UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

|X|       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934.

          FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005
                                                        OR
|_|       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934.

          FOR THE TRANSITION PERIOD FROM            TO           .

                        COMMISSION FILE NUMBER 000-25839

                              SYSCAN IMAGING, INC.
             (Exact name of registrant as specified in its charter)

             DELAWARE                                         90-0251401
   (State or other jurisdiction                             (IRS Employer
of incorporation or organization)                       Identification number)

  1772 TECHNOLOGY DRIVE, SAN JOSE, CA                            95110
(Address of Principal Executive Offices)                       (Zip Code)

                              408-436-9888 EXT. 207
              (Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(g) of the Act:

    TITLE OF EACH CLASS             NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------------------------- ----------------------------------------------
Common Stock, $.001 par value                   OTC Bulletin Board

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.              YES  |X|           NO  |_|

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

         Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).            YES |_|       NO |X|

         Issuer's revenues for fiscal year 2005 were $7,848,007.

         The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $6,505,500 as of April 10, 2006 (based on
the closing price for such stock as of April 10, 2006).

Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
                 CLASS                        OUTSTANDING AT APRIL 10, 2006
---------------------------------------- ---------------------------------------
     Common Stock, $.001 par value                      24,601,096

Transitional Small Business Disclosure Format (Check one):   YES |_|     NO |X|

<PAGE>



                                     PART 1

                   SPECIAL NOTE ON FORWARD LOOKING STATEMENTS

         Some of the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Description of Business" in
this Annual Report on Form 10-KSB are forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by forward-looking statements.

         In some cases, you can identify forward-looking statements by
terminology such as "may," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "proposed," "intended," or
"continue" or the negative of these terms or other comparable terminology. You
should read statements that contain these words carefully, because they discuss
our expectations about our future operating results or our future financial
condition or state other "forward-looking" information. There may be events in
the future that we are not able to accurately predict or control. Before you
invest in our securities, you should be aware that the occurrence of any of the
events described in this Annual Report could substantially harm our business,
results of operations and financial condition, and that upon the occurrence of
any of these events, the trading price of our securities could decline and you
could lose all or part of your investment. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, growth rates, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking
statements after the date of this Annual Report to conform these statements to
actual results.




                                      -2-
<PAGE>


ITEM 1.  BUSINESS

GENERAL

         Syscan Imaging, Inc. (referred to herein as "we", "us", "our", "Syscan"
or "Company") through our wholly-owned operating subsidiaries develops, designs
and delivers various imaging technology solutions to the corporate/enterprise,
small office-home office (SOHO), professional practice and consumer markets. We
are the market-leader in providing, USB powered, scanning solutions to a wide
variety of industries and market applications. Our proprietary page-imaging
devices facilitate the way information is stored, shared and managed in both
business and personal use. We market and distribute our products indirectly
through a global network of Original Equipment Manufacturers (OEM), private
label business channels, system integrators, value-added resellers (VAR's), and
distributors. Our products may be viewed on our website at www.syscaninc.com. We
believe that the value of our mobile image scanning solutions is best realized
in vertical markets that are information and process intensive, such as
healthcare, document security, financial services, legal and government.

         We have always developed our business model around intellectual
property (IP) driven products sold primarily to OEM's, Private Label brands and
VAR's. In keeping with this business model, our wholly owned subsidiary Sysview
Technologies, Inc. is currently in the process of developing multiple new
technologies related to the High Definition TV (HDTV) market, including an
innovative line of large format (42-60 inches) high definition television
products that incorporate liquid crystal on silicon (LCoS) rear projection
display technology (RPDT). Our core engineering-to-manufacturing experience and
resources lend themselves to developing this new technology. Going forward we
plan on leveraging certain patents and inventions related to RPDT to forge
industry relationships and market channels.

         Our world-wide corporate headquarters and logistics center is currently
located at 1772 Technology Drive, San Jose, California 95110. We have additional
offices and warehousing facilities in The Netherlands and Southern China. Our
Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, Proxy
Statements relating to our annual meetings of stockholders, Current Reports on
Form 8-K and amendments to these reports are available free of charge on our
website at www.syscaninc.com, as well as from the SEC's website at www.sec.gov.

