market development that are earned as a result of monthly purchase levels. All vendor allowances are accrued as earned, and those allowances received as a result of attaining certain purchase levels are accrued over the incentive period based on estimates of purchases. We record the cash consideration received from a vendor in accordance with EITF 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” which states that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor’s products or services and is recorded as a reduction of the cost of sales when recognized in our Statement of Operations.

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     We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. An impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount.

     We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating loss and credit carryforwards, if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized, a valuation allowance is established if necessary.

     We typically warrant our products against defects in material and workmanship for a period of one year from purchase with on-site service provided for certain of our products. As of December 31, 2005, we had entered into an agreement with Kolin for reimbursement of the cost of our warranty expenses for units sold. We record these reimbursements from Kolin first as a reduction to the third party warranty costs, with the excess reimbursement amortized over a 12-month period and applied as a credit to cost of sales for units which have shipped to customers. We record reimbursements received from Kolin for units which have not been shipped to customers as deferred warranty revenue.

     We account for our investments in which we have less than a 20% interest at cost and periodically review such investments for impairment.

Results of Operations

  Three months ended December 31, 2005 compared to three months ended December 31, 2004

     Net Sales. Net sales increased 109% to $60.2 million the second quarter of fiscal 2006 from $28.8 million in the second quarter of fiscal 2005. Net sales consisted of LCD television sales revenue of $59.9 million and $294,000 of revenue from LCoS products.

     LCD television revenue of $59.9 million represents an increase of 108% from $28.8 million in the comparable quarter of the previous year. The increase in LCD television revenue was a result of increased unit shipments. During the quarter ended December 31, 2005, we shipped approximately 95,000 units compared to approximately 39,000 in the comparable quarter of fiscal 2005.

     The Merger was completed on November 30, 2005 and, therefore, the LCoS revenue was only included for the month of December. There was no LCoS revenue in the quarter ended December 31, 2004.

     Net sales in North America totaled $52.7 million, or 87.6% of total net sales, in the second quarter of fiscal 2006 compared with $22.5 million, or 78.0% of total net sales, in the second quarter of fiscal 2005. Net sales in Asia totaled $7.5 million, or 12.4% of total net sales, in the second quarter of fiscal 2006 compared with $6.3 million, or 22.0% of total net sales, in the comparable quarter of the previous year. Net sales in Europe totaled $36,000, or less than 1% of net sales, in the second quarter of fiscal 2006. There were no sales in Europe in the second quarter of fiscal 2005.

     Cost of Sales. Cost of sales was $53.3 million, or 88.6% of net sales, in the second quarter of fiscal 2006 compared with $25.8 million, or 89.7% of net sales, in the second quarter of fiscal 2005.

     LCD television cost of sales totaled $52.3 million, or 87.4% of LCD television net sales, in the quarter ended December 31, 2005 compared with $25.8 million, or 89.7% of LCD television net sales, in the comparable period of the previous year. The increase in LCD television gross margins is the result of higher selling volumes and increased brand awareness.

     Cost of sales for the three months ended December 31, 2005 and 2004 includes purchases from Kolin, net of rebates, totaling $52.3 million and $25.8 million, respectively.

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     On March 9, 2004, in conjunction with our plans to expand our product lines to include home entertainment products, including LCD televisions, we entered into a Manufacturing Agreement with Kolin. This Manufacturing Agreement had an initial term of one year and could be extended for up to five additional one-year periods at our option. We have elected to extend this Manufacturing Agreement for one additional year. In conjunction with the execution of this Manufacturing Agreement, we also entered into an additional agreement intended to govern the terms pursuant to which Kolin, us, and DigiMedia Technology Co, Ltd., or DigiMedia, the product research and development subsidiary of Kolin, would form a strategic alliance through the acquisition by Kolin of up to 10% of our common stock and the acquisition by us of up to 10% of the common stock of DigiMedia. As of December 31, 2005, Kolin, and one of its subsidiaries had purchased a total of 3.1 million shares of our common stock, representing 7.2% of our outstanding stock. As a result of the foregoing, Kolin and DigiMedia are considered related parties.

     In March 2004, we and Kolin also entered into three additional agreements which provide for rebates to us on purchases from Kolin. Under these agreements, we receive a rebate equal to 3.0% of purchases for providing technical know how to Kolin, 2.5% for market development funds, and volume incentive rebates up to 2.75% of purchases. The foregoing rebates issued by Kolin are issued monthly based upon units shipped from Kolin to us. In accordance with the Emerging Issues Task Force (“EITF”) Issue 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” we record these rebates as a reduction to the price of the products purchased upon receipt of the products and allocate such rebates to inventory and cost of sales accordingly. Rebates granted by Kolin applicable to goods in transit are recorded as amounts outstanding to Kolin until such goods are received.

     On September 8, 2004, we entered into a five-year exclusive Distribution Agreement with Kolin, which grants us the exclusive right to market and distribute products under the Kolin brand throughout North America.

     For the three months ended December 31, 2005 and 2004, Kolin agreed to grant us additional monthly lump sum rebates for price protection of $16.6 million and $10.6 million, representing 28.9% and 38.1% of actual purchases from Kolin, respectively, which were credited to cost of sales in the period received as these price protection grants relate to inventory purchased from Kolin that had been sold to our customers during the respective periods. In April 2005, we entered into an agreement whereby Kolin agreed that in no event shall the amount of the price protection to be issued by Kolin to us for any calendar month be less than 18% of the amount invoiced by us to our customers for such calendar month. Accordingly, we record an 18% reduction in the value of inventory purchased from Kolin and a corresponding reduction in the accounts payable balance due to Kolin to reflect the impact of this guaranteed price protection on our balance sheet. As of December 31, 2005, the amount of the reduction in the value of inventory purchased from Kolin and the corresponding reduction in the accounts payable balance due to Kolin was $4.9 million.

     As of June 30, 2004, we had entered into an agreement with Kolin for reimbursement of the cost of warranty expense for units we sold. Through December 2004, we had retained an independent third party to provide on-site service to consumers who purchased our LCD television products. The cost to us for this service was $10 per unit shipped. Since January 2005, we have provided on-site service to consumers for warranty claims through a different third party, which is billed to us on a case-by-case basis. Kolin has agreed to reimburse us varying amounts ranging from $10 to $100 per unit to cover the cost of these warranty expenses as well as our costs in administering the program and servicing units which cannot be serviced by the warranty providers. Kolin provides these per unit reimbursements at the time they ship products to us. We record these reimbursements from Kolin first as a reduction to the third-party warranty costs, with the excess reimbursement amortized over a 12-month period and applied as a credit to cost of sales for units that have been shipped to customers. We record reimbursements received from Kolin for units that have not been shipped to customers as deferred warranty revenue. As of December 31, 2005, deferred warranty revenue was $3.6 million. Recognized warranty reimbursements, which are recorded as a reduction in cost of sales, totaled $1.1 million and $105,000 for the three months ended December 31, 2005 and 2004, respectively.

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     We recorded cost of sales for LCoS net sales totaling $1.0 million, or 346% of LCoS net sales. Cost of LCoS net sales was included for the month of December as the Merger closed on November 30, 2005. There was no LCoS cost of sales in the second quarter of fiscal 2005. The large negative gross margin in each period resulted primarily from the low volume of shipments and low manufacturing yields in the shipped products. To date, our manufacturing capacity has exceeded our manufacturing volume, resulting in the inability to absorb fully the cost of our manufacturing infrastructure. A significant portion of our manufacturing costs are fixed in nature and consist of items such as utilities, depreciation, and amortization. The amounts of these costs do not vary period to period based on the number of units produced nor can the amounts of these costs be adjusted in the short term. Therefore, in periods of lower production volume, these fixed costs are absorbed by a lower number of units, thus increasing the cost per unit. As a result, we expect it will be difficult to attain significant improvements in gross margins until we can operate at higher production volumes.

     Selling, Distribution, and Marketing Expense. Selling, distribution, and marketing expenses totaled $2.0 million, or 3.3% of net sales, in the quarter ended December 31, 2005 compared with $700,000, or 2.4% of net sales, for the comparable period of the previous year. The increase in selling, distribution, and marketing expenses for the current quarter was primarily related to increased advertising expenses and other marketing costs necessary to develop our distribution channel. Advertising expense was $683,000 and $409,000 for the three months ended December 31, 2005 and 2004, respectively.

     General and Administrative Expense. General and administrative expense totaled $4.5 million in the second quarter of fiscal 2006, compared with $1.5 million in the corresponding quarter in fiscal 2005. This increase is the result of increased expenses including salaries and wages, recognition of stock-based compensation expense related to the adoption of SFAS 123(R), and legal and accounting fees.

     Research and Development Expense. Research and development expense totaled $627,000 in the second quarter of fiscal 2006. Research and development expense began to be incurred upon completion of the Merger on November 30, 2005. There was no such expense in the comparable quarter of the previous year.

     Interest Expense. During the second quarter of fiscal 2006, we recorded net interest expense of $991,000 compared with $85,000 in the second quarter of fiscal 2005. During the three months ended December 31, 2005, we incurred interest expense related to our credit facility with Preferred Bank totaling approximately $290,000, cash interest expense related to our 7% and 4% convertible debentures and 9% senior secured debentures of approximately $32,000, and non-cash interest expense related to the convertible and senior secured debentures of approximately $545,000. Under generally accepted accounting principles, we are required to measure the value of the warrants attached to debentures issued and the conversion feature of the convertible debentures issued. The resulting values are recorded as a discount to the debentures with a corresponding increase in additional paid-in capital. The original discount to the convertible debentures was equal to their face value of $7.5 million and the original discount to the secured debentures was $1.4 million. The discount, along with amortization of issuance costs, is being accreted to interest expense over the three year term of the notes.

     Net Income (Loss). Net loss was $1.3 million in the second quarter of fiscal 2006 compared with net income of $414,000 in the second quarter of fiscal 2005.

Six months ended December 31, 2005 compared to six months ended December 31, 2004

     Net Sales. Net sales increased 128% to $87.5 million the first half of fiscal 2006 from $38.5 million in the first half of fiscal 2005. Net sales were comprised of LCD television sales revenue of $87.2 million and $294,000 of revenue from LCoS products.

     LCD television revenue of $87.2 million represents an increase of 108% from $28.8 million in the comparable period of the previous year. The increase in LCD television revenue was a result of increased unit shipments. During the period ended December 31, 2005, we shipped approximately 130,000 units compared to 51,000 in the comparable period of fiscal 2005.

     The Merger was completed on November 30, 2005 and, therefore, the LCoS revenue was only included for the month of December 2005. There was no LCoS revenue in the period ended December 31, 2004.

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     Net sales in North America totaled $76.4 million, or 87.4% of total net sales, in the first half of fiscal 2006 compared with $32.1 million, or 83.6% of total net sales, in the first half of fiscal 2005. Net sales in Asia totaled $11.1 million, or 12.6% of total net sales, in the first half of fiscal 2006 compared with $6.3 million, or 16.4% of total net sales, in the comparable period of the previous year. Net sales in Europe totaled $36,000, or less than 1% of net sales, in the first half of fiscal 2006. There were no sales in Europe in the first half of fiscal 2005.

     Cost of Sales. Cost of sales was $75.1 million, or 85.8% of net sales, in the first half of fiscal 2006 compared with $34.3 million, or 89.0% of net sales, in the first half of fiscal 2005.

     LCD television cost of sales totaled $74.0 million, or 84.9% of LCD television net sales, in the period ended December 31, 2005 compared with $34.3 million, or 89.0% of LCD television net sales, in the comparable period of the previous year. The increase in LCD television gross margins was the result of higher selling volumes and increased brand awareness.

     Cost of sales for the six months ended December 31, 2005 and 2004 includes purchases from Kolin, net of rebates, totaling $74.0 million and $34.3 million, respectively.

     On March 9, 2004, in conjunction with our plans to expand our product lines to include home entertainment products, including LCD televisions, we entered into a Manufacturing Agreement with Kolin. This Manufacturing Agreement had an initial term of one year and could be extended for up to five additional one-year periods at our option. We have elected to extend this Manufacturing Agreement for one additional year. In conjunction with the execution of this Manufacturing Agreement, we also entered into an additional agreement intended to govern the terms pursuant to which Kolin, us, and DigiMedia Technology Co, Ltd., or DigiMedia, the product research and development subsidiary of Kolin, would form a strategic alliance through the acquisition by Kolin of up to 10% of our common stock and the acquisition by us of up to 10% of the common stock of DigiMedia. As of December 31, 2005, Kolin, and one of its subsidiaries had purchased 3.1 million shares of our common stock, representing 7.2% of our outstanding stock. As a result of the foregoing, Kolin and DigiMedia are considered related parties.

     In March 2004, we and Kolin also entered into three additional agreements which provide for rebates to us on purchases from Kolin. Under these agreements, we receive a rebate equal to 3.0% of purchases for providing technical know how to Kolin, 2.5% for market development funds, and volume incentive rebates up to 2.75% of purchases. The foregoing rebates issued by Kolin are issued monthly based upon units shipped from Kolin to us. In accordance with the Emerging Issues Task Force (“EITF”) Issue 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” we record these rebates as a reduction to the price of the products purchased upon receipt of the products and allocate such rebates to inventory and cost of sales accordingly. Rebates granted by Kolin applicable to goods in transit are recorded as amounts outstanding to Kolin until such goods are received.

     On September 8, 2004, we entered into a five-year exclusive Distribution Agreement with Kolin, which grants us the exclusive right to market and distribute products under the Kolin brand throughout North America.

     For the six months ended December 31, 2005 and 2004, Kolin agreed to grant us additional monthly lump sum rebates for price protection of $29.2 million and $11.2 million, representing 25.1% and 24.5% of actual purchases from Kolin, respectively, which were credited to cost of sales in the period received as these price protection grants relate to inventory purchased from Kolin that had been sold to our customers during the respective periods. In April 2005, we entered into an agreement whereby Kolin agreed that in no event shall the amount of the price protection to be issued by Kolin to us for any calendar month be less than 18% of the amount invoiced by us to our customers for such calendar month. Accordingly, we record an 18% reduction in the value of inventory purchased from Kolin and a corresponding reduction in the accounts payable balance due to Kolin to reflect the impact of this guaranteed price protection on our balance sheet. As of December 31, 2005, the amount of the reduction in the value of inventory purchased from Kolin and the corresponding reduction in the accounts payable balance due to Kolin was $4.9 million.

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     As of June 30, 2004, we had entered into an agreement with Kolin for reimbursement of the cost of warranty expense for units we sold. Through December 2004, we had retained an independent third party to provide on-site service to consumers who purchase our LCD television products. The cost to us for this service was $10 per unit shipped. Since January 2005, we have provided on-site service to consumers for warranty claims through a different third party, which is billed to us on a case-by-case basis. Kolin has agreed to reimburse us varying amounts ranging from $10 to $100 per unit to cover the cost of these warranty expenses as well as our costs in administering the program and servicing units which cannot be serviced by the warranty providers. Kolin provides these per unit reimbursements at the time they ship products to us. We record these reimbursements from Kolin first as a reduction to the third-party warranty costs, with the excess reimbursement amortized over a 12-month period and applied as a credit to cost of sales for units which have shipped to customers. We record reimbursements received from Kolin for units which have not been shipped to customers as deferred warranty revenue. As of December 31, 2005, deferred warranty revenue was $3.6 million. Recognized warranty reimbursements, which are recorded as a reduction in cost of sales, totaled $1.9 million and $187,000 for the six months ended December 31, 2005 and 2004, respectively.

     Beginning in May 2005 through September 2005, Syntax purchased tuners and AV module components used in the assembly of LCD TV products from the Riking Group (“Riking”), a Hong Kong based exporter and a related party. For the six months ended December 31, 2005, purchases from Riking totaled $885,000. As of December 31, 2005, the accounts payable balance included $523,000 in outstanding invoices to Riking.

     We recorded cost of sales for LCoS net sales totaling $1.0 million, or 346% of LCoS net sales. Cost of LCoS net sales was included for the month of December as the Merger closed on November 30, 2005. There was no LCoS cost of sales in the first half of fiscal 2005. The large negative gross margin in each period resulted primarily from the low volume of shipments and low manufacturing yields in the shipped products. To date, our manufacturing capacity has exceeded our manufacturing volume, resulting in the inability to absorb fully the cost of our manufacturing infrastructure. A significant portion of our manufacturing costs are fixed in nature and consist of items such as utilities, depreciation, and amortization. The amounts of these costs do not vary period to period based on the number of units produced nor can the amounts of these costs be adjusted in the short term. Therefore, in periods of lower production volume, these fixed costs are absorbed by a lower number of units, thus increasing the cost per unit. As a result, we expect it will be difficult to attain significant improvements in gross margins until we can operate at higher production volumes.

     Selling, Distribution, and Marketing Expense. Selling, distribution, and marketing expenses totaled $2.9 million, or 3.3% of net sales, in the six months ended December 31, 2005 compared with $1.1 million, or 2.8% of net sales, for the comparable period of the previous year. The increase in selling, distribution, and marketing expenses for the current period was primarily related to increased advertising expenses and other marketing costs necessary to develop our distribution channel. Advertising expense was $1.4 million and $607,000 for the six months ended December 31, 2005 and 2004, respectively.

     General and Administrative Expense. General and administrative expense totaled $9.6 million in the first half of fiscal 2006, compared with $2.5 million in the corresponding period in fiscal 2005. This increase is the result of increased expenses including salaries and wages, recognition of stock-based compensation expense related to the adoption of SFAS 123(R), and legal and accounting fees.

     Research and Development Expense. Research and development expense totaled $627,000 in the first half of fiscal 2006. Research and development expense began to be incurred upon completion of the Merger on November 30, 2005. There was no such expense in the comparable period of the previous year.

     Interest Expense. During the first half of fiscal 2006 ,we recorded net interest expense of $1.3 million compared with $117,000 in the first half of fiscal 2005. During the six months ended December 31, 2005, we incurred interest expense related to our credit facility with Preferred Bank totaling approximately $523,000, cash interest expense related to our 7% and 4% convertible debentures and 9% senior secured debentures of approximately $32,000, and non-cash interest expense related to the convertible and senior secured debentures of approximately $545,000. Under generally accepted accounting principles, we are required to measure the value of the warrants attached to debentures issued and the conversion feature of the convertible debentures issued. The resulting values are recorded as a discount to the debentures with a corresponding increase in additional paid-in capital. The original discount to the convertible debentures was equal to their face value of $7.5 million and the original discount to the secured debentures was $1.4 million. The discount, along with amortization of issuance costs, is being accreted to interest expense over the three-year term of the notes.

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     Net Income (Loss). Net loss was $2.0 million in the first half of fiscal 2006 compared with net income of $222,000 in the first half of fiscal 2005.

Liquidity and Capital Resources

     At December 31, 2005, we had $10.1 million of cash and cash equivalents. At June 30, 2005, we had $1.8 million of cash and cash equivalents.

     Net cash used by operating activities for the six months ended December 31, 2005 was $18.3 million compared with $2.5 million for the comparable period of the prior year. The operating cash outflow in the six months ended December 31, 2005 was primarily a result of increases in accounts receivable and due from factor, and inventory, partially offset by increases in accounts payable, and as a result of the holiday selling season in the United States.

     Net cash used by investing activities for the six months ended December 31, 2005 was $456,000 compared with $53,000 for the comparable period of the prior year. Net cash used by investing activities for the six months ended December 31, 2005 included purchases of equipment of $456,000.

     Net cash provided by financing activities for the six months ended December 31, 2005 was $27.1 million compared with $2.4 million for the six months ended December 31, 2004. Net cash provided by financing activities for the six months ended December 31, 2005 consisted primarily of proceeds from bank loans of $8.7 million and net cash proceeds from issuance of our 6% redeemable convertible preferred stock of $13.9 million.

     We incurred operating losses from our inception until the year ended June 30, 2005, when we recorded income from operations of $344,000. Despite having income from operations in the year ended June 30, 2005, cash used by operating activities was $15.6 million primarily due to increases in accounts receivable and due from factor and inventories as a result of rapid increases in revenue. We have historically funded our operating cash outflows through the use of notes payable and bank lines of credit with a borrowing base calculated as a percentage of eligible accounts receivable as explained below and through the issuance of long term debt and preferred stock.

     On November 30, 2005, the merger between Syntax Groups Corporation (“Syntax”) and Brillian Corporation (“Brillian”) was completed and the combined company changed its name to Syntax-Brillian Corporation (“Syntax-Brillian”). Brillian has never been profitable. For the nine months ended September 30, 2005, Brillian recorded a net loss of $9.6 million. In December 2005 and January 2006, Syntax-Brillian issued 3.2 million shares of redeemable convertible preferred stock. The net proceeds of this offering were approximately $14.7 million. Additionally, on January 31, 2006, we entered into an amendment to the business loan agreement with Preferred Bank described below that provides an additional $8 million of credit availability.

     We believe that the cash from the redeemable convertible preferred stock issuance in December 2005 and the increased Preferred Bank credit facility will be sufficient to sustain operations at the current level for the next 12 months. However, if we continue to experience rapid revenue growth, additional capacity under accounts receivable lines of credit or other sources of financing, such as long-term debt or equity financing, will be necessary. Although there can be no assurance that the required financing will be available on favorable terms, or at all, we believe that we will be able to obtain the required financing to continue to fund our business, including the anticipated growth, for at least the next 12 months. If sufficient additional financing is not available, we would need to curtail our growth rate in order to have sufficient cash to continue our operations.

     On July 27, 2004, Syntax entered into a four party agreement, or the CIT Agreement, between us and CIT Commercial Services Inc., or CIT, Kolin, and Hsin Chu International Bank, or HCIB, the bank used by Kolin. Pursuant to the agreements that govern this transaction, we assigned collection of all our existing and future accounts receivable to CIT, subject to CIT’s approval of the account. We further assigned 100% of the proceeds to be collected by CIT from such accounts receivable to HCIB on behalf of Kolin. The credit risk for all accounts approved by CIT was assumed by CIT. We agreed to pay fees to CIT of 0.06% of gross invoice amounts approved by CIT plus 0.005% for each 30-day period such invoices were outstanding, subject to a minimum fee per calendar quarter of $45,000. Subsequent to this agreement through December 2004, our cash flow was derived from the proceeds from sales of Syntax common stock to Kolin, which totaled $2,800,000 through December 31, 2004, sales of Syntax common stock to other parties as well as COD sales to customers not assumed by CIT. In December 2004, Syntax entered into a bank line of credit described below which altered the terms of this agreement.

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     On December 10, 2004, we entered into a Business Loan Agreement for a $10 million credit facility with Preferred Bank. Pursuant to the terms of this agreement, we are permitted to receive cash advances up to the lesser of $5 million or 80% of eligible accounts receivable and 25% of eligible inventory, or the Borrowing Base. In addition, the facility provides for the issuance of letters of credit to Kolin, with such amounts not included in the Borrowing Base, up to an aggregate of $10 million. Accounts receivable eligible to be included in the Borrowing Base include amounts previously assigned to CIT in accordance with the CIT Agreement, which remains substantially unchanged, other than that the funds collected by CIT pursuant to the CIT Agreement are now remitted to us and we are required to apply 80% of such collections to reduce the balance of the loan to Preferred Bank. The loan is secured by a lien on all of our assets. Interest on cash advances is charged at Preferred Bank’s prime rate (5% at December 31, 2004) plus 1%. Additional requirements of this credit facility are that Kolin subordinate $5 million of its balance due from us to Preferred Bank, we maintain an average compensating balance of at least $400,000 and that we be profitable each annual period with minimum income before taxes for the year ended June 30, 2005 equal to 0.4% of net sales. The loan was also personally guaranteed jointly and severally by the following individuals: James Ching Hua Li, our current President and Chief Operating Officer and a director; Thomas Man Kit Chow, our current Chief Procurement Officer and a director; Tony Tzu Ping Ho, one of our shareholders; Roger Kao, a Vice President of Kolin; and Michael Chan, our current Executive Vice President — LCD Operations.

     On March 25, 2005, we entered into a new Business Loan Agreement with Preferred Bank under terms substantially the same as the previous loan agreement except for (1) the aggregate facility was increased from $10,000,000 to $12,000,000; (2) the Borrowing Base was increased to $7,000,000 from $5,000,000 with a $2,000,0000 limitation on eligible inventory and trust receipts and acceptances issued for inventory; (3) the new agreement requires repayment of advances within 60 days from the date of the advance and repayment of trust receipts within 90 days from the date of booking; and (4) the new agreement provides up to 33% of accounts receivables not approved by CIT to be included for determining advances within the Borrowing Base. The remaining provisions regarding the interest rate, personal guarantors, compensating balances, and annual profitability remained unchanged.

     On June 13, 2005, we entered into a new Business Loan Agreement with Preferred Bank under terms substantially the same as the previous loan agreement except for (1) the aggregate facility was increased from $12,000,000 to $17,500,000 and (2) the borrowing base was increased to the lesser of $17,500,000 or the sum of 80% of the accounts approved and assigned to CIT plus 33% of the non-approved accounts assigned to CIT plus 40% of eligible inventory, up to a maximum of $5,000,000, with the following limitations:

          a) $17,500,0000 limitation for the issuance of letters of credit not subject to the borrowing base;

          b) $15,000,000 for trust receipts and acceptances up to 90 days subject to the borrowing base;

          c) $2,000,000 for trust receipts and general working capital for up to 60 days subject to the borrowing base;

          d) The amounts in (b) plus (c) shall not exceed $15,000,000;

          e) The amounts in (a) plus (b) plus (c) shall not exceed $17,500,000; and

          f) Interest to be charged at Preferred Bank’s prime rate (6.25% at June 30, 2005) plus 0.5%.

     In addition, we agreed to subordinate payment of $5,000,000 of the balance due Kolin to the amounts outstanding under this facility. The remaining provisions regarding the interest rate, personal guarantors, compensating balances, and annual profitability remained unchanged.

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     On September 28, 2005, we entered into a new Business Loan Agreement with Preferred Bank under the following revised terms: (1) the aggregate facility was increased from $17,500,000 to $20,000,000 and (2) the Borrowing Base was increased to the lesser of $20,000,000 or the sum of 80% of the accounts approved and assigned to CIT plus 40% of eligible inventory, up to a maximum of $10,000,000, with the following limitations:

          a) $10,000,000 limitation for the issuance of letters of credit not subject to the borrowing base;

          b) $5,000,000 for trust receipts and acceptances up to 90 days subject to the borrowing base;

          c) $10,000,000 for trust receipts and general working capital for up to 60 days subject to the borrowing base;

          d) The amounts in (a) plus (b) shall not exceed $10,000,000;

          e) The amounts in (a) plus (b) plus (c) shall not exceed $20,000,000; and

          f) Interest to be charged at Preferred Bank’s prime rate (7.25% at September 28, 2005) plus 0.5%.

     Accounts receivable eligible to be included in the Borrowing Base include amounts assigned to CIT in accordance with the CIT Agreement, which remains substantially unchanged, other than that the funds collected by CIT pursuant to the CIT Agreement will now be utilized by Preferred Bank as follows: a) 25% to retire existing trust receipt loans on a first in, first out basis; b) 60% to repay advances under the working capital portion of the loan facility; and c) the remaining 15% to Syntax. Interest on cash advances is charged at Preferred Bank’s prime rate plus 0.5%. Additional requirements of this credit facility are that Syntax maintains its primary operating accounts at Preferred Bank and that Syntax maintain positive annual taxable net income and submit quarterly internal financial statements within 60 days of the end of each quarter.

     The new loan was personally guaranteed jointly and severally up to a maximum of $10,000,000 by the following individuals: James Ching Hua Li, our current President and Chief Operating Officer and a director; Thomas Man Kit Chow, our current Chief Procurement Officer and a director; Tony Tzu Ping Ho, one of our shareholders; Roger Kao, a Vice President of Kolin; and Michael Chan, our current Executive Vice President — LCD Operations.

     In addition, we agreed to provide to Preferred Bank a $10,000,000 standby letter of credit on terms acceptable to Preferred Bank from Hsinchu International Bank, the bank used by Kolin for its financing, as additional security for this facility.

Aggregate Contractual Obligations

     The following table lists our contractual commitments at June 30, 2005:

			Payments Due by Period
	Total
	Amounts		Less Than						6 Years
Other Contractual Commitments	Committed		1 Year		1-3 Years		4-5 Years		and Over
			(In thousands)
Facilities leases	$	1,048	$	331	$	662	$	55	$	—
Purchase orders	$	16,400	$	16,400	$	—	$	—	$	—

Off Balance Sheet Arrangements

     We do not have any off balance sheet arrangements.

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Impact of Recently Issued Standards

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. In addition, it carries forward without change the guidance contained in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle in most circumstances. The provisions of SFAS 154 are effective in fiscal years beginning after December 15, 2005. We adopted SFAS 154 effective July 1, 2005.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are subject to market risk associated with changes in foreign currency exchange rates, interest rates, and our equity investments, as discussed more fully below. In order to manage the volatility relating to our more significant market risks, we enter into various hedging arrangements described below. We do not execute transactions or hold derivative financial instruments for speculative or trading purposes. We do not anticipate any material changes in our primary market risk exposures in fiscal 2006.

     Interest Rate Risk

     At December 31, 2005, we had an outstanding balance under our line of credit with Preferred Bank of approximately $20.7 million. As amended on September 28, 2005, this line of credit bears interest at Preferred Bank’s prime rate (7.25% at September 28, 2005) plus 0.5%. If the prime rate were to increase by 1.0%, this would result in estimated increased annual interest expense of approximately $207,000. On January 31, 2006, we entered into an amended agreement with Preferred Bank which increases the amount of available borrowings under this facility to $28 million. If we were to borrow the full $28 million, a 1% increase in the prime rate would result in incremental estimated annual interest expense of $280,000.

     Foreign Currency Risk

     We transact business only in U.S. dollars and, therefore, do not incur any foreign currency risk.

     Equity Price Risk

     We hold investments in capital stock of privately held companies. We recognize impairment losses on our strategic investments when we determine that there has been a decline in the fair value of the investment that is other-than-temporary. From inception through December 31, 2005 we have not recorded any impairment losses on strategic investments. As of December 31, 2005, our strategic investments had a carrying value of $424,000, and we have determined that there was no impairment in these investments at that date. We cannot assure you that our investments will have the above-mentioned results, or that we will not lose all or any part of these investments.

ITEM 4. CONTROLS AND PROCEDURES

     As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures, which included inquiries made to certain other of our employees. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have each concluded that our disclosure controls and procedures are effective and sufficient to ensure that we record, process, summarize, and report information required to be disclosed by us in our periodic reports filed under the Securities Exchange Act within the time periods specified by the Securities and Exchange Commission’s rules and forms. During the quarterly period covered by this report, there have not been any changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II-OTHER INFORMATION

Item 1A. Risk Factors

     You should carefully consider the following risk factors in addition to those discussed elsewhere in this report in evaluating our company and our business.

We have never achieved profitability on an annual basis.

     We have never achieved profitability on an annual basis. We incurred net losses of $605,000 in fiscal 2004 and $17,000 in fiscal 2005. We cannot assure you that we will ever achieve or maintain profitability. At December 31, 2005, we had an accumulated deficit of approximately $2.0 million.

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 derive substantially all of our revenue from HDTVs, particularly LCD HDTVs. As a result, we are particularly vulnerable to fluctuations in demand for these products, whether as a result of market demand, competition, product obsolescence, technological change, budget constraints of potential customers, or other factors. If our revenue derived from these products were to decline significantly, our business and operating results would be adversely affected.

We will be required to attain and maintain profitability through a combination of increased revenue or lower expenses or to raise additional funds.

     To support our operations, we will be required to attain and maintain profitability through a combination of increased revenue or lower expenses or to raise additional funds. There can be no assurance that we will be able to become profitable or to raise additional funds on satisfactory terms. We had approximately $10.1 million of cash at December 31, 2005, and we are continuing to incur losses.

     To remain competitive, we must fund our receivables and inventory and continue to make significant investments in product design and development, marketing, research and development, equipment, and facilities. As a result of the costs and expenses related to these expenditures, our failure to increase sufficiently our net sales to offset these costs and expenses would adversely affect our operating results. Rapid sales increases are also requiring substantial increases in working capital to fund our inventory and receivables.

     We will need to obtain additional equity or debt financing to provide the funds required to expand our business. If such financing is not available on satisfactory terms, we may be unable to expand our business or to develop new business at the rate desired and our operating results may suffer. Debt financing increases expenses and must be repaid regardless of operating results. Equity financing could result in additional dilution to existing stockholders.

Our revenue depends on sales by various retailers and distributors.

     Our revenue depends on our sales through various leading national consumer electronics retailers, such as Comp USA, Inc., Circuit City, Office Depot, K-Mart, and Fry’s Electronics, Inc.; regional consumer electronics retailers, such as ABC Appliance, Inc. and J&R Electronics, Inc.; online/television retailers, such as Amazon.com, Inc. and Buy.com; and high-end audio/video distributors, such as D&H Distributor Co. and BDI Laguna, Inc.

     These sales channels involve a number of special risks, including the following:

• our ability to secure and maintain favorable relationships with retailers and distributors;

• our lack of control over the timing of delivery of our products to end-users;

• our retailers and distributors are not subject to minimum sales requirements or any obligation to market our products to their customers;

• our retailers and distributors may terminate their relationships with us at any time; and

• our retailers and distributors market and distribute competing products.

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Competing companies and technologies could reduce the demand for our products.

     We compete with a number of the world’s leading electronics manufacturers, including JVC, LG Electronics, Panasonic, Phillips, Samsung, Sharp, Sony, Thompson, and Toshiba. Each of these and certain of our other competitors have greater financial, technical, sales, marketing, and other resources than we possess. Our competitors could introduce products with superior features and functionality at lower prices than our products, and could also bundle existing or new products with other more established products in order to compete with us. Our competitors could also gain market share by acquiring or forming strategic alliances with other competitors. Finally, we may face additional sources of competition in the future because new distribution methods offered by the Internet and electronic commerce have removed many of the barriers to entry historically faced by start-up companies in the consumer electronics industry. Any of the foregoing effects could cause our revenues to decline, which would harm our financial position and results of operations.

     We are also subject to competition from competing technologies, such as CRT, high-temperature polysilicon, plasma, and digital micromirror technologies, as well as other emerging technologies or technologies that may be introduced in the future. For example, Motorola recently announced carbon nanotube technology that is intended to enable manufacturers to design large flat panel displays that exceed the image quality characteristics of plasma and LCD screens at a lower cost. The success of competing technologies could substantially 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.

     We outsource to various contract manufacturers and assemblers the production requirements for our HDTVs. Taiwan Kolin Co. Ltd. is our principal contract manufacturer and our sole source of the electronic components and subassemblies of our LCD HDTV products. The loss of our relationships with our contract manufacturers or assemblers, particularly Kolin, or their inability to conduct their manufacturing and assembly services for us as anticipated in terms of cost, quality, and timeliness could adversely affect our ability to fill customer orders in accordance with required delivery, quality, and performance requirements. If this were to occur, the resulting decline in revenue and revenue potential would harm our business. Securing new contract manufacturers and assemblers is time-consuming and might result in unforeseen manufacturing, supply, and operational problems.

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.

     Our contract manufacturers and assemblers must maintain high levels of productivity and satisfactory delivery schedules. We do not have long-term arrangements with any of our contract manufacturers or assemblers that guarantee production capacity, prices, lead times, or delivery schedules. Our contract manufacturers and assemblers serve many other customers, a number of which have greater production requirements than we do. As a result, our contract manufacturers and assemblers could determine to prioritize production capacity for other customers or reduce or eliminate services for us on short notice. Any such problems could result in our inability to deliver our products in a timely manner and adversely affect our operating results.

Shortages of components and materials may delay or reduce our sales and increase our costs.

     Our inability or the inability of our contract manufacturers and assemblers to obtain sufficient quantities of components and other materials necessary for the production of our products could result in delayed sales or lost orders, increased inventory, and underutilized manufacturing capacity. For example, we experienced production delays when our former supplier of light engines experienced quality and delivery issues. Many of the materials used in the production of our HDTV and microdisplay products are available only from a limited number of foreign suppliers. As a result, we are subject to increased costs, supply interruptions, and difficulties in obtaining materials. Our OEM customers also may encounter difficulties or increased costs in obtaining from others the materials necessary to produce their products into which our LCoS microdisplays are incorporated.

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     We depend on AU Optronics, Chi Mei Optoelectronic, LG Phillips, and Samsung for LCD panels and on Kolin for the electronic components and subassemblies for our LCD HDTV products. We depend on Shanghai-based Semiconductor Manufacturing International Corporation, or SMIC, for the fabrication of silicon wafers; Taiwan-based United Microelectronics Corporation, or UMC, for ASICs; Pixelworks, Silicon Optics, ATI, and Zoran for video processing integrated circuits; Toppan for screens; and various Asian suppliers for printed circuit board assembly and remote controls for our HDTV products. We depend on UMC for the fabrication of silicon wafers and ASICs for our near-to-eye microdisplay products. We do not have long-term contracts with any of these suppliers. As a result, none of them is obligated to supply us for any specific period, in any specific quantity, or at any specific price, except as provided in purchase orders from time to time. The termination of our arrangements with any of these suppliers, or their inability or unwillingness to provide us with the necessary amount or quality of supplies on a timely basis, would adversely affect our ability to manufacture and ship our products until alternative sources of supply could be arranged. We cannot assure you that we would be able to secure alternative arrangements.

     Materials and components for some of our major products may not be available in sufficient quantities to satisfy our needs because of shortages of these materials and components. Any supply interruption or shortages may result in lost sales opportunities.

     We place orders for components, determine production, and plan inventory in advance based on our forecast of consumer demand, which is highly volatile and difficult to predict. We may experience a shortage of LCD panels, which may result in our inability to meet demand for our LCD televisions, or a surplus of LCD panels that may result in the recording of losses should LCD panel prices decline. We consume a large volume of parts and components for our products, and market fluctuations may cause a shortage of parts and components and may affect our production or the cost of goods sold. Our profitability may also be adversely affected by supply or inventory shortages or inventory adjustments that, as a result of efforts to reduce inventory by temporarily halting production or by reducing the price of goods, will lead to an increase in the ratio of cost of sales to sales. We write down the value of our inventory when components or products have become obsolete, when inventory exceeds the amount expected to be used, or when the value of the inventory is otherwise recorded at a higher value than net realizable value. Such inventory adjustments can have a material adverse effect on our operating income and profitability.

Our business depends on new products and technologies.

     We operate in rapidly changing industries. Technological advances, the introduction of new products, and new design and manufacturing techniques could adversely affect our business unless we are able to adapt to the changing conditions. As a result, we will be required to expend substantial funds for and commit significant resources to the following:

• 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.

     We may be unable to recover any expenditures we make relating to one or more new products or technologies that ultimately prove to be unsuccessful for any reason. In addition, any investments or acquisitions made to enhance our products, sales channels, or technologies may prove to be unsuccessful.

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     Our future operating results will depend to a significant extent on our ability to provide new products that compare favorably on the basis of time to introduction, cost, and performance with the products of competitive third-party suppliers and evolving technologies. Our success in attracting new customers and developing new business depends on various factors, including the following:

• 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.

     Our future success depends on our ability to address the rapidly changing needs of our customers by developing, acquiring, and introducing new products, product updates, and services on a timely basis. We must also extend the operation of our products to new formats and keep pace with technological developments and emerging industry standards. We intend to commit substantial resources to developing new products, product features, and technological advances in the HDTV market. This market is relatively new, and industry standards for the HDTV market are evolving and changing. If the HDTV market does not develop as anticipated, or if demand for our products and services in this market does not materialize or occurs more slowly than we expect, we will have expended substantial resources and capital without realizing sufficient revenue, and our business and operating results could be adversely affected.