BACKGROUND

         Our wholly-owned subsidiary, Syscan Inc., was founded in Silicon Valley
in 1995 to develop and manufacture a new generation of CIS (Contact Image
Sensors) that are CMOS-Complimentary Metal Oxide Silicon imaging sensor devices.
During the late 1990's, we established many technical milestones and were
granted numerous patents based on our linear imaging technology (Contact Image
Sensors). Our patented CIS and mobile imaging scanner technology provides very
high quality images but at extremely low power consumption, allowing us to
deliver very compact scanners in a form ideally suited for the laptop computer
users or desktop computer users who need a small "footprint", light weight
device to scan and/or fax documents.


                                      -3-
<PAGE>


         This "enabling" technology is found in a variety of applications such
as document management, ID card and passport security scanners, bank note/check
verification, business card readers, scanning bar codes and optical mark readers
used in lottery terminals. In the past ten years we have grown to be one of the
largest OEM - VAR - private label manufacturers of page-fed scanning systems and
contact image sensor modules for several hundred companies including major
brands such as VISIONEER, PENTAX, CARDSCAN, DATACOLOR, DIGIMARC, SCANSOFT,
NORTEK and OMRON. Our vertically integrated design and manufacturing model
allows rapid time-to-market for these leading companies. Our manufacturing is
completed in China by a wholly-owned subsidiary of the parent company of our
majority stockholder, which provides a low-cost manufacturing base for these
industrial and consumer products.

MARKET OPPORTUNITIES

         IMAGE CAPTURE TECHNOLOGY

         In the past decade, information has become an increasingly important
source of capital for businesses and enterprises, and the speed and
sophistication of information exchange is often a defining characteristic of the
most successful entities worldwide. Many organizations define their strategy,
assess their ability to compete and manage their customer relationships based on
the quality, diversity and availability of their information products, services
and resources. The medium and optimal format for vital business information is
wide and varied, and includes paper, electronic files and Web content.

         Confronted by exponentially increasing information through more and
more channels, consumers and business personnel employ a variety of resources
for retrieving information, conducting transactions and performing their jobs.
The Internet and related corporate infrastructure have emerged as a powerful
global communications network and channel for business. These electronic systems
have fundamentally changed the way organizations and consumers obtain
information, communicate, purchase goods and conduct business.

         Businesses around the world share a common motivation to improve
operating efficiency and enhance customer service. Customer satisfaction,
employee productivity and company operating results can often be linked to an
organization's ability to effectively manage, utilize and communicate
information.

         We believe there is a significant opportunity for our solutions to help
simplify the way people access, share, manage and use information in business
and in daily life. Our strategy is to deliver premier, comprehensive imaging
technologies. Our imaging solutions eliminate the need to manually reproduce
documents, automate the integration of documents into business systems, and
enable the use of electronic documents and forms over the Internet, through
mobile faxing and other business applications. Our products and technologies
deliver a measurable return on investment to our customers.


                                      -4-
<PAGE>


OUR IMAGE CAPTURE MARKET SOLUTION

         As the current leading manufacturer of USB powered imaging devices, we
set out in late 2004 to create a new opportunity within our own dominated
market. We found through our existing sales channels that there was a growing
demand for duplex page imaging products that allowed the end-user to scan both
sides of a document simultaneously. The overall growth of this market is being
propelled by paper conservation cycles that require two-sided printing of
official documents and forms. The added availability of duplex printers in the
office and home has accelerated the demand for duplex imaging devices. Our
introduction in June of 2005, of the world's first duplex image capture device
under 2 pounds in weight, allow users to incorporate two-sided images and
documents into digital applications, systems and devices. Our new duplex
products highly automate the document capture process and help enterprises,
professionals and consumers increase productivity, reduce costs and save time.
We plan to substantially expand our product offerings in the duplex imaging
scanning market and plan to further expand our business to include a wider base
of software development tools for our existing patented products used throughout
the image capture market.

IMAGE DISPLAY TECHNOLOGY

         Until the year 2001, home televisions have changed very little relying
(almost) exclusively on the Cathode Ray Tube (CRT). This technology provided a
good quality picture, based on the broadcasting (and cable operators) signal
limitations, but weight and size limited the screen size to around forty (40)
inches. With the relatively new introduction of high definition television
(HDTV) the consumer (and commercial) markets are dramatically increasing the
demand for larger screen sizes in order to bring the movie theater experience
into the home. In response to this demand various types of liquid crystal
display (LCD) and plasma display panel (PDP) models have been introduced to the
marketplace. These LCD and PDP models solved the screen size issue, but the
picture quality could not achieve the HDTV standard of 1080 active lines (1080p)
and the comparatively high pricing versus CRT models allowed them limited
consumer market penetration.