We must protect our intellectual property and could be subject to infringement claims by others.

     We believe that our success depends in part on protecting our proprietary technology. We rely on a combination of patent, trade secret, and trademark laws, confidentiality procedures, and contractual provisions to protect our intellectual property. We seek to protect certain aspects of our technology under trade secret laws, which afford only limited protection. We face risks associated with our intellectual property, including the following:

• intellectual property laws may not protect our intellectual property rights;

• third parties may challenge, invalidate, or circumvent any patents issued to us;

• rights granted under patents issued to us may not provide competitive advantages to us;

• unauthorized parties may attempt to obtain and use information that we regard as proprietary despite our efforts to protect our proprietary rights;

• others may independently develop similar technology or design around any patents issued to us; and

• effective protection of intellectual property rights may be limited or unavailable in some foreign countries in which we operate.

     We may not be able to obtain effective patent, trademark, service mark, copyright, and trade secret protection in every country in which our products are produced or sold. We may find it necessary to take legal action in the future to enforce or protect our intellectual property rights or to defend against claims of infringement and such action may be unsuccessful. In addition, we may not be able to obtain a favorable outcome in any intellectual property litigation.

     Third parties could claim that we are infringing their patents or other intellectual property rights. In the event that a third party alleges that we are infringing its rights, we may not be able to obtain licenses on commercially reasonable terms from the third party, if at all, or the third party may commence litigation against us. Litigation can be very expensive and can distract our management time and attention, which could adversely affect our business.

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Our operations in foreign countries expose us to a variety of risks.

     Our operations in foreign countries expose us to a variety of risks. Most of our contract manufacturers and assemblers are located abroad, and we and our contract manufacturers and assemblers purchase certain materials from international sources. Purchasing supplies and manufacturing and selling products internationally expose us to various economic, political, and other risks, including the following:

• difficulties in staffing, managing, and operating an international operation;

• the burdens and costs of compliance with local laws and regulatory requirements as well as changes in those laws and requirements;

• imposition of governmental controls, including trade and employment restrictions and restrictions on currency conversion or the transfer of funds;

• transportation delays or interruptions and other effects of less developed infrastructures;

• fluctuations in foreign currency exchange rates and difficulties in hedging foreign currency transaction exposures;

• economic instability, such as higher interest rates and inflation, which could reduce our customers’ ability to obtain financing for consumer electronic products or which could make our products more expensive in those countries;

• employment and severance issues, including possible employee turnover or labor unrest;

• overlap of tax issues;

• tariffs and duties;

• potential loss of proprietary information as a result of piracy, misappropriation, or laws that may be less protective of our intellectual property rights;

• limitations on future growth or inability to maintain current levels of revenue from international operations if we do not invest sufficiently in our international operations;

• longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;

• difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;

• seasonal reductions in business activity in the summer months in Asia and in other periods in other countries;

• costs and delays associated with developing our products in multiple languages; and

• economic instability, political unrest, war, or terrorism in areas in which we do business.

     Changes in policies by the United States or foreign governments resulting in, among other things, increased duties, changes in the current tariff structures, higher taxation, currency conversion limitations, restrictions on the transfer or repatriation of funds, limitations on imports or exports, or the expropriation of private enterprises could adversely affect our ability to manufacture or sell products in foreign markets and to purchase materials or equipment from foreign suppliers. In addition, U.S. trade policies, such as “most favored nation” status and trade preferences for certain Asian nations, could affect the attractiveness of our products to our U.S. customers.

     While we transact business predominantly in U.S. dollars and bill and collect most of our sales in U.S. dollars, we occasionally collect a portion of our revenue in non-U.S. currencies. In the future, customers may make payments in non-U.S. currencies.

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     Fluctuations in foreign currency exchange rates could affect our cost of goods and operating margins and could result in exchange losses. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency. Hedging foreign currencies can be difficult, especially if the currency is not freely traded. We cannot predict the impact of future exchange rate fluctuations on our operating results.

The cyclical nature of the consumer electronics industry may cause substantial period-to-period fluctuations in our operating results.

     The consumer electronics industry has experienced significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices, intense competition, and production overcapacity. In addition, the consumer electronics industry is cyclical in nature. We may experience substantial period-to-period fluctuations in our operating results, at least in part because of general industry conditions or events occurring in the general economy.

Our operating results may have significant periodic and seasonal fluctuations.

     In addition to the variability resulting from the short-term nature of the commitments of our customers, other factors may contribute to significant periodic and seasonal quarterly fluctuations in our results of operations. These factors include the following:

• effectiveness in managing manufacturing processes;

• changes in cost and availability of labor and components;

• the timing and volume of orders relative to our capacity;

• market acceptance of our products;

• product introductions or enhancements by us and our competitors;

• evolution in the life cycles of products;

• timing of expenditures in anticipation of future orders;

• product mix;

• pricing and availability of competitive products;

• changes or anticipated changes in economic conditions;

• the cancellation or deferral of product purchases as a result of weak or uncertain economic and industry conditions or the anticipation of new products or product updates by us or our competitors;

• changes in the competitive landscape due to mergers, acquisitions, or strategic alliances that could allow our competitors to gain market share;

• the unpredictability of the timing and magnitude of our sales through direct sales channels and indirect sales channels;

• the seasonal nature of our sales;

• changes in our pricing and distribution terms or those of our competitors; and

• the possibility that our business will be adversely affected as a result of the threat of terrorism or military actions taken by the United States or its allies.

     You should not rely on the results of prior periods as an indication of our future performance. Our operating expense levels are based, in significant part, on our expectations of future revenue. If we have a shortfall in revenue or orders in any given quarter, we may not be able to reduce our operating expenses quickly in response. Therefore, any significant shortfall in revenue or orders could have an immediate adverse effect on our operating results for that quarter. In addition, we may experience high operating expenses, and our operating results may fall below the expectations of investors if we fail to manage our business effectively.

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Our products are complex and may require modifications to resolve undetected errors or unforeseen failures, which could lead to an increase in our costs, a loss of customers, or a delay in market acceptance of our products.

     Our products are complex and may contain undetected errors or experience unforeseen failures when first introduced or as new versions are released. These errors could cause us to incur significant re-engineering costs, divert the attention of our engineering personnel from product development efforts, and cause significant customer relations and business reputation problems. If we deliver products with defects, our credibility and the market acceptance and sales of our products could be harmed. Defects could also lead to liability for defective products as a result of lawsuits against us or against our customers. We also may agree to indemnify our customers in some circumstances against liability from defects in our products. A successful product liability claim could require us to make significant damage payments.

Our LCoS microdisplay products may not achieve commercial success or widespread market acceptance.

     A key element of our current business involves the ongoing commercialization of our LCoS microdisplay technology. Our LCoS products may not achieve customer or widespread market acceptance. Some or all of our LCoS products may not achieve commercial success as a result of technological problems, competitive cost issues, yield problems, and other factors. Even when we successfully introduce a new LCoS product designed for OEM customers, our OEM customers may determine not to introduce or may terminate products utilizing our products for a variety of reasons, including the following:

• 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.

     Various target markets for our LCoS microdisplays, including LCoS HDTVs, LCoS home theaters, and near-to-eye microdisplays, are uncertain, may be slow to develop, or could utilize competing technologies, especially high-temperature polysilicon and digital micromirror devices. Many manufacturers have well-established positions in these markets. LCoS HDTVs have only recently become available to consumers, and widespread market acceptance is uncertain. Penetrating this market will require us to offer an improved value, higher performance proposition to existing technology. In addition, the commercial success of the near-to-eye microdisplay market is uncertain. Gaining acceptance in these markets may prove difficult because of the radically different approach of microdisplays to the presentation of information. We must provide customers with lower cost, higher performance microdisplays for their products in these markets. The failure of any of our target markets to develop, or our failure to penetrate these markets, would impede our sales growth. Even if our products successfully meet their price and performance goals, our retailer customers may not achieve success in selling our LCoS HDTVs and our OEM customers may not achieve commercial success in selling their products that incorporate our microdisplay products.

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

     We do not sell our LCoS microdisplay products to end users. Instead, we design and develop LCoS HDTVs for sale by retailers under their own brand names, and we sell microdisplay products that our OEM customers incorporate into their products. As a result, our success depends on the ability of our retailer customers to sell our LCoS HDTVs and the widespread market acceptance of our OEM customers’ products. Any significant slowdown in the demand for our customers’ products would adversely affect our business.

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     Because our success in the LCoS microdisplay business depends on the widespread market acceptance of our customers’ products, we must secure successful retailers for our LCoS HDTV products and establish relationships for our microdisplay products with OEMs in industries that have significant growth potential. Our failure to secure retailers to sell our LCoS HDTVs or to establish relationships with OEMs in those high-growth markets would reduce our revenue potential.

     Our dependence on the success of the products of our retailer and OEM customers exposes us to a variety of risks, including the following:

• 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.

     Our failure to address these risks may adversely affect our results of operations.

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.

     We have not reached definitive agreements with any traditional consumer electronics retailers to sell our LCoS HDTVs. The inability to secure retailers to sell our LCoS HDTVs would substantially impede our revenue growth and could require us to write off substantial investments that we have made in this aspect of our business. We anticipate that our initial LCoS HDTV sales will be to a limited number of customers. As a result, we will face the risks inherent in relying on a concentration of customers. Any material delay, cancellation, or reduction of orders by one of these customers would adversely affect our operating results.

     OEM customers for our LCoS HDTVs generally do not provide us with firm, long-term volume purchase commitments. Although we sometimes enter into manufacturing contracts with our OEM customers, these contracts typically clarify order lead times, inventory risk allocation, and similar matters rather than provide firm, long-term volume purchase commitments. As a result, OEM customers generally can cancel purchase commitments or reduce or delay orders at any time. The cancellation, delay, or reduction of OEM customer commitments could result in reduced revenue and in our holding excess and obsolete inventory and having unabsorbed manufacturing capacity. The large percentage of our OEM sales to customers in the electronics industry, which is subject to severe competitive pressures, rapid technological change, and product obsolescence, increases our inventory and overhead risks.

     In addition, we make significant decisions, including production schedules, component procurement commitments, facility requirements, personnel needs, and other resource requirements, based on our estimates of OEM customer requirements. The short-term nature of our OEM customers’ commitments and the possibility of rapid changes in demand for their products reduce our ability to estimate accurately the future requirements of those customers. Our operating results may be materially and adversely affected as a result of the failure to obtain anticipated orders and deferrals or cancellations of purchase commitments because of changes in OEM customer requirements. Because many of our costs and operating expenses are relatively fixed, a reduction in OEM customer demand can harm our gross margins and operating results.

     On occasion, OEM customers may require rapid increases in production, which can stress our resources and reduce operating margins. Although we have had a net increase in our manufacturing capacity over the past few years, we may not have sufficient capacity at any given time to meet all of our customers’ demands or to meet the requirements of a specific project.

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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.

     In 2004, we utilized a third-party supplier to manufacture the light engines used to project the image in our LCoS HDTVs. Due to quality and delivery schedule concerns, we began producing our own light engines rather than rely on our prior supplier. The production of light engines involves complex engineering issues that we must successfully address. If we are unable to produce light engines in sufficient quantities, or at all, our ability to manufacture LCoS HDTVs would be harmed.

     Our ability to compete successfully in selling LCoS HDTVs depends on a number of factors, both within and outside our control. These factors include the following:

• our success in developing and producing new products;

• our ability to address the needs of our retail and OEM customers;

• the pricing, quality, performance, reliability, features, ease of use, and diversity of our products;

• the quality of our customer service;

• our efficiency of production;

• the rate at which customers incorporate our LCoS microdisplay products into their own products;

• product or technology introductions by our competitors; and

• foreign currency devaluations, especially in Asian currencies, such as the Japanese yen, the Korean won, and the Taiwanese dollar, which may cause a foreign competitor’s products to be priced significantly lower than our products.

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

     We sell our microdisplay products to OEMs, which then incorporate them into the products they sell. OEMs make the determination during their product development programs whether to incorporate our microdisplay products or pursue other alternatives. This may require us to make significant investments of time and capital well before our OEM customers introduce their products incorporating our products and before we can be sure that we will generate any significant sales to our OEM customers or even recover our investment.

     During an OEM customer’s entire product development process, we face the risk that our products will fail to meet our OEM customer’s technical, performance, or cost requirements or will be replaced by a competing product or alternative technology. Even if we offer products that are satisfactory to an OEM customer, the customer may delay or terminate its product development efforts. The occurrence of any of these events would adversely affect our revenue. The lengthy development period also means that it is difficult to immediately replace an unexpected loss of existing business.

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

     Our Arizona facility and its high-volume LCoS microdisplay manufacturing line are important to our success. We currently produce all of our LCoS microdisplays on this dedicated line. This facility also houses our principal research, development, engineering, design, and certain managerial operations. Any event that causes a disruption of the operation of this facility for even a relatively short period of time would adversely affect our ability to produce our LCoS microdisplays and to provide technical and manufacturing support for our customers.

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We have previously experienced low manufacturing yields in commencing production of LCoS microdisplays, and we must achieve satisfactory manufacturing yields.

     The design and manufacture of microdisplays are new and highly complex processes that are sensitive to a wide variety of factors, including the level of contaminants in the manufacturing environment, impurities in the materials used, and the performance of personnel and equipment. As a result of these factors, we have previously experienced low manufacturing yields in producing LCoS microdisplays. These issues could continue, and we may in the future encounter lower than desired manufacturing yields as we manufacture LCoS microdisplays in higher volumes, which could result in the delay of the ramp-up to high-volume LCoS manufacturing production. A return to lower than expected manufacturing yields could significantly and adversely affect our operating margins.

     Although we added additional equipment to our Arizona manufacturing facility in the last two years for manufacturing LCoS microdisplays, the high-volume manufacture of LCoS microdisplays will require us to overcome numerous challenges, including the following:

• 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.

     In addition, the complexity of manufacturing processes will increase along with increases in the sophistication of microdisplays. Any problems with our manufacturing operations could result in the lengthening of our delivery schedules, reductions in the quality or performance of our design and manufacturing services, and reduced customer satisfaction.

We must effectively manage our growth.

     The failure to manage our growth effectively could adversely affect our operations. Our ability to manage our planned growth effectively will require us to

• 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.

     Our operations depend substantially on the efforts and abilities of our senior management as well as our technical, sales, and other key personnel. The loss of services of one or more of our key employees or the inability to add key personnel could have a material adverse effect on our business. Although we maintain employment, non-competition, and nondisclosure covenants with certain key personnel, we do not currently have any key person life insurance covering any officer or employee or employment agreements with most of our employees.

Any acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute stockholder value, and harm our operating results.

We plan to review opportunities to buy other businesses or technologies that would complement our current products, expand the breadth of our markets and sales channels, enhance our technical capabilities, or otherwise offer growth opportunities. While we have no current agreements or active negotiations underway, we may buy businesses, products, or technologies in the future. If we make any future acquisitions, we could issue stock that would dilute existing stockholders’ percentage ownership, incur substantial debt, or assume contingent liabilities.

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     Our experience in acquiring other businesses and technologies is limited. Potential acquisitions also involve numerous risks, including the following:

• problems integrating the purchased operations, technologies, products, or services with our own;

• unanticipated costs associated with the acquisition;

• diversion of management’s attention from our core businesses;

• adverse effects on existing business relationships with suppliers and customers;

• risks associated with entering markets in which we have no or limited prior experience;

• potential loss of key employees and customers of purchased organizations;

• increased costs and efforts in connection with compliance with Section 404 of the Sarbanes-Oxley Act; and

• risk of impairment charges related to potential write-down of acquired assets in future acquisitions.

     Our acquisition strategy entails reviewing and potentially reorganizing acquired business operations, corporate infrastructure and systems, and financial controls. Unforeseen expenses, difficulties, and delays frequently encountered in connection with rapid expansion through acquisitions could inhibit our growth and negatively impact our profitability. We may be unable to identify suitable acquisition candidates or to complete the acquisitions of candidates that we identify. Increased competition for acquisition candidates may increase purchase prices for acquisitions to levels beyond our financial capability or to levels that would not result in the returns required by our acquisition criteria. In addition, we may encounter difficulties in integrating the operations of acquired businesses with our own operations or managing acquired businesses profitably without substantial costs, delays, or other operational or financial problems.

We may not realize the benefits we expected from our merger with Syntax.

     The integration of our business with the business of Syntax will be complex, time-consuming, and expensive and may disrupt the combined business. We will need to overcome significant challenges in order to realize any benefits or synergies from the merger. These challenges include the timely, efficient, and successful execution of a number of post-merger events, including the following:

• integrating the business, operations, and technologies of the two companies;

• retaining and assimilating the key personnel of each company;

• retaining existing customers of both companies and attracting additional customers;

• retaining strategic partners of each company and attracting new strategic partners;

• creating uniform standards, controls, procedures, policies, and information systems; and

• the challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs.

     The inability to manage successfully the substantially larger and internationally diverse organization, or any significant delay in achieving successful management, could have a material adverse effect on us and, as a result, on the market price of our common stock after the merger.

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     The execution of these post-merger events will involve considerable risks and may not be successful. These risks include the following:

• 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.

     We may not succeed in addressing these risks or any other problems encountered in connection with the merger. The inability to integrate successfully the operations, technology, and personnel of our businesses, or any significant delay in achieving integration, could have a material adverse effect on us, and on the market price of our common stock.

Charges to earnings resulting from the application of the purchase method of accounting may adversely affect the market value of our common stock.

     If the benefits of the merger are not achieved, our financial results could be adversely affected. In accordance with generally accepted accounting principles, we are accounting for the merger using the purchase method of accounting. For accounting purposes, Syntax is considered the acquiring company. As a result, we will allocate the total estimated purchase price to our net tangible assets prior to the merger, amortizable intangible assets, and in-process research and development based on their fair values as of the date of completion of the merger, and record the excess of the purchase price over those fair values as goodwill. We will incur additional amortization expense over the estimated useful lives of certain of the intangible assets acquired in connection with the merger, which is expected to be approximately $1.3 million on an annual basis. In addition, to the extent the value of goodwill or intangible assets with indefinite lives becomes impaired, we may be required to incur material charges relating to the impairment of those assets.

We incur costs as a result of being a public company.

     As a public company, we incur significant legal, accounting, and other expenses that Syntax did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission and Nasdaq, have required changes in corporate governance practices of public companies. These rules and regulations increase legal and financial compliance costs and make some activities more time-consuming and costly. In addition, we incur additional costs associated with our public company reporting requirements. These rules and regulations also may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

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The market price for our common stock may be volatile, and many factors could cause the market price of our common stock to fall.

     Many factors could cause the market price of our common stock to rise and fall, including the following:

• variations in our quarterly results;

• introductions of new products or new pricing policies by us or by our competitors;

• the gain or loss of significant orders;

• the gain or loss of significant customers;

• announcements of technological innovations by us or by our competitors;

• acquisitions or strategic alliances by us or by our competitors;

• recruitment or departure of key personnel;

• sales of our common stock in the public market, including sales by former Syntax shareholders;

• changes in the estimates of our operating performance or changes in recommendations by any securities analysts that follow our stock; and

• market conditions in our industry, the industries of our customers, and the economy as a whole.

     In addition, stocks of technology companies have experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to these companies’ operating performance. Public announcements by technology companies concerning, among other things, their performance, accounting practices, or legal problems could cause the market price of our common stock to decline regardless of our actual operating performance.

We are subject to governmental regulations.

     Like all businesses, our operations are subject to certain federal, state, and local regulatory requirements relating to environmental, waste management, health, and safety matters. We could become subject to liabilities as a result of a failure to comply with applicable laws and incur substantial costs from complying with existing, new, modified, or more stringent requirements. In addition, our past, current, or future operations may give rise to claims of exposure by employees or the public or to other claims or liabilities relating to environmental, waste management, or health and safety concerns.

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 certificate of incorporation and the Delaware General Corporation Law contain provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of us, even when these attempts may be in the best interests of stockholders. These include provisions limiting the stockholders’ powers to remove directors or take action by written consent instead of at a stockholders’ meeting. Our certificate of incorporation also authorizes our board of directors, without stockholder approval, to issue one or more series of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of common stock. Delaware law also imposes conditions on certain business combination transactions with “interested stockholders.”

     We have also adopted a stockholder rights plan intended to encourage anyone seeking to acquire us to negotiate with our board of directors prior to attempting a takeover. While the plan was designed to guard against coercive or unfair tactics to gain control of us, the plan may have the effect of making more difficult or delaying any attempts by others to obtain control of us.

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     These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in control or management of our company, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.

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

     Our effective tax rate could be adversely affected by various factors, many of which are outside of our control. Our effective tax rate is directly affected by the relative proportions of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. We are also subject to changing tax laws, regulations, and interpretations in multiple jurisdictions in which we operate as well as the requirements of certain tax rulings. Our effective tax rate is also influenced by the tax effects of purchase accounting for acquisitions, non-recurring charges and tax assessments against acquired entities with respect to tax periods prior to the acquisition. These matters may cause fluctuations between reporting periods in which the acquisition, assessment, or settlement takes place.

Changes to current accounting principles could have a significant effect on our reported financial results or the way in which we conduct our business.

     We prepare our financial statements in conformity with accounting principles generally accepted in the United States, which are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the SEC, and various other bodies formed to interpret and create appropriate accounting principles. A change in these principles could have a significant effect on our reported results and may even retroactively affect previously reported transactions. Our accounting policies that recently have been or may in the future be affected by changes in the accounting principles include the following:

• 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.

     Changes in these or other rules may have a significant adverse effect on our reported financial results or in the way in which we conduct our business.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          We held a special meeting of stockholders on November 29, 2005. Our stockholders considered four proposals, with each proposal receiving the votes set forth below:

Proposal 1: To approve the issuance of Brillian common stock in the merger pursuant to the Agreement and Plan of Reorganization, dated as of July 12, 2005, among Brillian Corporation, BRMC Corporation, a wholly owned subsidiary of Brillian Corporation, and Syntax Groups Corporation, as a result of which BRMC will be merged with and into Syntax and Syntax will become a wholly owned subsidiary of Brillian.

Votes in Favor	Votes Against		Abstain		Broker Non-Votes
4,423,592		54,280		32,156		—

Proposal 2: To enable Brillian to effect a reverse stock split, ranging from a ratio of one-for-two to one-for-three, of all of the issued and outstanding shares of Brillian common stock through a proposal to approve alternative amendments to Brillian’s certificate of incorporation, which Brillian may choose to effect in order to maintain the listing of Brillian common stock on the Nasdaq National Market following the merger with Syntax.

Votes in Favor	Votes Against		Abstain		Broker Non-Votes
4,275,260		178,158		56,610		—

Proposal 3: To consider and vote upon a proposal to approve an amendment to Brillian’s certificate of incorporation to change its name from Brillian Corporation to Syntax-Brillian Corporation in connection with the merger with Syntax.

Votes in Favor	Votes Against		Abstain		Broker Non-Votes
4,423,611		56,823		29,594		—

Proposal 4: To ratify two financing transactions involving the issuance and sale of Brillian’s 7% convertible debentures, 4% convertible debentures, and warrants to purchase shares of Brillian common stock and to authorize the issuance of shares of Brillian’s common stock issuable upon conversion of the 7% convertible debentures and 4% convertible debentures and upon exercise of the warrants.

Votes in Favor	Votes Against		Abstain		Broker Non-Votes
4,261,529		192,077		56,422		—

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ITEM 5. OTHER INFORMATION

     Our Insider Trading Policy permits our directors, officers, and other key personnel to establish purchase and sale programs in accordance with Rule 10b5-1 adopted by the Securities and Exchange Commission. The rule permits employees to adopt written plans at a time before becoming aware of material nonpublic information and to sell shares according to a plan on a regular basis (for example, weekly or monthly), regardless of any subsequent nonpublic information they receive. In our view, Rule 10b5-1 plans are beneficial because systematic, pre-planned sales that take place over an extended period should have a less disruptive influence on the price of our stock. We also believe plans of this type are beneficial because they inform the marketplace about the nature of the trading activities of our directors and officers. In the absence of such information, the market could mistakenly attribute transactions as reflecting a lack of confidence in our company or an indication of an impending event involving our company. We recognize that our directors and officers may have reasons totally apart from the company in determining to effect transactions in our common stock. These reasons could include the purchase of a home, tax and estate planning, the payment of college tuition, the establishment of a trust, the balancing of assets, or other personal reasons. The establishment of any trading plan involving our company requires the pre-clearance by our Chief Executive Officer or Chief Financial Officer. An individual adopting a trading plan must comply with all requirements of Rule 10b5-1, including the requirement that the individual not possess any material nonpublic information regarding our company at the time of the establishment of the plan. In addition, sales under a trading plan may be made no earlier than 30 days after the plan establishment date. No officers currently maintain trading plans.

ITEM 6. EXHIBITS

Exhibit
Number	Exhibit
4.15	Specimen of 6% Redeemable Convertible Preferred Stock Certificate
10.38	Business Loan and Security Agreement dated as of September 28, 2005 among Preferred Bank, Syntax Groups Corporation, and Syntax Corporation
10.39	Change in Terms Agreement dated as of December 14, 2005 among Preferred Bank, Syntax Groups Corporation, and Syntax Corporation
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
10.41	Form of Continuing Guaranty entered into in connection with Exhibit 10.40, and schedule listing signatories
31.1	Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended
32.1	Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

	SYNTAX - BRILLIAN CORPORATION
Date: February 21, 2006	By:	/s/ Vincent F. Sollitto Jr.
		Vincent F. Sollitto, Jr.
		Chairman and Chief Executive Officer

By:	/s/ Wayne A. Pratt
	Wayne A. Pratt
	Vice President, Chief Financial Officer, Secretary, and Treasurer

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EXHIBIT INDEX

Exhibit
Number	Exhibit
4.15	Specimen of 6% Redeemable Convertible Preferred Stock Certificate
10.38	Business Loan and Security Agreement dated as of September 28, 2005 among Preferred Bank, Syntax Groups Corporation and Syntax Corporation
10.39	Change in Terms Agreement dated as of December 14, 2005 among Preferred Bank, Syntax Groups Corporation, and Syntax Corporation
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
10.41	Form of Continuing Guaranty entered into in connection with Exhibit 10.40, and schedule listing signatories
31.1	Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended
32.1	Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-4.15

EXHIBIT 4.15

*See Restrictive Legend on the Reverse Side.*

          NUMBER SHARES

SYNTAX-BRILLIAN CORPORATION

INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE

THIS IS TO CERTIFY THAT

SPECIMEN

IS THE REGISTERED HOLDER OF

SHARES OF THE 6% REDEEMABLE CONVERTIBLE PREFERRED STOCK OF SYNTAX-BRILLIAN CORPORATION

transferable only on the books of the Corporation by the holder hereof in person or by attorney upon surrender of this certificate properly endorsed.

     IN WITNESS WHEREOF, the said Corporation has caused this certificate to be signed by its duly authorized officers and its corporate seal to be hereunto affixed this                                          day of                                         A.D.                     

[INCORPORATED GRAPHIC]

SECRETARY CHIEF EXECUTIVE OFFICER

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.

FOR VALUE RECEIVED,                  hereby sell, assign and transfer unto                                                                                                                              &n bsp;                                 Shares represented by the within certificate, and do hereby

Irrevocably constitute and appoint                                                                                 Attorney to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises.

Dated

In the presence of:

EX-10.38

EXHIBIT 10.38

BUSINESS LOAN AND SECURITY AGREEMENT

THIS BUSINESS LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of September 28, 2005, is entered into between PREFERRED BANK, a California banking corporation (“Lender”), and SYNTAX GROUPS CORPORATION, a California corporation (“SGC”) and SYNTAX CORPORATION, a Nevada corporation, formerly known as Syntax Groups Nevada, Inc. (“SC,” SGC and SC are individually and collectively the “Borrower”).

RECITALS

     A. Borrower has requested that Lender provide it with certain loan facilities as more particularly set forth in this Agreement.

     B. Lender has agreed to provide Borrower with the requested credit facilities on the terms and conditions set forth herein.

     C. The obligations of Borrower to Lender under this Agreement or otherwise shall be secured by, among other things, a lien and security interest in and to all of Borrower’s present and future assets.

     NOW, THEREFORE, Lender and Borrower hereby agree as follows:

SECTION 1. Definitions.

     1.1. Definitions.

“Account Debtor” means any Person who is or who may become obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible.

“Accounts” means all of Borrower’s now owned or hereafter acquired right, title, and interest with respect to “accounts” (as that term is defined in the Code), and any and all supporting obligations in respect thereof.

“Advance” means a disbursement of proceeds by Lender under Section 2.1.

“Affiliate” means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of stock, by contract or otherwise; provided, however, that, in any event: (a) any Person which owns directly or indirectly 5% or more of the securities having ordinary voting power for the election of directors or other members of the governing body of a Person or 5% or more of the partnership or other ownership interests of a Person (other than as a limited

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partner of such Person) shall be deemed to control such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person.

“Agreement” is defined in the preamble.

“Borrower” is defined in the preamble.

“Borrowing Base” means the sum of: (a) 80% of the Factor Payments Due, plus (b) the lesser of (i) 40% of the value of Eligible Inventory or (ii) Ten Million Dollars ($10,000,000).

“Books” means Borrower’s now owned or hereafter acquired books and records, including, without limitation, all of its records indicating, summarizing or evidencing its assets, liabilities, business operations and financial condition.

“Business Day” means any day other than Saturday or Sunday on which Lender is open for business in Los Angeles, California.

“Closing Date” means the time and date as shall be mutually acceptable to Borrower and Lender.

“Code” means the California Uniform Commercial Code, as in effect from time to time.

“Collateral” means all of Borrower’s now owned or hereafter acquired right, title, and interest in and to each of the following:

     (a) Accounts,

     (b) Books,

     (c) Equipment,

     (d) General Intangibles,

     (e) Inventory,

     (f) Investment Property,

     (g) Negotiable Collateral,

     (h) Money or other assets of Borrower that now or hereafter come into the possession, custody, or control of Bank, and

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     (i) The proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof.

“Commercial Letter of Credit” means a Letter of Credit, used in connection with the purchase of Inventory by Borrower, under which drafts could be payable at sight or up to ninety (90) days after sight.

“Credit Facility” is defined in Section 2.1.

“Default” means any event or circumstance which, with the giving of notice or the passage of time (or both) would become an Event of Default.

“Default Rate” means the per annum rate of interest equal to the Prime-Based Rate in effect from time to time plus 5.0%.

“Drawing” means the presentation of a draft(s) together with any accompanying documents by a beneficiary under a Letter of Credit seeking payment under such Letter of Credit.

“Eligible Inventory” means inventory which satisfies the following requirements:

          (a) The inventory is owned by the Borrower free of any title defects or any liens or interests of others except the security interest in favor of the Lender.

          (b) The inventory is located at locations which the Borrower has disclosed to the Lender and which are acceptable to the Lender. If the inventory is covered by a negotiable document of title (such as a warehouse receipt), that document must be delivered to the Lender. Inventory which is in transit is not acceptable unless it is covered by a Commercial Letter of Credit issued by Lender, the seller of the inventory is required to present shipping or title documents to the Lender, or a bailee for the Lender, as a condition to obtaining payment, and the final destination of such inventory is a location acceptable to the Lender.

          (c) The inventory is held for sale or use in the ordinary course of the Borrower’s business and is of good and merchantable quality. Display items, work-in-process, samples, and packing and shipping materials are not acceptable. Inventory which is obsolete, unsalable, damaged, defective, discontinued or slow-moving, or which has been returned by the buyer, is not acceptable.

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          (d) The inventory has not been manufactured to the specifications of a particular account debtor which would restrict in any way the ability of the Lender to sell the inventory to third parties.

          (e) The inventory is not subject to any licensing agreements which would prohibit or restrict in any way the ability of the Lender to sell the inventory to third parties.

          (f) The inventory has been produced in compliance with the requirements of the U.S. Fair Labor Standards Act (29 U.S.C. §§201 et seq.).

          (g) The inventory is not placed on consignment.

          (h) The inventory is otherwise acceptable to the Lender.

“Environmental Laws” means all environmental, land use, zoning, and chemical use, statutes, ordinances, and codes of the United States of America, any state of the United States of America, and any locality thereof, relating to the protection of the environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Materials and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, sate and local governmental agencies and authorities with respect thereto.

“Equipment” means all of Borrower’s now owned or hereafter acquired right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions. additions, and improvements to any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto.

“Event of Default” is defined in Section 12.

“Expiration Date” means Maturity Date or the date of termination of the Lender’s commitment to lend under this Agreement pursuant to Section 13, which ever shall occur first.

“Extension of Credit” means the Lender’s issuance of a Letter of Credit or the making of an Advance.

“Factor” means The CIT Group/Commercial Services, Inc.

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“Factoring Agreement” means that certain Factoring Agreement dated as of July 27, 2004 between Borrower and Factor, and any amendments, supplements, modifications, extensions and renewals thereof.

“Factor Intercreditor Agreement” means that certain Amended and Restated Assignment and Intercreditor Agreement dated July 1, 2005, among Borrower, Lender and Factor, and any amendments, supplements, modifications, extensions and renewals thereof.

“Factor Payments Due” means, at any date, all amounts payable by Factor to Borrower pursuant to the Factoring Agreement.

“Factored Receivables” means Receivables purchased by Factor from Borrower, which Receivables have been credit approved by Factor pursuant to the Factoring Agreement.

“GAAP” means generally accepted accounting principles in the United States of America in effect from time to time, applied on a consistent basis both as to classification of items and amounts.

“General Intangibles” means all of Borrower’s now owned or hereafter acquired right, title, and interest with respect to general intangibles (including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, chooses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and tax return claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral.

“Governmental Authority” means any federal, state, local, or other governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute resolving panel or body.

“Guarantor” means individually and collectively, James Ching Hua Li, Thomas Man Kit Chow, Tony Tzu-Ping Ho, Roger Kao, and Michael K. Chan.

“Guaranty” means the continuing guaranty of Guarantor, guarantying the obligations and indebtedness of Borrower to Lender, in form and content satisfactory to Lender.

“Hazardous Materials” means, without limitation, any flammable explosive, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, hazardous or toxic substances or related materials as defined in the Compensation Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801, et

5

seq.), or any other applicable Environmental Law and in the regulations adopted pursuant thereto.

“HIB” means Hsinchu International Bank.

“Inventory” means all of Borrower’s now owned or hereafter acquired right, title and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by Borrower as lessor, goods that are furnished by Borrower under a contract of service, and raw materials, work in process, or materials used or consumed in Borrower’s business.

“Investment Property” means all of Borrower’s now owned or hereafter acquired right, title, and interest with respect to “investment property” as that term is defined in the Code, and any and all supporting obligations in respect thereof.

“Lender” shall mean PREFERRED BANK, a California banking corporation.

“Letter of Credit” means a Commercial Letter of Credit or Usance Letter of Credit issued by Lender pursuant to Section 2.1.

“Letter of Credit Application” shall have the meaning set forth in Section 3.1(a).

“Letter of Credit Obligations” means, at any time, the aggregate obligations of Borrower then outstanding, or which may thereafter arise in respect of Letters of Credit issued by Lender then outstanding, to reimburse the amount paid or to be paid by the Lender with respect to a past, present or future Drawing under Letters of Credit.

“Loans” means the aggregate principal amount of all outstanding Advances.

“Loan Documents” means, collectively, this Agreement, the Note, the Guaranty, and all financing statements and other documents, instruments and agreements executed and delivered from time to time in connection with the Credit Facility and this Agreement.

“Material Adverse Effect” means any change or changes or effect or effects that individually or in the aggregate are or are likely to be materially adverse to (i) the assets, business, operations, income, prospects or condition (financial or otherwise) of Borrower, taken as a whole, (ii) the Loans, (iii) the ability of Borrower to perform its obligations under any Loan Document to which it is a party or (iv) the validity or enforceability of any of the Loan Documents.

“Maturity Date” means September 5, 2006.

“Maximum Credit Amount” means Twenty Million Dollars ($20,000,000).

“Negotiable Collateral” means all of Borrower’s now owned and hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments,

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promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof.

“Note” means that certain Promissory Note Variable Rate in the principal sum of Twenty Million Dollars ($20,000,000).

“Obligations” means all present and future obligations (monetary or otherwise) of Borrower to Lender however and whenever arising, whether arising under or in connection with this Agreement, the Note and each other Loan Document or otherwise.

“Ordinary Course of Business” means, in respect of any transaction involving Borrower, the ordinary course of Borrower’s business as conducted by Borrower in accordance with past practice and undertaken by Borrower in good faith and not for purposes of evading any covenant or restriction in any Loan Document.

“Person” means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity.

“Prime-Based Rate” means 0.5% in excess of the Prime Rate. The Prime-Based Rate shall be calculated on the basis of a 360 day year for actual days elapsed.

“Prime Rate” means the variable rate of interest per annum announced, declared and/or published from time to time by Lender as its “Prime Rate” with the understanding that Lender’s “Prime Rate” is one of its base rates and serves as a basis upon which effective rates of interest are calculated for loans making reference thereto and may not be the lowest of Lender’s base rates.

“Principal Balance” means the outstanding principal balance of the Note from time to time.

“Request” is defined in Section 4.2.

“Reserves” means Lender’s determination of Lender’s cost of reserves required by, arising out of, and/or pursuant to any laws, rules and/or regulations established by or promulgated by any authority and/or agency having jurisdiction over Lender, including but not limited to the Board of Governors of the Federal Reserve System of the United States, The cost and actual amount of such Reserves shall be determined by Lender, and such determination of such costs and Reserves shall be binding and conclusive upon Borrower, and all such costs and Reserves shall be rounded up the nearest 1/8 of 1%.

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of California.

“Usance Letter of Credit” means a Commercial Letter of Credit under which drafts are payable other than at sight.

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     1.2. Accounting Terms. All accounting terms not specifically defined herein shall be constituted in accordance with GAAP. When used herein, the term “financial statements” shall include the notes and schedules thereto.

     1.3. Code. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein.

     1.4. Construction. Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term “including” is not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented buy the phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alternations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto, and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.

     1.5. Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.

SECTION 2. The Credit Facility.

     2.1. Credit Facility. As long as no Event of Default has occurred, Lender will provide to Borrower a revolving line of credit (“Credit Facility”) in the maximum principal amount outstanding at any one time not to exceed the lesser of (i) the Maximum Credit Limit or (ii) the Borrowing Base (the “Commitment”), which shall be evidenced by the Note (together with all amendments, renewals, extensions, substitutions and replacements thereof). The Credit Facility shall be utilized as follows:

          (a) Letters of Credit. Lender shall issue Commercial Letters of Credit, and Usance Letters of Credit for the account of Borrower, in accordance with Section 3 of this Agreement, provided that the aggregate amount thereof outstanding at any one time shall not exceed Ten Million Dollars ($10,000,000).

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          (b) Drawings. Lender shall make Advances to Borrower, in accordance with Section 3.2 of this Agreement, to repay Drawings under any Letter of Credit provided the aggregate amount of all such Advances outstanding at any one time shall not exceed Ten Million Dollars ($10,000,000). Each Advance shall be used by Borrower to pay for Drawings under any Letter of Credit issued pursuant to this Section 2.1. Borrower shall repay the aggregate amount of each Advance within 90 days from the date of the making of any such Advance and each Advance for a Usance Letter of Credit shall be repaid in not more than 90 days less the number of days financed by vendor.