         To date PDP technology has been the leader in delivering a price
performance value in the larger format screen sizes typically 42" and up. In the
past year, Digital Light Processing(TM) (DLP) by Texas Instruments has emerged
as the strongest challenger to PDP products, typically offering 720p picture
resolution, acceptable brightness characteristics and generally a price tag 20%
- 30% below comparable PDP products. Plasma technology continues to be
vulnerable to both the LCD and DLP formats as the size and performance to price
ratios converge. We recognize that the television display market is in the
process of a major transition, as several technologies challenge plasma
technology as the dominant force in large format displays. We believe the
transition will happen over the next 12-24 months as the major (tier 1)
competitors "hedge" with product lines that include the top 2 or 3 technologies.
The current top eight leaders (Samsung, Sony, Sanyo, Toshiba, LG, SAMPO,
Panasonic and Hitachi) compete under the different brand names but are
frequently in collaboration with each other as well as regional brands in the
international markets. The local brand - private label (tier 2) competitors add
another 15-20 competitors to the marketplace. In short, there are roughly 30
different competitors worldwide in the large format TV market worldwide. Several
of the major suppliers have already announced introduction of "true" 1080p HDTV
technology, but they struggle with the reality that plasma, LCD and DLP
technology still have difficulty achieving the price performance ratio being
demanded by the consumer market.


                                      -5-
<PAGE>


OUR DISPLAY MARKET SOLUTION

         While continuing R&D on multiple HDTV technology solutions, in October
of 2005, Syscan expanded its Sysview HDTV display technology group through the
purchase of Nanodisplay Inc., the holder of key intellectual property related to
LCoS (liquid crystal on silicon) HDTV technology. Nanodisplay has multiple
patents pending surrounding its proprietary methods and technologies that
utilize CNT (Carbon Nanotube) technology and advanced assemblage and integration
processes. Nanodisplay is in late stage research and development for the
production of an advanced high yield LCoS chip with true 1080P resolution. Upon
completion of this innovative LCoS technology, of which there can be no
assurance, it is expected that technology upgrades to even greater resolutions
are likely possible at an accelerated pace. Our ultimate goal is to achieve
superior visual performance and resolution at a significant value in large
screen format HDTV's.

         Nanodisplay co-founder Dr. Gihong Kim brings a tremendous amount of
experience to Syscan and Sysview alike. Dr. Kim has been a research and
development engineer in the field of semiconductor materials, process
integration and devices, for the majority of his career. He attributes the
genesis of his solutions to solving key LCoS challenges and limitations to his
involvement with LCoS since the technologies initial R&D stages. To his credit
Dr. Kim has over 20 patents issued and has had 13 papers published in the field
of semiconductor technology.

         Since the strategic acquisition of Nanodisplay, we have carefully
established market entry points that will allow this emerging (LCoS) technology
to achieve the anticipated price performance ratio within 12 months, potentially
eclipsing market share held by the current leading technologies in the large
format HDTV arena, of which there can be no assurance. It is also expected that
relationships resulting from our LCoS technology initiative will benefit our
pending LED backlighting solution for LCD panels as well as our ITV (Intelligent
TV) technology still in the R&D phase.

OUR COMPETITIVE STRENGTHS

Core Technology Assets. In recent years, we have developed and acquired
technology assets, intellectual property and industry expertise in both the
image capture and image display markets. We believe a significant investment in
capital and time would be necessary for competitors to replicate our current
capabilities. We continue to invest in the advancement of our technologies to
maintain our market leading positions as well to develop new markets/products.
As of December 31, 2005, we had 17 (63%) full-time employees involved in the
research and development of our products and our technologies that continue to
add to the existing issued patents that we hold in the U.S. and Foreign
territories.


                                      -6-
<PAGE>


Broad Distribution Channels. We maintain an extensive network of distribution
channels to address the needs of specific markets such as financial, legal,
healthcare and government. We believe that our extensive channel relationships
increase the difficulty for competitors to develop a similar channel network and
make it difficult for our products to be displaced. In addition, our
far-reaching channel network enables us to introduce new products quickly and
effectively throughout the global marketplace.