          (c) Documentary Collection. Lender shall make Advances to Borrower, in accordance with Section 2.2 of this Agreement, to refinance payments made by Lender against the presentation of Documents under Payment pursuant to instructions from Borrower or against Documents under Acceptance provided the aggregate amount outstanding at any one time of all such Advances shall not exceed Five Million Dollars ($5,000,000). Borrower shall repay the aggregate amount of each Advance to Lender within 90 days in respect of payments made by Lender against the presentation of Documents under Payment, and with respect to Advances against Documents under Acceptance within 90 days of the advance less the number of days financed by vendor.

          (d) Working Capital Advances. Lender shall make Advances to Borrower, in accordance with Section 2.2 of this Agreement for general corporate purposes, provided that the aggregate amount thereof outstanding at any one time shall not exceed Ten Million Dollars ($10,000,000).

          (f) Trust Receipts. Lender shall make Advances to Borrower for financing the purchase of Inventory by Borrower which Inventory is subject to a trust receipt, provided that the aggregate amount thereof outstanding at any one time shall not exceed Five Million Dollars ($5,000,000) Such trust receipts are subject to Lender’s express approval and must be in form and content satisfactory to Lender. Borrower shall repay each trust receipt Advance within ninety (90) days of the making of such Advance.

          (g) Maximum Advances.

   (i) Borrower agrees not to permit the outstanding principal balance of Advances (including working capital and trust receipt Advances) hereunder plus the outstanding amounts of any Letters of Credit, including amounts drawn on Letters of Credit and not yet reimbursed, to exceed the lesser of (x) the Maximum Credit Amount, or (y) the Borrowing Base.

   (ii) Borrower agrees not to permit the outstanding amounts of any Letters of Credit, including amounts drawn on Letters of Credit and not yet reimbursed, plus the amount of outstanding trust receipt Advances to exceed Ten Million Dollars ($10,000,000).

   (iii) Borrower agrees not to permit the amount of outstanding Advances under this Agreement to exceed Fifteen Million Dollars ($15,000,000).

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     (iv) If the Borrower exceeds these limits, the Borrower will pay the excess to Lender within fifteen (15) days of demand from Lender.

     2.2. Advance Procedure. Advances shall be made in accordance with a written request therefor executed by Thomas Man Kit Chow, Chief Financial Officer to the Borrower, in original form or by facsimile, and delivered to Lender, or an oral telephone request made by Thomas Man Kit Chow. Any telephonic notice is to be confirmed in writing within 24 hours of the giving of such notice. Advances shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of Borrower maintained with Lender or (ii) when paid in accordance with Borrower’s written or oral instructions. Subject to the conditions precedent contained in Section 5.1, Advances shall be made by Lender if such request shall be received not later than 1:00 p.m. (California time) on the date specified for such Advance, which date shall be a Business Day. Requests for Advances received after such time may, at Lender’s option, be deemed to be a request for an Advance to be made on the next succeeding Business Day. No Advances will be made after the Maturity Date.

     2.3. Monthly Billings. Lender shall provide Borrower with monthly statements of amounts due, which statement shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within 30 days after the Borrower’s receipt of any such statement which it deems to be incorrect.

SECTION 3. Letters of Credit.

     3.1. Letter of Credit General Conditions.

          (a) Pursuant to the terms of this Agreement, Borrower may request Lender to issue Letters of Credit by delivery to Lender of Lender’s standard forms of Letter of Credit and Security Agreement together with Lender’s standard form of Letter of Credit Application (collectively, the “Letter of Credit Application”), completed to the satisfaction of Lender; and, such other certificates, documents and other papers and information as Lender may request as a condition precedent to Lender’s obligation to issue any Letter of Credit hereunder. The Letter of Credit Application may be delivered in original form or by facsimile, and Borrower hereby agrees that Lender may accept and rely upon any facsimile Letter of Credit Application, including a facsimile signature in issuing a Letter of Credit. Borrower agrees to promptly pay, upon request, such fees, commissions, costs and any out-of-pocket expenses charges or incurred by the Lender with respect to any Letter of Credit as set forth in Exhibit A.

          (b) The commitment by Lender to issue Letters of Credit shall, unless earlier terminated in accordance with the terms of the Agreement, automatically terminate on the Expiration Date and no Letter of Credit shall expire on a date which is more than 90 days after the Maturity Date, and no draft under a Letter of Credit shall be payable on a date which is more than 90 days after the Maturity Date.

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          (c) Each Letter of Credit shall be denominated in U.S. Dollars, shall be in form and substance satisfactory to Lender, shall require as a condition of payment the consignment of non-negotiable bills of lading in favor of Lender or presentment of negotiable bills of lading payable to the order of Lender, and shall be in favor of beneficiaries satisfactory to Lender, provided that Lender may refuse to issue a Letter of Credit due to the nature of the transaction or its terms or in connection with any transaction where Lender, due to the beneficiary or nationality or residence of the beneficiary, would be prohibited by any applicable law, regulation or order from issuing such Letter of Credit.

          (d) Prior to the issuance of each Letter of Credit, but in no event later than 11:30 a.m. (California time) on the day such Letter of Credit is to be issued (which shall be a Business Day), Borrower shall deliver to Lender the Lender’s standard form of application for issuance of a letter of credit with proper insertions, duly executed by Borrower.

          (e) Letters of Credit shall not have a term which exceeds 90 days.

          (f) Each Letter of Credit Application and each Letter of Credit shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, and any amendments or revisions thereof (or, in the event Issuer has elected to follow the International Standby Practices 1998 (“ISP”), then by the ISP and any amendments or revisions thereto), and, to the extent not inconsistent therewith, the laws of the State of California.

          (g) In connection with all Letters of Credit issued or created by Lender under this Agreement, Borrower hereby appoints Lender, or its designee, as its attorney-in-fact, with full power and authority at any time following the occurrence of an Event of Default (i) to sign and/or endorse Borrower’s name upon any warehouse or other receipts, letter of credit applications and acceptances; (ii) to sign Borrower’s name on bills of lading; (iii) to clear Inventory through United States Customs (“Customs”) in the names of Borrower or Lender or Lender’s designee, and to sign and deliver to Customs officials powers of attorney in the name of Borrower for such purpose; and (iv) to complete in Borrower’s or Lender’s name, or in the name of Lender’s designee, any order, sale or transaction, obtain the necessary documents in connection therewith, and collect the proceeds thereof. Neither Lender, Lender’s designee, nor Lender’s attorneys will be liable for any acts or omissions nor for any error of judgment or mistakes of fact or law, except for Lender’s, Lender’s designee or Lender’s attorney’s willful misconduct or gross negligence. This power, being coupled with an interest, is irrevocable as long as any Letters of Credit remain outstanding.

          (h) BORROWER ACKNOWLEDGES THAT BOTH SIDES OF THE LETTER OF CREDIT APPLICATION ARE TO BE EXECUTED BY BORROWER, AND BORROWER’S FAILURE TO SO EXECUTE THE BACK SIDE OF ANY LETTER OF CREDIT APPLICATION SHALL NOT 1N ANY WAY AFFECT THE ENFORCEABILITY OF SUCH LETTER OF CREDIT APPLICATION OR

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BORROWER’S OBLIGATIONS TO REPAY ANY DRAWING (AS DEFINED BELOW) UNDER THE LETTER OF CREDIT.

     3.2. Drawings. Upon receipt from any beneficiary under a Letter of Credit of a demand for payment under such Letter of Credit (each a “Drawing”), Lender shall promptly notify Borrower. Each Drawing shall be payable in full by Borrower on the date thereof, without demand or notice of any kind. If Borrower desires to repay a Drawing from the proceeds of an Advance, Borrower may request an Advance in accordance with the terms and conditions of this Agreement and, if disbursed, shall be applied in payment of such obligation by the Borrower. If any Drawing shall not be paid when due in accordance with the terms of this Agreement, Borrower shall reimburse Lender for each Drawing together with interest thereon until paid at the Default Rate. Lender shall have the right at its discretion to charge all amounts due it hereunder to Borrower’s accounts maintained with Lender. In the event a Letter of Credit is outstanding as of the Maturity Date, Borrower shall be required to deposit with Lender as cash collateral an amount equal to the outstanding Letter of Credit to secure repayment of such Letter of Credit, in the event of a Drawing. The obligation of Borrower to reimburse Lender for Drawings shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever and irrespective of any set-off, counterclaim or defense to payment which Borrower may have or have had against Lender (except such as may arise out of Lender’s gross negligence or willful misconduct) or any other Person, including, without limitation, and set-off, counterclaim or defense based upon or arising out of:

          (a) any lack of validity or enforceability of this Agreement or any of the other Loan Documents;

          (b) any amendment or waiver of or consent to departure from the terms of any Letter of Credit;

          (c) the existence of any claim, set-off, defense or other right which Borrower or any other person may have at any time against beneficiary or any transferee of any Letter of Credit (or any Person for whom any beneficiary or any such transferee may be acting);

          (d) any allegation that any demand, statement or any other document presented under any Letter of Credit is forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever or any variations in punctuation, capitalization, spelling or format of the drafts or any statement presented in connection with any Drawing;

          (e) any exchange, release or non-perfection of any Collateral;

          (f) any delay or loss in transit of any messages, letters or documents, any delay, interruption, mutilation or other error in the transmission of any telecommunications, or any error in the translation or interpretation of any technical terms or any messages or documents relating to the Letter of Credit; and

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          (g) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or discharge of Borrower.

     3.3. Indemnity. Borrower hereby agrees to indemnify, save, defend, and hold Lender harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by Lender arising out of or in connection with any Letter of Credit, including, but not limited to Lender’s compliance with any instructions, directions, Letter of Credit Application, or authorization delivered to Lender by Borrower via facsimile. Borrower agrees to be bound by Lender’s interpretations of any Letter of Credit issued by Lender to or for its account, even though this interpretation may be different from Borrower’s own, and Borrower understands and agrees that Lender shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto.

     3.4. Change in Law. If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof, by any Governmental Authority, or (ii) compliance by Lender with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto):

          (a) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect to any Letter of Credit issued hereunder, or

          (b) there shall be imposed on Lender any other condition regarding any Letter of Credit issued pursuant hereto.

and the result of the foregoing is to increase, directly or indirectly, the cost to Lender of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by Lender, then, and in any such case, Lender may, at any time after the additional cost is incurred or the amount received is reduced, notify Borrower, and Borrower shall pay on demand such amounts as Lender may specify to be necessary to compensate Lender for such additional cost of reduced receipt together with interest on such amount from the date of such demand until payment in full thereof at Prime-Based Rate. The determination by Lender of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding upon all of the parties hereto.

SECTION 4. Conditions Precedent.

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     4.1. Conditions to Initial Funding. The obligation of Lender to issue the initial Letter of Credit or make the initial Advance is subject to the fulfillment, to the satisfaction of Lender and its counsel, of each of the following conditions:

          (a) All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Lender and its counsel, and Lender and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request.

          (b) Borrower shall have executed and delivered to Lender the Loan Documents.

          (c) The representations and warranties contained this Agreement and the other Loan Documents shall be true and correct, on and as of the Closing Date with the same effect as if such representations and warranties had been made on and as of the Closing Date. Borrower shall have performed all material agreements on their part required to be performed under this Agreement and the other Loan Documents on or prior to the Closing Date.

          (d) Since the delivery of Borrower’s financial statements, no change or changes or event or events shall have occurred which, in the opinion of Lender, constitutes or is likely to have a Material Adverse Effect.

          (e) All necessary consents, approvals and authorizations of, and declarations, registrations and filings with, governmental bodies and nongovernmental Persons required in order to consummate the Loans shall have been obtained or made and shall be in full force and effect.

          (f) There shall not be pending or, to the knowledge of Borrower, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting Borrower or any of their respective assets or properties which Lender believes is likely to have a Material Adverse Effect. No order of any court, arbitrator or Governmental Authority shall be in effect which Lender believes constitutes or is likely to have a Material Adverse Effect.

          (g) Borrower shall have delivered to Lender a standby letter of credit issued by HIB in the stated amount of Ten Million Dollars ($10,000,000), naming Lender as Beneficiary, on terms acceptable to the Lender.

          (h) On or prior to the Closing Date, Lender shall file UCC financing statements identifying Borrower as “debtor” and Lender as “secured party” and containing an adequate description of all Collateral in which a security interest may be properly perfected under the UCC, which financing statements shall have been filed in all places deemed necessary or desirable by Lender in order to perfect the security interest granted pursuant to this Agreement, subject to no prior liens. In addition, Lender shall

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have received such assignments, endorsements or other interests as may be necessary to perfect Lender’s security interest in any Collateral.

          (i) Lender shall have received copies of (i) the Articles of Incorporation of Borrower, certified as of a recent date by the Secretary of State of the State of formation of Borrower; and (ii) a current good standing certificate with respect to Borrower.

          (j) Lender shall have received certified resolutions of the Board of Directors of Borrower with respect to this Agreement and the other Loan Documents, together with a certificate identifying each such Person’s incumbent officers and setting for specimen signatures of such officers.

          (k) Lender shall have received a written borrowing request, setting forth the amount of Advances requested to be disbursed on the Closing Date and containing instructions for the disbursement of such funds.

          (l) Lender shall have received policies or certificates of insurance satisfactory to Lender demonstrating that Borrower has obtained insurance as required by this Agreement and the Loan Documents.

          (m) Such additional assignments, agreements, landlord waivers, certificates, reports, approvals, instruments, documents, financing statements, consents, and opinions as Lender may request.

     4.2. Conditions to Subsequent Extensions of Credit.

          (a) Both before and after giving effect to any request hereunder for an Extension of Credit under the Credit Facility, (i) each of the representations and warranties set forth in Section 8 shall be true and correct in all material respects, except to the extent that they expressly relate to an earlier date, (ii) there shall exist no Default or Event of Default, and (iii) no condition shall exist and no event shall have occurred which has had or could have a Material Adverse Effect.

          (b) Lender shall have received a written borrowing request setting forth the amount of such Advance and instructions for the disbursement of such Advance. The delivery of each Borrowing Request, required by Section 2.2, shall constitute a representation and warranty by Borrower that on the date of such Advance (both immediately before and after giving effect to such Advance) the statements made in the foregoing subsection (a) are true and correct.

          (c) All documents executed or submitted pursuant hereto in connection with such Advance by or on behalf of Borrower shall be satisfactory in form and substance to Lender and its counsel; Lender and its counsel shall have received all information, approvals, opinions, documents or instruments as they may request.

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SECTION 5. Fees and Deposits.

     5.1. Fees. Borrower shall pay Lender its fees and other trade finance charges in connection with any Letters of Credit or Advances issued by Lender as set forth in Schedule A hereto.

SECTION 6. Security Interest.

     6.1. Grant of Security Interest. Borrower hereby grants to Lender a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. The Lender’s security interest in and to the Collateral shall attach to all Collateral without further act on the part of Lender or Borrower. Except as otherwise provided in this Agreement or any other Loan Document, Borrower has no authority, express or implied, to dispose of any item or portion of the Collateral.

     6.2. Negotiable Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection of priority of Lender’s security interest is dependent on or enhanced by possession, Borrower, immediately upon the request of Lender, shall endorse and deliver physical possession of such Negotiable Collateral to Lender.

     6.3. Collection of Accounts, General Intangibles, and Negotiable Collateral. At any time after the occurrence and during the continuation of an Event of Default, Lender or Lender’s designee may (a) notify Account Debtors of Borrower that the Accounts, chattel paper, or General Intangibles have been assigned to Lender or that Lender has a security interest therein, or (b) collect the Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that it will hold in trust for Lender, as Lender’s trustee, any collections that it receives and immediately will deliver said collections to Lender in their original form as received by Borrower.

     6.4. Delivery of Additional Documentation Required. At any time upon the request of Lender, Borrower shall execute and deliver to Lender any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the “Additional Documents”) that Lender may request in its sole discretion, in form and substance satisfactory to Lender, to perfect and continue perfected or better perfect Lender’s security interest in the Collateral (whether now owned or hereafter arising or acquired), and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Borrower authorizes Lender to execute any such Additional Documents in Borrower’s name and authorizes Lender to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Lender

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shall require, Borrower shall (a) provide Lender with a report of all material new patentable, copyrightable, or trademarkable materials acquired or generated by Borrower during the prior period, (b) cause all material patents, copyrights, and trademarks acquired or generated by Borrower that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Borrower’s ownership thereof, and (c) cause to be prepared, executed, and delivered to Lender supplemental schedules to the applicable Loan Documents to identify such material patents, copyrights, and trademarks as being subject to the security interests created thereunder.

     6.5. Right to Inspect. Lender and its officers, employees, or agents shall have the right, from time to time hereafter to inspect the Books and to check, test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral.

SECTION 7. Power of Attorney.

     Borrower hereby irrevocably constitutes and appoints Lender and any agent or representative thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrower and in the name of Borrower or in its own name, from time to time in Lender’s sole discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary, or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, hereby gives Lender the power and right, on behalf of Borrower, without notice to or assent by Borrower to do the following: (i) to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due under any Collateral and, in the name of Borrower or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Lender for the purpose of collecting any and all such moneys due under any Collateral whenever payable; (ii) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due, and to become due thereunder, directly to Lender or as Lender shall direct; (iii) to receive payment of and receipt for any and all moneys, claims and other amounts due, and to become due at any time, in respect of or arising out of any Collateral; and (iv) generally to sell, transfer, pledge, make any agreement with respect or otherwise deal with any of the Collateral as fully and completely as though Lender were the absolute owner thereof for all purposes, and to do, at Lender’s option and Borrower’s expense, at any time, or from time to time, all acts and things which Lender reasonably deems necessary to protect, preserve or realize upon the Collateral and Lender’s lien therein, in order to effect the intent of this Agreement, all as fully and effectively as Borrower might do. Borrower hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof. The power of attorney granted pursuant

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to this Section 7 is a power coupled with an interest and shall be irrevocable until the Obligations are indefeasibly paid in full.

SECTION 8. Representations and Warranties. Each Borrower hereby makes the following representations and warranties to Lender:

     (a) Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified to do business in each additional jurisdiction where the failure to so qualify would have a Material Adverse Effect, and has all requisite power and authority to own its assets and to carry on its business as now being conducted and as proposed to be conducted, and to execute, deliver and perform its obligations under this Agreement and the other Loan Documents to which it is a party.

     (b) The execution, delivery and performance by Borrower of the Loan Documents to which it is a party are within its powers and have been duly authorized by all necessary corporate or other action by or on behalf of Borrower. Each Loan Document to which Borrower is a party has been duly executed and delivered by it and constitutes a legal, valid and binding obligations of Borrower, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors’ rights generally, or the availability of equitable remedies.

     (c) The execution, delivery and performance by Borrower of the Loan Documents to which it is a party (i) have been duly authorized by all requisite action; (ii) do not require governmental approval; (iii) will not result (with or without notice and/or the passage of time) in any conflict with or breach or violation of or default under, any provision of law, the articles of incorporation, bylaws or other governing document of Borrower, any provision of any indenture, agreement or other instrument to which Borrower, or by which it or any of its properties or assets are bound; and (iv) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Borrower, except as may be permitted by the Loan Documents.

     (d) The financial statements of Borrower and Guarantor as provided to Lender in connection with Borrower’s application for the Credit Facility fairly present the financial condition of Borrower and Guarantor as of the date thereof.

     (e) There is not pending or, to the best of Borrower’s knowledge, threatened, any litigation, proceeding or governmental investigation to which Borrower is a party and in which the claim or potential liability could exceed $500,000 or to which any of its assets is subject which could have a Material Adverse Effect.