Leading Market Share. We continue to be the manufacturing leader in USB powered
image capture devices. Our customers tend to look to established, experienced
vendors when making product selections and as the established manufacturer in
our markets, we believe we can target and win more partnership arrangements and
new customers than our competition.

International Focus. Our international experience and diverse heritage allow us
to efficiently compete on a global basis. We have established effective bases of
operations in the USA, European Union and Asia Pacific. We recognize cultural
and language benefits in both manufacturing, warehousing and time-to-market
sales.

OUR STRATEGY

Pursue High Growth Markets In Image Scanning. We intend to leverage our
technologies and market leadership to expand our opportunities in mobile and
other markets. We also intend to pursue emerging opportunities to use our
technology within consumer devices, and other wide spread devices. To expand our
position in mobile image capture, we intend to continue to introduce new
versions of our products and applications; complete new license agreements with
customers and partners that will resell our technologies; and make strategic
acquisitions that we believe complement our existing solutions and resources in
various evolving markets.

Expand Image Scanning Solutions. We intend to enhance the value of our imaging
scanning solutions for enterprises to address the proliferation of security
related applications, the expanded use of content management systems, and the
widespread adoption of networked multifunction and digital image scanning
devices. We intend to introduce new products or new versions of existing
products to take advantage of these growth opportunities. We also plan to
enhance our software development toolkits so our technologies can be integrated
with more third-party solutions.


                                      -7-
<PAGE>


Focus on Specific Vertical Markets. We intend to focus our marketing and sales
resources to generate demand and deliver solutions in specific vertical markets.
The value of our solutions is best realized in vertical markets that are
information and process intensive, such as healthcare, telecommunications,
financial services, legal and government. In addition, we intend to offer custom
versions of certain applications and products for specific vertical markets such
as medical, legal and utilities.

Expand Worldwide Channels. We intend to expand our global channel network and
build upon our existing distribution channels, especially in Europe, Asia and
Latin America. In particular, we intend to replicate our successful North
American value-added reseller channel in Europe. Along these lines, we intend to
add sales employees in different geographic regions and launch programs and
events to help recruit new partners for our channel network.

Pursue Strategic Acquisitions. We will selectively pursue strategic acquisitions
of companies in the image capture and display industry that could compliment our
business model, improve our competitive positioning and expand our offerings to
the marketplace, of which there can be no assurance. In identifying potential
acquisition candidates we will seek to acquire companies with varied
distribution channels, rich intellectual property (IP) and high caliber
engineering personnel.

         Over the past twelve months we have begun focusing our sales and
marketing efforts substantially towards the vertical markets such as the Value
Added Reseller (VAR) and small-office-home-office (SOHO) markets. We believe
focusing on these markets is the most effective way to showcase our
technological capabilities and manufacturing efficiencies, while enabling us to
maintain higher margins, and require fewer resources than working directly with
the mass retailers.

         For the HDTV market, we are currently concentrating our efforts and
investment towards the completion and mass market delivery of the Nanodisplay
LCoS HDTV solution. Although there can be no assurances, we intend to initiate a
relationship in the near future with a partner that may allow us to provide a
proprietary low cost light engine component which would be used to drive the
Nanodisplay imager/chip. We believe that by co-designing and combining these two
critical components we will be able to deliver a complete, low cost high
performance, LCoS solution to the market. Separately, we also recognize that
there are other viable non-TV applications for the Nanodisplay LCoS imager and
expect to explore those possibilities.

         Beyond our LCoS initiative we continue development of an LCD product
that uses RGB (red, green, and blue) LED's controlled sequentially as an
alternative longer life backlight source with visual performance benefits. Most
of our LCD HDTV strategy is leveraged on core technologies and market synergy
that we established in the image capture (scanning) market since our scanner
devices utilize LED's as a light source, and the precise control of this light
source is a critical capability in the performance and ultimate market success
of this new technology. It is not expected that there will be mass acceptance of
variations of this technology until late 2007. In order to meet the competitive
requirements, we believe that we will need a collaborator (or partner) that has
significant experience in the FPD panel design and tooling. A partner will also
reduce the time-to-market and overall risk associated with entry into the
marketplace.


                                      -8-
<PAGE>


PRODUCTS

         IMAGE SCANNING PRODUCTS

                  TravelScan, DocketPORT & OEM Brands

         In 2005 we shipped six categories of image capture products under
several "house brands" or their OEM counterparts versus five categories in 2004.
The introduction of the A4 duplex scanners (DocketPORT) in the third quarter
created a broader base of products. This new category quickly contributed over
7% of unit sales in 2005, despite its mid-year introduction. The A4 simplex
scanner (TravelScan) category represented approximately 19% of our sales during
the year ended December 31, 2005, a decrease from 2004 (21%) of approximately
2%. The A6 simplex scanners that are widely used for capturing images of bank
checks, drivers licenses and various identification cards, represented the
largest unit sales in 2005 at 54%. This represented an increase of 8.1% over
2004 unit sales. The A5 security document scanner experienced a 3% increase in
unit sales in 2005 to 3% from less than 1% in 2004. Our fifth scanner product
category, representing approximately 15% of our sales ending the 12 months ended
December 31, 2005, is the A8 business card reader scanner. In 2004 the A8
scanner category represented approximately 21% of our sales, so we experienced a
net reduction in this category of 6%.

                  Contact Image Sensor (CIS) Modules

         In addition to the finished scanner product line, we also design,
configure and sell the Contact Image Sensor (CIS) Modules that we use in our
products and separately as an OEM component to other manufacturers. This CIS
business represented approximately 5% of our overall sales during 2005, a
decrease of 5% from the previous year (2004 - 10%).

                  Products in Development

         We have an aggressive product development program currently in place to
add 7 new products in 2006. These new products are being introduced as both
Syscan branded and OEM/ VAR branded products. Many of these new scanners are
being driven by increased market demand for duplex, faster and easier-to-use
products. They will also concentrate more on the identity-security and financial
transaction market needs.

         IMAGE DISPLAY PRODUCTS

                  SysView Technology

         During 2005 we saw the establishment of SysView Technology Inc., a
wholly owned subsidiary of ours that is focused on introducing breakthrough
price-performance technology in the HDTV display market. As part of this
objective, we acquired Nanodisplay Inc. in October 2005. Nanodisplay is a
leading designer of LCoS HDTV technology and we believe that the acquired
technology and personnel will contribute significantly to our efforts in the
display market. We also intend to enter into a relationship that will provide us
with a proprietary light engine technology focused on performance value. The
light engine is the optics component that actually projects the image that the
chip (Nanodisplay) creates. We believe that it is important that both of these
technologies be vertically integrated and co-designed in order to offer the best
and most cost-effective complete solution.


                                      -9-
<PAGE>


In addition we are in various stages of development on two other HDTV
initiatives. The first is the design and implementation of a unique backlighting
system for large format LCD screens. Through the use of RGB (red, green and
blue) LED's we will attempt to replace the current industry standard CCFL (cold
cathode florescent light). The expected end result is both extended product life
and enhanced visual performance. The ultimate success of this technology is
based on the ability to sequentially manage the timing of the independent
colored LED's appropriately. We believe that we have a unique understanding of
this process as it is used in our patented mobile image scanning devices.

We are also currently investing in the R&D of what we call ITV or intelligent
TV. We believe that the step will ultimately become less passive and more
interactive. To that end we are working on a host of hardware and software
applications that would allow for that interactivity. Our goal is to deliver the
hardware component of this technology at a price that would allow for it to be
transparently included in new TV's. We also recognize the importance of making
the technology seamless and simple to use. Tivo is an example of how the
consumer is beginning to accept the idea of greater functionality in their TV.


SALES, DISTRIBUTION AND FULFILLMENT

         We market and distribute our products indirectly through a global
network of OEM's, system integrators, value-added resellers and regional
distributors.

         We have established relationships with more than 32 channel partners,
including leading system vendors, value-added resellers and regional
distributors. In addition our products are sold through a variety of retail and
web-based channels.

MANUFACTURING

         All of our products are currently manufactured by a subsidiary of
Syscan Technology Holdings (STH), the parent company of our majority
stockholder. We and STH have established an internal-pricing agreement that is
updated on a semi-annual basis. STH serves as the exclusive manufacturer of all
current and future image capture products to be produced by us. We believe, for
quality control and pricing reasons that this type of relationship is more
favorable than could be attained from unaffiliated third-parties. We purchase
and provide STH with critical parts and components necessary to manufacture our
products.

         STH warrants the products it manufactures for us against defects in
material and workmanship for a period of 18 months after the completion of
manufacture. After such 18 month period, STH has agreed to provide repair
services for the products to us at its customary hourly repair rate plus the
cost of any parts, components or items necessary to repair the products.