     (f) No part of the proceeds of the Loans will be used directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the

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purpose of buying or carrying or trading in any securities under such circumstances as to involve any Borrower in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). As used in this Section, the term “purpose of buying or carrying” has the meaning assigned thereto in the aforesaid Regulation U.

     (g) Borrower is not an “investment company” or a “person directly or indirectly controlled by or acting on behalf of an investment company” within the meaning of the Investment Company Act of 1940, as amended, or a “holding company”, or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, within the meaning of the Public Utility Company Holding Act of 1935, as amended.

     (h) The principal places of business and the chief executive offices of SGC is located at 20480 E. Business Parkway, City of Industry, California 91789. The Books of SGC are located at such address. The federal employee identification number of SGC is 56-2351327. The principal place of business and the chief executive offices of SC is located at 20480 E. Business Parkway, City of Industry, California 91789. The Books and Records of SC are located at such address. The federal employee identification number of SC is 20-2827178.

     (i) Borrower is in possession of all material permits, licenses or other authorizations of governmental bodies required for the conduct of its business and the ownership of its properties (including all licenses and certificates of occupancy which are material to the ownership or operation of any real property) has been obtained and are usable by it, and its businesses is being conducted in accordance with the material requirements of such permits, licenses or other authorizations of governmental bodies subject to such exceptions as would not have, individually or in the aggregate, a Material Adverse Effect.

     (j) Borrower’s property is free from contamination from Hazardous Materials (as defined in Section 10(h)) and each of them is in compliance with all applicable Environmental Laws (as defined in Section 10(h)) subject to such exceptions as would not have, individually or in the aggregate, a Material Adverse Effect.

     (k) Borrower is in compliance with all applicable laws and regulations with respect to employment and labor practices and employee benefits subject to such exceptions as would not have, individually or in the aggregate, a Material Adverse Effect.

     (l) SC is a wholly owned subsidiary of SGC.

     (m) Borrower has good and marketable title to all Collateral, and such Collateral is free and clear of all liens other than the lien of the Factor or as otherwise. approved by Lender in writing.

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     (n) Borrower does not maintain or contribute to any Defined Benefit Pension Plan under ERISA.

     (o) Borrower is solvent, able to pay its debts as they mature, and the realizable value of its assets exceed its liabilities.

     (p) All factual information (taken as a whole) furnished by or on behalf of Borrower in writing to Lender (including all information contained in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents, or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrower in writing to Lender will be, true and accurate, in all material respects, on the date as of which such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided.

SECTION 9. Financial Reporting.

     Borrower promises and agrees, during the term of this Agreement and until full payment of all Borrower’s Obligations hereunder, to deliver or cause to be delivered to Lender in form and detail satisfactory to the Lender:

     (a) as soon as available, but in any event within 120 days of the end of each fiscal year, annual audited financial statements of Borrower prepared on a consolidated basis, such audit having been made by an independent certified public accounting firm reasonably acceptable to Lender;

     (b) as soon as available, but in any event within 60 days of the end of each fiscal quarter, quarterly financial statements of Borrower prepared by Borrower on a consolidated basis;

     (c) On the first (1st) and sixteenth (16th) day of each month, an Inventory report;

     (d) On the first (1st) and sixteenth (16th) day of each month, a receivable report concerning all Accounts;

     (e) Upon request of Lender, annual personal financial statements of each Guarantor; and

     (f) Upon request of Lender, federal tax returns of Borrower and each Guarantor including all schedule K-1’s.

SECTION 10. Affirmative Covenants. Until all Obligations are paid in full, Borrower covenants and agrees to do the following:

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     (a) Promptly inform Lender of the occurrence of any Default or Event of Default or of any event which could have a Materially Adverse Effect upon Borrower’s business, properties, financial condition or ability to comply with its Obligations to Lender, including without limitation its ability to pay the Obligation;

     (b) Furnish such other information regarding any Borrower, any Guarantor, or the Collateral, as Lender may reasonably request;

     (c) Keep in full force and effect its corporate existence in good standing, continue to conduct and operate its business substantially as presently conducted and operated and maintain and protect all material franchises and material trade names and preserve all the remainder of its material property used or useful in the conduct of its business and keep the same in good repair and condition;

     (d) Maintain a standard and modern system of accounting in accordance with GAAP consistently applied with ledger and account cards and/or computer tapes and computer disks, computer printouts and computer records pertaining to the Collateral which contain information as may from time to time be requested by Lender, not modify or change its method of accounting without the written consent of Lender first obtained. Borrower will permit Lender and any of its employees, officers, or agents, upon demand, during Borrower’s usual business hours, or the usual business hours of any third person having control thereof, to have access to and examine all of Borrower’s records relating to the Collateral, Borrower’s financial condition and the results of Borrower’s operations and in connection therewith, and to permit Lender to conduct audits and appraisals of the Collateral, and permit Lender or any of its agents, employees, or officer to copy and make extracts therefrom, should Lender determine in its sole discretion that there are changes in Borrower’s financial condition that may indicate a deterioration;

     (e) Maintain the principal place of business or chief executive office at the address set forth in Section 8(h) unless Borrower shall have given Lender 30 days’ prior written notice of any change thereof;

     (f) Maintain its primary depository banking relationship at Lender;

     (g) At Borrower’s own cost and expense in amounts and with carrier acceptable to Lender, Borrower shall (i) keep all it insurable properties and properties in which borrower has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to Borrower’s including, without limitation; business interruption insurance; (ii) maintain a bond in such amounts as is customary in the case of companies engaged in business similar to Borrower’s insuring against larceny, embezzlement or other criminal misappropriation of insured’s officers and employees who may either singly or jointly with others at any time have access to the assets or funds of Borrower either directly or through authority to draw upon such funds or to direct generally the disposition of such assets; (iii) maintain public and product liability insurance against claims for personal

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injury, death or property damage suffered by others; (iv) maintain all such workers’ compensation or similar insurance as may be required under the laws of any state or jurisdiction in which Borrower is engaged in business; (v) furnish Lender with (A) copies of all policies and evidence of the maintenance of such policies by the renewal thereof at least thirty (30) days before any expiration date, and (B) appropriate loss payable endorsements in form and substance satisfactory to Lender, naming Lender as loss payee as its interests may appear with respect to all insurance coverage referred to in clauses (i) and (ii) above, and providing (1) that all proceeds thereunder shall be payable to Lender, (2) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy, and (3) that such policy and loss payable clauses may not be canceled, amended or terminated unless at least thirty (30) days’ prior written notice is given to Lender. In the event of any loss thereunder, the carriers named therein hereby are directed by Lender and Borrower to make payment for such loss to Lender and not to Borrower and Lender jointly. If any insurance losses are paid by check draft or other instrument payable to Borrower and Lender jointly, Lender may endorse Borrower’s name thereon and do such other things as Lender may deem advisable to reduce the same to cash. Lender is hereby authorized to adjust and compromise claims under insurance coverage referred to in clauses (i) and (ii) above. All loss recoveries received by Lender upon any such insurance may be applied to the Obligations, in such order as Lender in its reasonable discretion shall determine. Any surplus shall be paid by Lender to Borrower or applied as may be otherwise required by law. Any deficiency thereon shall be paid by Borrower to Lender on demand. If Borrower fails to obtain insurance as hereinabove provided, or to keep the same in force, Lender, if Lender so elects and upon notice to Borrower, may obtain such insurance and pay the premium therefor for Borrower’s account, and charge Borrower’s account therefor and such expenses so paid shall be part of the Obligation;

     (h) Borrower will not possess or cause to be located any Hazardous Materials on, in or under any real or personal property now or at any time hereafter owned, occupied or operated by Borrower which in any manner violate any Environmental Law;

     (i) Borrower shall maintain positive annual taxable net income.

     (j) Borrower will confine its business operations to the import and export business and comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees, determinations or otherwise presently in effect and having application to the Borrower and its business.

     (k) Borrower shall notify the Lender within 10 days of service upon the Borrower or the filing by the Borrower of any legal action involving a claim in excess of $500,000.

     (l) Borrower shall maintain on-line Factored Receivables tracking with Factor.

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     (m) So long as no Default or Event of Default has occurred and is continuing, Borrower shall use the cash proceeds received from Factor as follows:

(i)	25% of such cash proceeds to pay down existing trust receipt Advances on a first in, first out basis;
(ii)	60% of such cash proceeds to pay down Borrower’s working capital line with Lender, and upon Borrower’s request, Borrower’s account payable to Taiwan Kolin Company, Ltd. for like amount; and
(iii)	the balance of such cash proceeds to Borrower’s operating account for operating purposes.

     (n) Borrower acknowledges receipt from Lender of the Notice of Insurance Requirements dated June 30, 2005. Borrower reaffirms that all terms and conditions of the Agreement to Provide Insurance executed by Borrower dated June 13, 2005, remains in full force and effect and Borrower further agrees to abide by all terms thereof.

SECTION 11. Negative Covenants. Borrower shall not do any of the following:

     (a) Grant a security interest in or permit a lien, claim or encumbrance upon any of its assets to any Person other than Lender, Factor, or as otherwise approved by Lender in writing;

     (b) Permit any levy, attachment or restraint to be made affecting any of its assets;

     (c) Permit any judicial officer or assignee to be appointed or to take possession of any of the assets of Borrower;

     (d) Change its name, business or financial structure or corporate identity or add any new fictitious name in each case without giving prior written notice thereof and taking such steps as may be necessary to preserve and continue Lender’s security interests prior to effecting such change, or liquidate, merge or consolidate with or into any other business organization;

     (e) Move or relocate any Collateral except in the Ordinary Course of Business, and in any case only to the extent that Lender’s security interest is unimpaired;

     (f) Acquire any other Person;

     (g) Enter into any transaction not in the Ordinary Course of Business;

     (h) Make any change in its business objects, purposes or operations;

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     (i) Incur any debt other than the Obligations and trade payables incurred in the Ordinary Course of Business and outstanding debt disclosed on financial statements for the fiscal year ended June 30, 2004 or as otherwise disclosed in writing to Lender;

     (j) Make loans, advances, distributions, dividends or extensions of credit to any Person, including, but not limited to, directors, officers, shareholders, partners, employees and any and all Affiliates except for credit extended in the Ordinary Course of Business as conducted by Borrower in accordance with past practices and undertaken by Borrower in good faith and not for the purposes of evading the intent of this covenant or any other covenant or restriction of the Loans;

     (k) Guaranty or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying and discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except for the endorsement of negotiable instruments in the Ordinary Course of Business for deposit or collection;

     (l) Sell, lease, transfer or otherwise dispose of any assets, except for the sale of the inventory in the Ordinary Course of Business, acquire all or substantially all of the properties or assets of any other Person, enter into any reorganization or recapitalization, reclassify its capital stock, or enter into any sale-lease back transaction;

     (m) Purchase or hold beneficially any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for certificates of deposit with maturities of one year or less of a United States commercial bank with capital, surplus and undivided profits in excess of Five Hundred Million Dollars ($500,000,000), direct obligations of the United States government maturing within one (1) year from the date of acquisition thereof, and commercial paper maturing within 180 days after the issuance thereof which is rated A-1 or better by Standard & Poor’s Corporation or B-1 or better by Moody’s Investors Service, Inc.;

     (n) Make dividends, distributions or advances of any kind, or otherwise give value to, or make investments or capital contributions in or to, any other Person without the prior written consent of Lender; and

     (o) Allow any fact, condition or event to occur or exist with respect to any employee, pension or profit sharing plan established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan.

     (p) Sell, contract for sale, transfer, convey, assign, lease or sublet any asset in the Ordinary Course of Business which violates any provision of law, rule, regulation,

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order, writ, judgment, induction, decree, determination or otherwise presently in effect and having application to Borrower.

     (q) Change management or ownership of Borrower without the prior written consent of the Lender.

SECTION 12. Events of Default. An “Event of Default” shall mean, for all purposes under the Loan Documents, any one or more of the following:

     (a) If Borrower (i) fails to pay all or any portion of the Obligations (whether of principal, interest, taxes, reimbursement of Lender expenses or otherwise) when due (whether as scheduled, by acceleration or otherwise) or (ii) fails or neglects to perform, keep or observe any term, provision, condition, covenant, agreement, warranty or representation contained in this Agreement, any other Loan Document or any other present or future agreement between Borrower and Lender;

     (b) If any representation, statement, report or certificate made or delivered by Borrower or any of its officers, employees or agents to Lender is not true and correct in all material respects;

     (c) If there is a material impairment of the prospect of repayment of all or any portion of Borrower’s obligations. including without limitation the Loans, or a material impairment of the Collateral or of Lender’s security interest therein;

     (d) If all or any of the assets of Borrower become subject to a writ or distress warrant, or are levied upon, or come into the possession of any judicial officer or assignee and the same are not released, discharged or bonded against within ten (10) days;

     (e) If any bankruptcy, insolvency, receivership or other proceeding is filed or commenced by or against Borrower or Guarantor for its reorganization, dissolution or liquidation but which if commenced against Borrower or Guarantor is not dismissed within sixty (60) days of filing;

     (f) If Borrower is enjoined, restrained or in any way prevented by court order from continuing to conduct all or any material part of its business affairs;

     (g) If Borrower for whatever reason is unable to conduct its Ordinary Course of Business for a period of fourteen (14) consecutive Business Days;

     (h) If a notice of lien, levy or assessment is filed of record with respect to any or all of the assets of Borrower by any Governmental Authority, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a lien, whether choate or otherwise, upon any or all of Borrower’s assets and the same is not paid on the payment date thereof, unless the same is being contested in good faith by appropriate

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proceedings, execution is stayed during such proceedings and Borrower has taken appropriate reserves therefore in accordance with GAAP;

     (i) If a judgment or other claim in excess of $100,000 individually or in the aggregate becomes a lien or encumbrance upon any or all of the assets of Borrower and the same is not satisfied, dismissed or bonded against within thirty (30) days thereafter;

     (j) If Borrower permits a default in any material agreement to which it is a party with third parties so as to result in an acceleration of the maturity of Borrower’s indebtedness to others, whether under any indenture, agreement or otherwise;

     (k) If Borrower makes any payment on account of indebtedness which has been subordinated to it’s obligations to Lender;

     (l) a default by Guarantor under the terms of the Guaranty, or Guarantor revokes or attempts to revoke the Guaranty.

SECTION 13. Lender’s Rights and Remedies.

     13.1. Rights and Remedies. Upon the occurrence, and during the continuation, of an Event of Default, Lender (at its election but without notice of its election and without demand) may do any one or more of the following, all of which are authorized by Borrower:

          (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable;

          (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and Lender;

          (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Lender, but without affecting any of the Lender’s liens in the Collateral and without affecting the Obligations;

          (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Lender considers advisable, and in such cases, Lender will credit the Obligations with only the net amounts received by Lender in payment of such disputed Accounts after deducting all of Lender’s fees and costs, including attorney’s fees, incurred or expended in connection therewith;

          (e) Cause Borrower to hold all returned Inventory in trust for Lender, segregate all returned Inventory from all other assets of Borrower or in Borrower’s possession and conspicuously label said returned Inventory as the property of Lender;

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          (f) Without notice to or demand upon Borrower, make such payments and do such acts as Lender considers necessary or reasonable to protect its security interests in the Collateral. Borrower agrees to assemble the Collateral if Lender so requires, and to make the Collateral available to Lender at a place that Lender may designate. Borrower authorizes Lender to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any lien that in Lender’s determination appears to conflict with Lender’s security interests in the Collateral and to pay all expenses incurred in connection therewith and to charge Borrower therefor. With respect to any of Borrower’s owned or leased premises, Borrower hereby grants Lender a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Lender’s rights or remedies provided herein, at law, in equity, or otherwise;

          (g) Without notice to Borrower (such notice being expressly waived), and without constituting a retention of any Collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Lender, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Lender;

          (h) Hold, as cash collateral, any and all balances and deposits of Borrower held by Lender to secure the full and final repayment of all of the Obligations. Further Borrower will, upon demand by Lender, cause cash to be deposited with Lender, as cash collateral to secure all Obligations, in an amount equal to outstanding Letters of Credit and Borrower hereby irrevocably authorizes Lender, in its sole discretion, on Borrower’s behalf and in Borrower’s name, to open such an account and to make and maintain deposits therein, or in an account opened by Borrower, in the amounts required to be made by Borrower, out of the proceeds of Collateral or out of any other funds of Borrower coming into Lender’s possession at any time. Borrower may not withdraw amounts credited to any such account except upon payment and performance in full of all Obligations and termination of this Agreement;

          (i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Borrower hereby grants to Lender a license or other right to use, without charge, Borrower’s labels, patents, copyrights, trade secrets, trade-names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and Borrower’s rights under all licenses and all franchise agreements shall inure to Lender’s benefit;

          (j) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as Lender determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale;

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          (k) Lender shall give notice of the disposition of the Collateral as follows:

               (i) Lender shall give Borrower a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, then the time on or after which the private sale or other disposition is to be made; and

               (ii) The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 15, at least 10 days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market;

          (l) Lender may credit bid and purchase at any public sale;

          (m) Lender may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing;

          (n) Lender shall have all other rights and remedies available at law or in equity or pursuant to any other Loan Document; and

          (o) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by Lender to Borrower.

     13.2. Remedies Cumulative. The rights and remedies of Lender under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it.

SECTION 14. Survival of Covenants, Agreements, Representations and Warranties. All covenants, agreements, representations and warranties (a) previously. made (except as specifically subsequently modified); (b) made in connection herewith or with the Note and/or the Loan Documents and/or any document contemplated hereby; or (c) executed hereafter (unless such document expressly states that this Agreement does not apply thereto) shall survive the borrowing hereunder and thereunder and the repayment in full of the Notes and/or the Loan Documents and any amendments, renewals or extensions thereof and shall be deemed to have been relied upon by Lender. All statements contained in any certificate or other document delivered to Lender at any

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time by or on behalf of Borrower shall constitute representations and warranties by Borrower.

SECTION 15. Notices. All communications provided for hereunder shall be in writing and delivered by hand or sent by registered or certified mail or sent by facsimile (with such facsimile to be confirmed promptly in writing sent by first class mail), sent (i) if to Lender, to:

PREFERRED BANK
Credit Administration
601 South Figueroa Street, 20th Floor
Los Angeles, CA 90017

or to such other address or facsimile number as Lender may have designated to Borrower in writing; and (ii) if to Borrower, to:

20480 East Business Parkway
City of Industry, CA 91789
Attn: Thomas Man Kit Chow
          Chief Financial Officer

or to such other address or addresses or facsimile number or numbers as Borrower may most recently have designated in writing to Lender by such notice. All such communications shall be deemed to have been given or made when so delivered by hand or sent by or facsimile, or three Business Days after being so mailed.

SECTION 16. Joint and Several Liability.

               (a) Each Borrower agrees that it is jointly and severally liable to Lender for the payment of all obligations arising under this Agreement, and that such liability is independent of the obligations of the other Borrower’s). Lender may bring an action against any Borrower, whether an action is brought against the other Borrower(s).

               (b) Each Borrower agrees that any release which may be given by Lender to the other Borrower(s) or any guarantor will not release such Borrower from its obligations under this Agreement.

               (c) Each Borrower waives any right to assert against Lender any defense, setoff, counterclaim, or claims which such Borrower may have against the other Borrower’s) or any other party liable to Lender for the obligations of the Borrower under this Agreement.

               (d) Each Borrower waives any defense by reason of any other Borrower’s or any other person’s defense, disability, or release from liability. Lender can exercise its rights against each Borrower even if any other Borrower or any other person no longer is liable because of a statute of limitations or for other reasons.

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               (e) Each Borrower agrees that it is solely responsible for keeping itself informed as to the financial condition of the other Borrower(s) and of all circumstances which bear upon the risk of nonpayment. Each Borrower waives any right it may have to require Lender to disclose to such Borrower any information which Lender may now or hereafter acquire concerning the financial condition of the other Borrower(s).

               (f) Each Borrower waives all rights to notices of default or nonperformance by any other Borrower under this Agreement. Each Borrower further waives all rights to notices of the existence or the creation of new indebtedness by any other Borrower and all rights to any other notices to any party liable on any of the credit extended under this Agreement.

               (g) Each Borrower represents and warrants to Lender that each will derive benefit, directly and indirectly, from the collective administration and availability of credit under this Agreement. Each Borrower agrees that Lender will not be required to inquire as to the disposition by any Borrower of funds disbursed in accordance with the terms of this Agreement.

               (h) Until all obligations of the Borrower to Lender under this Agreement have been paid in full and any commitments of Lender or facilities provided by Lender under this Agreement have been terminated, each Borrower (a) waives any right of subrogation, reimbursement, indemnification and contribution (contractual, statutory or otherwise), including without limitation, any claim or right of subrogation under the bankruptcy Code (Title 11, United States Code) or any successor statute, which such Borrower may now or hereafter have against any other Borrower with respect to the indebtedness incurred under this Agreement; (b) waives any right to enforce any remedy which Lender now has or may hereafter have against any other Borrower, and waives any benefit of, and any right to participate in, any security now or hereafter held by Lender.

               (i) Each Borrower waives any right to require Lender to proceed against any other Borrower or any other person; proceed against or exhaust any security; or pursue any other remedy. Further, each Borrower consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of the Borrower under this Agreement or which, but for this provision, might operate as a discharge of the Borrower.

SECTION 17. Miscellaneous. The parties agree to the following miscellaneous terms:

     (a) This Agreement and the other Loan Documents shall be governed by California law, without regard for the effect of conflict of laws;

     (b) Borrower agrees that it will pay all out of pocket costs and expenses of Lender and expenses (including, without limitation, Lender’s reasonable attorneys’ fees and costs and/or fees, transfer charges and costs of Lender’s in-house counsel) in connection with the preparation of this Agreement and the other Loan Documents, and

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waiver, amendment or modification of any thereof, and the enforcement by Lender of any of its rights and remedies thereunder;

     (c) This Agreement and the other Loan Documents shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that Borrower shall not assign or transfer its right or obligations under this Agreement and/or the other Loan Documents without the prior written consent of Lender;

     (d) Borrower acknowledges that Lender may provide information regarding Borrower and the Loans to Lender’s affiliates and service providers;

     (e) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement;

     (f) Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction;

     (g) Lender reserves the right to sell the Credit Facility and/or a participation interest and/or interests in the Credit Facility. Borrower agrees that any information, financial statements and documents furnished to Lender may be furnished by Lender to any prospective participant or purchaser. Upon request by Lender, Borrower shall promptly deliver to any respective purchaser for said Credit Facility and/or a participation interest in said Credit Facility a written statement confirming the outstanding principal balance of said Credit Facility and the non-existence of any uncured default by Lender and/or Borrower under any Loan Documents, which statement shall be accompanied by current financial statements of Borrower; and

     (h) This Agreement is an integrated agreement and supersedes all prior negotiations and agreements regarding the subject matter hereof. Any amendments hereto shall be in writing and be signed by all parties hereto.

SECTION 18. Indemnity; Waivers.

     18.1. Demand; Protest. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by Lender on which Borrower may in any way be liable.

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     18.2. Lender’s Liability for Collateral. Borrower hereby agrees that: (a) Lender shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrower.

     18.3. Indemnification. Borrower shall pay, indemnify, defend, and hold the Lender and each of its respective officers, directors, employees, agents, and attorneys-in-fact (each, an “Indemnified Person”) harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in, any manner related thereto (all the foregoing, collectively, the “Indemnified Liabilities”).

     This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrower with respect thereto.

SECTION 19. JURY TRIAL WAIVER. IN ANY ACTION BROUGHT BY LENDER, BORROWER OR ANY THIRD PARTY ARISING UNDER THIS AGREEMENT, THE NOTE, THE DEED OF TRUST, THE ASSIGNMENT OF LEASES, THE ENVIRONMENTAL INDEMNITY, THE CONTINUING GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION THEREWITH, INCLUDING, WITHOUT LIMITATION, ANY ACTION BASED UPON FRAUD, NEGLIGENCE, BREACH OF CONTRACT, WASTE, INTENTIONAL TORT OR NEGLIGENT TORT, BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY AND AGREES THAT SUCH ACTION SHALL BE TRIED BY THE COURT ONLY. BORROWER FURTHER AGREES TO EXECUTE AND TO FILE WITH ANY COURT IN WHICH ANY SUCH ACTION IS COMMENCED, ANY DOCUMENTS OR INSTRUMENTS NECESSARY TO EVIDENCE OR TO EFFECTUATE THIS WAIVER OF TRIAL BY JURY.

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     Borrower has initialed this Section 19 to further indicate its awareness and acceptance of each and every provision hereof.

          /s/ TC Borrower’s Initials

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IN WITNESS WHEREOF, the parties have executed this Business Loan and Security Agreement as of the date first set forth above.

BORROWER:
SYNTAX GROUPS CORPORATION, a California corporation
By:	/s/ Thomas M.K. Chow
Name: Thomas M.K. Chow
Title: CFO
SYNTAX CORPORATION, a Nevada corporation
By:	/s/ Thomas M.K. Chow
Name: Thomas M.K. Chow
Title: CFO
LENDER:
PREFERRED BANK, a California corporation
By:	/s/ Phanglin Lin
Name: Phanglin Lin
Title: Senior Vice President

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Schedule “A”

Fees and Charges

1.	Loan Fee: $15,000, payable on the Closing Date.
2.	Documentation Fee: $10,000, payable on the Closing Date
3.	Letter of Credit Issuance and Settlement Fee: 1/8% per 90 days

All other fees to be in accordance with Lender’s customary fees and charges.

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EX-10.39

Exhibit 10.39

CHANGE IN TERMS AGREEMENT

Principal	Loan Date	Maturity	Loan No.	Call / Coll		Officer
$22,000,000.00	12-14-2005	09-05-2006	202359	510 / 055	Account	PLL	Initials
References in the shaded area are for Lender’s use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing ***** has been omitted due to text length limitations

Borrower:	Syntax Corporation	Lender:	Preferred Bank
	Syntax Groups Corporation		Diamond Bar
	20480 E. Business Parkway		1373 S. Diamond Bar Blvd.
	City of Industry, CA 91789		Diamond Bar, CA 91765

Principal Amount: $22,000,000.00 Initial Rate: 7.750% Date of Agreement: December 14, 2005

DESCRIPTION OF EXISTING INDEBTEDNESS. A line of credit facility as evidenced by a Promissory Note and by a Business Loan and Security Agreement dated as of September 28, 2005 in the original Principal Amount of $20,000,000.00 executed by Borrower in favor of Lender.

DESCRIPTION OF CHANGE IN TERMS. The total commitment of this facility is hereby TEMPORARILY Increased from $20,000,000.00 to $22,000,000.00. The $2,000,000.00 increase is for the sublimit for Trust Receipts ONLY thereby temporarily increasing the sublimit of $5,000,000.00 for trust receipts, as set forth in Sections 2.1(f), to $7,000,000.00, but subject to all other terms and conditions of the Business Loan and Secuirty Agreement. On February 27, 2006, the line will revert to it’s original amount of $20,000,000.00 and the trust receipts sublimit will revert back to a maximum of $5,000,000.00. All other terms and conditions shall remain the same.

CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender’s right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions.

BUSINESS LOAN AND SECURITY AGREEMENT. Reference is hereby made to that certain Business Loan and Security Agreement dated as of September 28, 2005 for additional terms and conditions. All references in the Business Loan and Security Agreement to “Obligations” shall include the obligations evidenced by this Agreement.

SUPPORTING DOCUMENTS. This loan is supported by five Commercial Guarantys.

PRIOR TO SIGNING THIS AGREEMENT, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER AGREES TO THE TERMS OF THE AGREEMENT.

CHANGE IN TERMS SIGNERS:

SYNTAX CORPORATION

By:	James Ching Hua Li	By:	Thomas Man Kit Chow
	James Ching Hua Li, President of		Thomas Man Kit Chow, Secretary
	Syntax Corporation		of Syntax Corporation

SYNTAX GROUPS CORPORATION

By:	James Ching Hua Li	By:	Thomas Man Kit Chow
	James Ching Hua Li, President of		Thomas Man Kit Chow, Secretary
	Syntax Corporation		of Syntax Corporation

EX-10.40

Exhibit 10.40

SECOND AMENDMENT TO BUSINESS LOAN AND
SECURITY AGREEMENT

     This Second Amendment to Business Loan and Security Agreement (the “Second Amendment” or “Amendment”) is made as of January 31, 2006, between PREFERRED BANK, a California banking corporation (“Lender”), SYNTAX GROUPS CORPORATION, a California corporation (“SGC”) and SYNTAX CORPORATION, a Nevada corporation, formerly known as Syntax Groups Nevada, Inc. (“SC”) (SGC and SC are sometimes referred to collectively as the “Borrowers” and individually as the “Borrower”).

RECITALS

     A. Borrowers and Lender entered into that certain Business Loan and Security Agreement dated on or about September 28, 2005 (“Original Agreement”) as modified by a Change in Terms Agreement dated December 14, 2005 (as amended, the “Agreement”). The parties hereto acknowledge and agree that for reference purposes the Original Agreement is dated as of September 28, 2005.

     B. Borrowers and Lender desire to further amend certain terms and provisions of the Agreement.

AGREEMENT

     1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement.

2. Amendments.

          2.1 The definition of “Borrowing Base” set forth in Section 1.1 of the Agreement is amended in its entirety to read as follows:

     “Borrowing Base” means the sum of (a) 80% of the Factor Payments Due, excluding Factored Receivables of Boscov’s, Circuit City and K-Mart, plus (b) the lesser of (i) 40% of the value of Eligible Inventory or (ii) Twelve Million Dollars ($12,000,000).

          2.2 The definition of “Guarantor” set forth in Section 1.1 of the Agreement is amended in its entirety to read as follows:

     “Guarantor” means individually and collectively, James Ching Hua Li, Thomas Man Kit Chow, Roger Kao, and Michael K. Chan.

          2.3 The definition of “Maturity Date” set forth in Section 1.1 of the Agreement is amended in its entirety to read as follows:

     “Maturity Date” means October 5, 2006.

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          2.4 The definition of “Maximum Credit Amount” set forth in Section 1.1 of the Agreement is amended in its entirety to read as follows:

     “Maximum Credit Amount” means Twenty Eight Million Dollars ($28,000,000).

          2.5 The definition of “Note” set forth in Section 1.1 of the Agreement is amended in its entirety to read as follows:

     “Note” means that certain Amended and Restated Promissory Note Variable Rate dated January 31, 2006, in the principal sum of Twenty Eight Million Dollars ($28,000,000).

          2.6 In Section 2.1 (a) of the Agreement, the figure “Eighteen Million Dollars ($18,000,000)” is substituted for the figure “Ten Million Dollars ($10,000,000).”

          2.7 In Section 2.1 (b) of the Agreement, the figure “Eighteen Million Dollars ($18,000,000)” is substituted for the figure “Ten Million Dollars ($10,000,000).”

          2.8 In Section 2.1 (c) of the Agreement the figure “Nine Million Dollars ($9,000,000)” is substituted for the figure “Five Million Dollars ($5,000,000).”

          2.9 Section 2.1 (d) of the Agreement is amended to add the following sentence at the end of said Section:

     “Borrower shall repay each working capital Advance in accordance with the terms of this Agreement and the Note.”

          2.10 In Section 2.1(f) of the Agreement, the figure “Nine Million Dollars ($9,000,000)” is substituted for the figure “Five Million Dollars ($5,000,000):

          2.11 The last sentence of Section 2.1 (f) of the Agreement is amended in its entirety to read as follows:

     “Borrower shall repay each trust receipt Advance in accordance with the terms of this Agreement and the Note.”

          2.12 In Section 2.1(g) (ii) of the Agreement, the figure “Eighteen Million Dollars ($18,000,000)” is substituted for the figure “Ten Million Dollars ($10,000,000).”

          2.13 In Section 2.1(g)(iii) of the Agreement, the figure “Nineteen Million Dollars ($19,000,000) is substituted for the figure “Fifteen Million Dollars ($15,000,000).”

          2.14 In Section 9(b) of the Agreement, the number “90” is substituted for the number “60”.

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          2.15 Section 9(c) and (d) of the Agreement are amended in there entirety to read as follows:

     “(c) By Wednesday of each week, an Inventory report;

     (d) By Wednesday of each week, a receivable report concerning all Accounts.”

          2.16 Section 9(e) of the Agreement is deleted in its entirety and replaced with the following:

     “(e) Intentionally omitted; and”

          2.17 Section 9(f) of the Agreement is amended in its entirety to read as follows:

     “(f) Upon request of Lender, federal tax returns of Borrower, including all schedule K-1’s.”

     3. Representations and Warranties. Borrowers hereby represent and warrant to Lender that: (i) no default specified in the Agreement and no event which with notice or lapse of time or both would become such a default has occurred and is continuing and has not been previously waived (ii) the representations and warranties of Borrowers pursuant to the Agreement are true on and as of the date hereof as if made on and as of said date, (iii) the making and performance by Borrowers of this Amendment have been duly authorized by all necessary action, and (iv) no consent, approval, authorization, permit or license is required in connection with the making or performance of the Agreement as amended hereby.

     4. Conditions. This Amendment will be effective when the Lender receives the following items, in form and content acceptable to the Lender.

          4.1 This Amendment duly executed by all parties hereto.

          4.2 The Note duly executed by the Borrowers.

          4.3 Commercial Guaranties duly executed by each Guarantor.

          4.4 Evidence that the execution, delivery and performance by each Borrower of this Amendment, the Note and each other document required hereunder have been duly authorized.

          4.5 Payment of all out-of-pocket expenses, including attorneys’ fees, incurred by the Lender in connection with the preparation of this Amendment.

     5. Effect of Amendment. Except as provided in this Amendment, the Agreement shall remain in full force and effect and shall be performed by the parties hereto according to its terms and provisions.

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     IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first above written.

PREFERRED BANK, a California corporation
By:	/s/ Phanglin Lin
Name:	Phanglin Lin
Title:	Senior Vice President

SYNTAX GROUPS CORPORATION, a California corporation
By:	/s/ Thomas Chow
Name:	Thomas Chow
Title:	CPO

SYNTAX CORPORATION, a Nevada corporation
By:	/s/ Thomas Chow
Name:	Thomas Chow
Title:	CPO

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EX-10.41

Exhibit 10.41

CONTINUING GUARANTY

     The undersigned,                      , an individual (herein called “Guarantor”), at the solicitation of SYNTAX GROUPS CORPORATION, a California corporation, and SYNTAX CORPORATION, a Nevada corporation (herein, individually and collectively, called “Borrower”), requests PREFERRED BANK, a California banking corporation (herein called “Lender”), to extend Credit to Borrower. In order to induce Lender to extend Credit to Borrower, and in consideration of Credit heretofore, now or hereafter granted to Borrower by Lender, Guarantor agrees as follows:

     1. The term “Credit” is used throughout this Continuing Guaranty (“Guaranty”) in its most comprehensive sense and means and includes, without limitation, any and all loans, advances, debts, obligations and liabilities of any kind or nature owed by Borrower to Lender, heretofore, now, or hereafter made, incurred or created, arising from the Loan Documents as defined in the Business Loan and Security Agreement dated as of September 28, 2005, as amended, between Borrower and Lender (“Agreement”), whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, secured or unsecured, whether on original, renewed, extended or revised terms (including, without limitation, those evidenced by new or additional instruments or agreements or those changing the applicable rate of interest or which release any obligor with respect thereto), whether principal, interest, fees, or expenses, whether Borrower may be liable individually or jointly with others, whether recovery upon such indebtedness may be or hereafter becomes barred by any statute of limitations, and whether such indebtedness may be or hereafter becomes invalid or otherwise unenforceable. In the event a petition under the United States Bankruptcy Code is filed by or against Borrower, the term “Borrower” shall also mean and include Borrower in its status as a debtor, debtor-in-possession and/or reorganized debtor under the United States Bankruptcy Code.

     2.      (a) If there is more than a single entity or person included in the terms “Guarantor” or “Borrower,” respectively, each reference herein to such terms shall mean any and all, and one or more of such entities and persons both jointly and severally, and (b) if more than one person or entity executes this Guaranty, the obligations and liabilities hereunder of Guarantors are and shall be both joint and several. If Borrower is a corporation, partnership, limited liability company or association, each reference herein to the term “Borrower” shall include any successor entity to Borrower. If there is more than one guaranty of the obligations of Borrower, the liabilities of all Guarantors are joint and several. As used in this Guaranty, neuter terms include the masculine and feminine, and vice versa.

     3. Guarantor’s liability hereunder shall be limited to Eighteen Million Dollars ($18,000,000.00). In addition to any liability hereunder, Guarantor agrees to bear and be liable to Lender for the interest and expenses enumerated in paragraph 21 hereof. Notwithstanding the foregoing, Lender, at its discretion, may allow Credit to exceed Guarantor’s maximum liability hereunder. Any payment by Guarantor shall not reduce the maximum obligation of Guarantor hereunder unless written notice to that effect is actually received by Lender at or prior to the time of such payment. Any payment received by Lender from Borrower, from any other person or from proceeds of collateral granted by Borrower or any other person shall not reduce Guarantor’s maximum liability hereunder.

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     4. Subject to any maximum dollar limitation on Guarantor’s liability as may be specified in this Guaranty, Guarantor unconditionally guarantees and agrees to pay to Lender, on demand, in lawful money of the United States of America, an amount equal to the amount of the Credit, and to otherwise perform any obligations of Borrower undertaken pursuant to any Credit. This Guaranty is a guaranty of payment and not of collection. No payment received by Lender from Borrower or any other person or from proceeds of collateral granted by Borrower or any other person shall reduce Guarantor’s maximum liability hereunder.

     5. Either before or after revocation hereof, Guarantor authorizes Lender at its sole discretion, with or without notice, and without affecting Guarantor’s continuing liability hereunder, from time to time to (a) change the time or manner of payment of any Credit by modification, renewal, extension, acceleration or otherwise, (b) amend or change any other provision of any Credit including the rate of interest thereon, (c) accept partial payment on any Credit, (d) accept new or additional instruments, agreements or documents relative to any Credit, (e) release, substitute or add one or more endorsers, cosigners or guarantors for any Credit, (f) enter into forbearances with Borrower even though the result of such forbearance is to increase the amount of accrued and unpaid interest, cost, fees and/or expenses attributable to the Credit, (g) amend or modify the terms of any guaranty executed by a co-guarantor, including the maximum liability thereunder, (h) obtain collateral for the payment of any Credit and/or any guaranty thereof, (i) waive, release, exchange, substitute, or modify, in whole or in part, existing, after-acquired or later acquired collateral securing payment of the Credit or any guaranty therefor on such terms as Lender at its sole discretion shall determine, (j) subordinate payment of all or any part of the Credit to other creditors of Borrower or other persons on such terms as Lender deems appropriate, (k) apply any sums received from Borrower, any other guarantor, endorser or cosigner or from the sale or collection of collateral or its proceeds to any indebtedness whatsoever in any order and regardless of whether or not such indebtedness is guaranteed hereby, is secured by collateral, or is due and payable, (1) without limiting the foregoing, apply any sums received from Guarantor or from the sale of collateral granted by Guarantor to any, all, or any portion of the Credit in any order regardless of whether or not the Credit is secured by collateral or is due and payable, and (m) exercise any right or remedy it may have with respect to any Credit or any collateral securing any Credit, this Guaranty or any other guaranty, including, without limitation, bidding and purchasing at any sale of any such collateral, and compromising, collecting or otherwise liquidating any collateral or any Credit.

     6. Guarantor acknowledges that Guarantor may have certain rights under applicable law which, if not waived by Guarantor, might provide Guarantor with defenses against Guarantors’ liability under this Guaranty. Among those rights, are certain rights of subrogation, reimbursement, indemnification and contribution, and rights provided in sections 2787 to 2855, inclusive, of the California Civil Code. Guarantor waives all of Guarantor’s rights of subrogation, reimbursement, indemnification, and contribution, and any other rights and defenses that are or may become available to Guarantor by reason of any or all of California Civil Code sections 2787 to 2855, inclusive, including, without limitation, Guarantor’s rights:

          (a) To require Lender to notify Guarantor of any default by Borrower, provide Guarantor with notice of any sale or other disposition of security for any Credit, disclose information with respect to the Credit, Borrower, or any other guarantor, co-signer or endorser, or with respect to any collateral;

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          (b) That Guarantor’s obligation under this Guaranty must be commensurate with that of Borrower;

          (c) To be discharged based upon the absence of any liability of Borrower, at any time, by virtue of operation of law, or otherwise, or due to any other disability or defense of Borrower or any other guarantor, endorser or co-signer;

          (d) To be discharged if any of the terms, conditions or provisions of the Credit are altered in any respect;

          (e) To be discharged upon acceptance by Lender of anything in partial satisfaction of the Credit, and/or if Lender designates the portion of the Credit to be satisfied;

          (f) To be discharged upon any modification of the Credit or the release by Lender of Borrower or any other guarantor, endorser or co-signer;

          (g) To require Lender to proceed against Borrower, or any other guarantor, endorser, co-signer, or other person, or to pursue or refrain from pursuing any other remedy in Lender’s power;

          (h) To receive the benefit of or participate in any and all security for repayment and/or performance of the Credit;

          (i) To have any security for the Credit first applied to satisfy or discharge the Credit;

          (j) That any arbitration award rendered against Borrower not constitute an award against Guarantor;

          (k) To be discharged based upon any failure by Lender to perfect or continue perfection of any lien, use due diligence to collect all or any part of any Credit, or if recovery against Borrower becomes barred by any statute of limitations, or if Borrower is not liable for any deficiency after Lender realizes upon any collateral; and

          (l) To be discharged due to the release or discharge of any collateral for any Credit or guaranty, or relating to the validity, value or enforceability of any collateral.

     7. Guarantor also waives all rights and defenses that Guarantor may have because the Borrower’s debt is secured by real property. This means, among other things: (1) Lender may collect from Guarantor without first foreclosing on any real or personal property collateral pledged or assigned by Borrower; (2) If Lender forecloses on any real property collateral pledged by the Borrower: (A) The amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, (B) Lender may collect from Guarantor even if Lender, by foreclosing on the real property collateral, has destroyed any right Guarantor may have to collect from Borrower. This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have because Borrower’s debt is secured by real property. These rights and defenses include, but are not

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limited to, any rights or defenses directly or indirectly based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure.

     8. Guarantor also waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor’s rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise.

     9. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of acceptance, notices of the existence, creation or increase of any new or additional credit, notice of sale in regard to judicial or non judicial foreclosure of real or personal property collateral and all other notices and demands of any kind or nature whatsoever except as expressly set forth herein.

     10. Notwithstanding any foreclosure of the lien of any security agreements, deeds of trust, mortgages or other security instruments, with respect to the Credit or any other guaranty, whether by the exercise of the power of sale contained therein, by any action for judicial foreclosure, or by any acceptance of a deed or other transfer in lieu of foreclosure, whether or not such method of foreclosure or transfer in lieu of foreclosure was for a consideration equal to or greater than the fair market value of the security property, Guarantor shall remain bound under this Guaranty for the obligations of Borrower to Lender and shall be liable to Lender for any and all of the Credit remaining unpaid after any such foreclosure.

     11. Guarantor represents and warrants to Lender that: (a) Lender has made no representation to Guarantor in regard to Borrower, the Credit or any matters pertaining thereto, upon which Guarantor is relying in giving this Guaranty; and (b) Guarantor has established adequate means and assumes the responsibility for being and keeping informed of the financial condition of Borrower and of all other circumstances bearing upon the risk of nonpayment of the credit which diligent inquiry would reveal, and Lender shall have no duty to advise Guarantor of information known to Lender regarding such condition or any such circumstance.

     12. In addition to all liens upon and rights of setoff against the money, securities or other property of Guarantor given to Lender by law or otherwise as security for this Guaranty, Guarantor hereby pledges to Lender and grants to Lender a security interest in, and Lender shall have a right of setoff against, all money, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit or for safekeeping or otherwise; and each such security interest or right of setoff may be exercised without demand upon, or notice to, Guarantor. No action or lack of action by Lender with respect to any security interest or right of setoff or otherwise shall be deemed a waiver thereof, and every right of setoff or security interest or otherwise shall continue in full force and effect until specifically released by Lender in writing. The security interests created hereby shall secure all of Guarantor’s obligations to Lender under this Guaranty or any subsequent guaranty executed by Guarantor.

     13. Any and all indebtedness of Borrower now or hereafter owed to Guarantor and all claims of Guarantor against Borrower, whenever arising, are hereby subordinated to the Credit

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and assigned to Lender as additional collateral. If Lender so requests, any note or other instrument evidencing such indebtedness and all claims of Guarantor against Borrower shall be delivered to Lender, and such indebtedness and all claims of Guarantor against Borrower shall be collected, enforced and received by Guarantor as trustee for Lender and be paid over to Lender on account of the Credit but without reducing or affecting in any manner the liability of Guarantor hereunder. Should Guarantor fail to collect proceeds of debt owed to it by Borrower and pay the proceeds to Lender, Lender, as Guarantor’s attorney-in-fact may do such acts and sign such documents in Guarantor’s name as Lender considers necessary, at its discretion, to effect such collection, and Guarantor hereby irrevocably appoints Lender as Guarantor’s attorney-in-fact for such purposes. If Borrower is a corporation, limited liability company or partnership, Guarantor will not withdraw or accept, without Lender’s prior written consent, any return of any capital invested or equity interest in Borrower.

     14. Guarantor agrees that to the extent Borrower makes a payment or payments or is credited for any payment or payments made for the account of or on behalf of Borrower to Lender, which payment or payments, or any part thereof, are subsequently invalidated, determined to be fraudulent or preferential, voided, set aside and/or required to be repaid to any trustee, receiver, assignee or any other party whether under any Bankruptcy, State or Federal Law, common law or equitable cause or otherwise, then to the extent thereof, the obligation or part thereof intended to be satisfied thereby, together with the guaranty thereof hereunder, shall be revived, reinstated and continued in full force and effect as if said payment or payments had not originally been made by or for the account of or on behalf of Borrower.

     15. Guarantor agrees that to the extent Guarantor makes a payment or payments or is credited for any payment or payments made for the account of or on behalf of Guarantor to Lender, which payment or payments, or any part thereof, are subsequently invalidated, determined to be fraudulent or preferential, voided, set aside and/or required to be repaid to any trustee, receiver, assignee or any other party whether under any Bankruptcy, State or Federal Law, common law or equitable cause or otherwise, then to the extent thereof, the obligation or part thereof intended to be satisfied thereby, shall be revived, reinstated and continued in full force and effect as if said payment or payments had not originally been made by or for the account of or on behalf of Guarantor.

     16. Guarantor’s obligations hereunder are not contingent upon and are independent of the obligations of Borrower, or any other guarantor or surety of the Credit. This Guaranty is not made in consideration of the liability of any other guarantor or surety of the Credit. The release or death of any guarantor of the Credit or the revocation of any guaranty shall not release or otherwise affect the liability of any other non-revoking guarantor. A separate action or actions may be brought and prosecuted against Guarantor whether action is brought against Borrower or any other guarantor or whether Borrower or any other guarantor be joined in any such action or actions.

     17. To the maximum extent permitted by law, Guarantor specifically waives the benefit of the statute of limitations affecting its liability hereunder or the enforcement hereof, or the collection of any Credit, including, without limiting the foregoing, any and all special statutes of limitations arising out of California Code of Civil Procedure sections 580a or 726(b). Any

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partial payment by Borrower which operates to toll any statute of limitations as to Borrower shall likewise toll the statute of limitations as to Guarantor.

     18. Any married person who signs this Guaranty expressly agrees that recourse may be had against his/her separate property as well as all community property over which that person has a power of management and control, for all of his/her obligations hereunder.

     19. Should any one or more provisions of this Guaranty be determined to be illegal or unenforceable, all other provisions shall remain effective.

     20. Lender may, with or without notice, assign this Guaranty in whole or in part. This Guaranty shall inure to the benefit of Lender, its successors and assigns, and shall bind Guarantor and Guarantor’s heirs, executors, administrators, representatives, successors and assigns.

     21. Guarantor agrees to pay to Lender, on demand, reasonable attorneys’ fees and all other costs and expenses which may be incurred by Lender in the collection or attempted collection from Borrower of any Credit and/or in the interpretation, enforcement or attempted enforcement by Lender of this Guaranty or any collateral therefor, including, but not limited to, proceedings in any bankruptcy or other insolvency case or other proceedings touching the Credit or this Guaranty, or both, in any manner, whether or not legal proceedings or suit are instituted, together with interest thereon at the rate applicable to the Credit and including, without limitation, all attorneys’ fees and related costs of enforcement of any and all judgments and awards and upon any appeal relating thereto.

     22. Guarantor warrants and represents to Lender that:

          (a) All financial statements and other financial information furnished or to be furnished to Lender by Guarantor are or will be true and correct and do and will fairly represent the financial condition of Guarantor (including all contingent liabilities) as of the dates thereof; and

          (b) There has been no material adverse change in Guarantor’s financial condition since the dates of the financial statements and other information furnished to Lender, except as previously disclosed to Lender in writing.

     23. Lender may declare Guarantor in default under this Guaranty upon the occurrence of any of the following events:

          (a) Guarantor fails to pay or perform any of Guarantor’s obligations under this Guaranty; or

          (b) Any representation or warranty made or given by Guarantor to Lender proves to be false or misleading in any material respect; or

          (c) A petition or action for relief shall be filed by or against Guarantor, pursuant to the Federal Bankruptcy Code (Title 11, U.S. Codes) in effect from time to time, or under any other law relating to bankruptcy, insolvency, reorganization, moratorium, creditor

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composition, arrangement or other relief from debts; the appointment of a receiver, trustee, custodian or liquidator of or for any property of Guarantor; or upon the death, incapacity, insolvency, dissolution, or termination of the business of Guarantor; or

          (d) Guarantor revokes or attempts to revoke this Guaranty.

     24. If Borrower is a corporation, limited liability company or partnership, Lender need not inquire into the power of Borrower or the authority of its officers, directors, partners, agents, members or managers acting or purporting to act in its behalf, and any Credit granted in reliance upon the purported exercise of such power or authority is guaranteed hereunder.

     25. Receipt of a true copy of this Guaranty is hereby acknowledged by each Guarantor. Guarantor understands and agrees that Lender’s acceptance of this Guaranty shall not constitute a commitment of any nature whatsoever by Lender to extend, renew or hereafter extend credit to Borrower. Guarantor agrees that this Guaranty shall be effective with or without notice from Lender of its acceptance of this Guaranty.

     26. If Guarantor has executed more than one Guaranty of any or all indebtedness of Borrower owed to Lender, any limits of liability thereunder and hereunder shall be cumulative, and a subsequent guaranty executed by Guarantor shall not supersede or replace this Guaranty unless such subsequent guaranty so provides.

     27. GUARANTOR WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY LENDER OR GUARANTOR WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS GUARANTY, THE CREDIT, THE COLLATERAL THEREFOR OR ANY MATTER ARISING THEREFROM OR RELATING HERETO OR THERETO.

     28. Guarantor waives all rights to interpose any setoffs or counterclaims of any nature in any action or proceeding instituted by Lender with respect to this Guaranty, the collateral therefor, or any matter arising therefrom or relating thereto and the posting of any bond which may otherwise be required, and waives any and all benefits of cross-demands pursuant to section 431.70 of the California Code of Civil Procedure.

     29. Guarantor hereby irrevocably submits and consents to the jurisdiction of any federal or state court of competent jurisdiction within California in connection with any action or proceeding arising out of or relating to this Guaranty. In any such litigation, Guarantor consents to service of process by any means authorized by California or federal law or as otherwise agreed in writing between Lender and Guarantor.

     30. All rights, remedies, powers and benefits granted to Lender under this Guaranty, the Credit, any oral or other written agreement or applicable law whether expressly granted or implied in law or otherwise, are cumulative and not exclusive, and are enforceable alternatively, successively, or concurrently on any one or more occasions at Lender’s discretion.

     31. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any security interest granted to Lender hereunder or Lender’s rights, powers and/or remedies hereunder (including any right of setoff) unless such waiver shall

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be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any default, right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such default, right, power and/or remedy which Lender would otherwise have on any future occasion whether similar in kind or otherwise. Any failure by Lender to file or enforce a claim against the estate (whether in administration, bankruptcy, probate or other proceeding) of Borrower or of any others, shall not affect Guarantor’s liability hereunder.

     32. Neither this Guaranty nor any related agreement, document or instrument nor any provision hereof or thereof shall be amended, modified or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender expressly referring to this Guaranty and to the provisions so amended, modified or discharged.

     33. Lender’s books and records showing the account(s) between Lender and Borrower shall be admissible in evidence in any action or proceeding as prima facie proof of the items set forth therein. Lender’s statements rendered to Borrower, to the extent to which no objection is made within thirty (30) days after date thereof, shall be deemed conclusively correct and constitute an account stated absent manifest error, which shall be binding on Guarantor whether or not Guarantor receives a copy of any such statement or notice thereof.

     34. This is a continuing guaranty of the Credit, including those arising after any repayment and reborrowing and under any successive and future transactions which may increase, renew or continue the original Credit. Revocation of this Guaranty, if permitted by applicable law, shall be effective only upon the close of the next business day after written notice thereof is received by an officer of Lender by certified or registered mail, return receipt requested at 601 South Figueroa Street, 20th Floor, Los Angeles, California 90017, or at any other office of Lender designated in a written notice mailed by Lender to Guarantor at its address set forth below. Any such revocation shall be effective only as to the revoking party and shall not affect that party’s obligations with respect to Credit existing before the revocation became effective or as to any renewals, extensions or modifications of any Credit, whether such renewal, extension or modification is made prior to or after revocation, including those evidenced by a new or additional instrument or agreement or which change the rate of interest on any Credit, or for post-revocation interest and collection expenses accruing or incurred by Lender with respect thereto. Notwithstanding any revocation hereof, this Guaranty shall not be terminated until Lender has received indefeasible payment in full of all Credit which is guaranteed hereby and, in regard to which Credit, Lender no longer has an outstanding commitment to lend. Credit existing before revocation becomes effective shall be deemed to include, without limitation, all Credit or advances which Lender has committed to make to Borrower in reliance upon this Guaranty, even though the amount of such Credit or advances has not been advanced as of the effective date of revocation, and even though Lender may have defenses or defaults which would relieve it of such commitment, if asserted.

     35. The provisions of this Guaranty shall be construed and interpreted and all rights and obligations hereunder determined in accordance with the laws of the State of California.

     36. GUARANTOR ACKNOWLEDGES THAT LENDER HAS OR MAY IN THE FUTURE EXTEND CREDIT TO BORROWER IN RELIANCE ON GUARANTOR’S

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UNCONDITIONAL PROMISE TO REPAY ANY AND ALL CREDIT AND LENDER IS RELYING ON THE WAIVERS, WARRANTIES AND PROMISES MADE BY GUARANTOR IN THIS GUARANTY. GUARANTOR AGREES THAT EACH OF THE WAIVERS, WARRANTIES AND PROMISES SET FORTH IN THIS GUARANTY ARE MADE WITH GUARANTOR’S UNDERSTANDING OF THEIR SIGNIFICANCE AND CONSEQUENCES AND THAT THEY ARE REASONABLE. IF ANY WAIVERS, WARRANTIES AND PROMISES ARE DETERMINED TO BE CONTRARY TO ANY APPLICABLE LAW OR PUBLIC POLICY, SUCH WAIVERS, WARRANTIES AND PROMISES SHALL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW. BEFORE SIGNING THE GUARANTY, GUARANTOR HAS EITHER SOUGHT THE ADVICE OF COUNSEL TO EXPLAIN THE WAIVERS OF ITS RIGHTS AND DEFENSES AS STATED HEREIN AND THE EFFECT THEREOF, OR HAS HAD THE OPPORTUNITY TO SEEK SUCH COUNSEL, AND IN ANY EVENT, INTENDS THIS GUARANTY TO BE AS UNRESTRICTED AS POSSIBLE. GUARANTOR THEREFORE HAS CONSCIOUSLY AND INTENTIONALLY WAIVED ALL DEFENSES OF GUARANTOR AND RIGHTS WHICH COULD EXONERATE GUARANTOR HEREUNDER TO THE FULL EXTENT PERMITTED BY THE LAWS OF THE STATE OF CALIFORNIA, WHETHER OR NOT EACH AND EVERY DEFENSE, RIGHT OR WAIVER IS EXPLAINED OR DESCRIBED IN DETAIL IN THIS GUARANTY.

     37. GUARANTOR ACKNOWLEDGES THAT NEITHER LENDER NOR ANY OF LENDER’S OFFICERS OR EMPLOYEES HAVE MADE ANY PROMISE OR REPRESENTATION, NOT INCORPORATED HEREIN, WHETHER ORAL, WRITTEN OR IMPLIED, TO CAUSE GUARANTOR TO SIGN THIS GUARANTY. GUARANTOR IS NOT SIGNING THIS GUARANTY IN RELIANCE ON ANY PROMISE, CONDITION OR THE ANTICIPATION OF THE OCCURRENCE OF ANY EVENT, AND THERE ARE NO ORAL UNDERSTANDINGS, STATEMENTS OR AGREEMENTS WHICH HAVE NOT BEEN INCLUDED IN THIS GUARANTY. GUARANTOR UNDERSTANDS THAT LENDER HAS THE RIGHT TO ENFORCE PAYMENT OF THE CREDIT AGAINST BORROWER OR GUARANTOR IN ANY ORDER AND LENDER IS NOT OBLIGATED TO OBTAIN ANY OTHER OR ADDITIONAL GUARANTORS OF THE CREDIT OR TO TAKE ANY OTHER COURSE OF ACTION.

     38. This Guaranty constitutes the entire agreement between the parties with respect to the subject matter of this Guaranty, and any and all previous or contemporaneous correspondence, statements, or agreements by or between the parties hereto with respect to the subject matter of this Guaranty (but not previous or other guarantees given to Lender by Guarantor) are superseded hereby. This Guaranty may be modified only by a written instrument signed by the parties hereto.

[Signature Page Follows]

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     IN WITNESS WHEREOF, the Guarantor has executed this Continuing Guaranty as of the 31st day of January 2006.

GUARANTOR:

Social Security No.:

Address:

Telephone: (            )

(ALL SIGNATURES MUST BE ACKNOWLEDGED)

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Schedule of Signatories to Form of Continuing Guaranty

James Ching Hua Li

Thomas Man Kit Chow

Michael K. Chan

Roger Kao

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER

I, Vincent F. Sollitto Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Syntax-Brillian Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 21, 2006

/s/ Vincent F. Sollitto Jr. Vincent F. Sollitto Jr.

Chairman and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Wayne A. Pratt, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Syntax-Brillian Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 21, 2006

/s/ Wayne A. Pratt Wayne A. Pratt

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report on Form 10-Q of Syntax-Brillian Corporation (the “Company”) for the quarter ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vincent F. Sollitto Jr., Chairman and, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Vincent F. Sollitto Jr. Vincent F. Sollitto Jr.

Chairman and Chief Executive Officer

February 21, 2006

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report on Form 10-Q of Syntax-Brillian Corporation (the “Company”) for the quarter ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wayne A. Pratt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Wayne A. Pratt

Wayne A. Pratt

Chief Financial Officer

February 21, 2006