         Since STH is the primary manufacturer of all of our current products,
if the operations of STH are interrupted or if our orders or orders of other STH
clients exceed the manufacturing capabilities of STH, STH may not be able to
deliver our products to us on time and we may not be able to deliver our
products to our customers on time, which could adversely affect our business,
reduce our revenues and significantly harm our relationship with our customers.
We have the right at anytime to engage third parties to manufacture some or all
of our products.


                                      -10-
<PAGE>


          We believe that it could take approximately three to six months to
secure a third-party manufacturer to supplement STH's manufacturing capabilities
and approximately six to twelve months to replace STH as our sole manufacturer.
Although we believe that there are a number of third-party manufacturers (other
than STH) available to us, there can be no assurances that we would be able to
secure another manufacturer on terms favorable to us, or at all, or how long it
would take us to secure such manufacturing.

SUPPLIERS

        All of the raw materials, parts, components and other items that are
required to manufacture our products are purchased by us. We rely on a single or
limited number of suppliers for such raw materials, parts, components and other
items. Although there are many suppliers for each of these raw materials, parts,
components and other items, we are dependent on a limited number of suppliers
for many of the significant raw materials and components. We do not have any
long-term or exclusive purchase commitments with any of such suppliers. Our
failure to maintain existing relationships with our suppliers or to establish
new relationships in the future could also negatively affect our ability to
obtain the raw materials and components used in the manufacture of our products
in a timely manner. If we are unable to obtain ample supply of product from our
existing suppliers or alternative sources of supply, we may be unable to satisfy
our customers' orders which could reduce our revenues and adversely affect our
relationship with our customers.

PROPRIETARY TECHNOLOGY

         We exploit our proprietary technology, trade secrets, know-how,
continuing technological innovations and licensing opportunities to maintain our
competitive position. We rely on patent law, copyright law, trade secret laws,
secrecy, technical measures, licensee agreements and non-disclosure agreements
to protect our technology, trade secrets and other proprietary rights. Our
policy is to file patent applications to protect technology, inventions and
improvements that are important to the development of our business, to maintain
a technological advantage over our competitors and to in some cases generate
licensing revenue. In this regard, we have obtained patents that directly relate
to our products. Our mobile imaging scanning technologies are covered by
numerous patents and patent applications owned by us. We currently have 25
issued (granted) patents, 16 of which are U.S. patents and 9 issued in foreign
jurisdictions. We currently have 5 pending patents, of which 4 are related to
image display technologies and 1 related to image scanning. These patents expire
on various dates between 2017 and 2022.

         We require our employees to execute confidentiality and invention
assignment agreements in order to protect our proprietary technology and other
proprietary rights. We also rely on trade secrets and proprietary know-how to
protect our proprietary rights.


                                      -11-
<PAGE>


RESEARCH AND DEVELOPMENT

         The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing client requirements. As a
result, we believe that our future growth is highly dependent on the timely and
efficient introduction of new and updated products and technology. As of
December 31, 2005, we employed or directly contracted 14 people in research and
development, 4 of whom are located in international locations. Our employees
based in overseas facilities extend our global focus while often lowering our
overall cost of research and development. To promote efficiency in our research
and development efforts, we have organized the effective use of global
development teams and a comprehensively integrated development process. In
addition, we have developed and refined our time-to-market process, which
contributes to cost-effective resource management while promoting technology
sharing across programs.

         Our future success will depend in part on our ability to anticipate
changes, enhance our current products, develop and introduce new products that
keep pace with technological advancements and address the increasingly
sophisticated needs of our clients. Our research and development expenses for
the twelve months ending December 31, 2005 and the twelve months ended December
31, 2004 were $866,102 and $528,417, respectively. We expect that we will
continue to commit significant resources to research and development in the
future, specifically with respect to the HDTV market. To date we have not
capitalized any research and development expenses and all costs have been
expensed as incurred.

INTERNATIONAL OPERATIONS

         Our international operations include research and development, customer
support and sales and marketing. Our international research and development is
conducted in the US and China. Additionally sales and support offices are
located in the US, the Netherlands, Korea and China to support our current
international customers and to expand our international revenue opportunities.

         Geographic revenue classification is based on the country in which the
sale is invoiced. Revenue for the twelve months ended December 31, 2005 was 87%
in North America, 9% in Asia and 4% in the European market. This is compared to
the 2004 geographic sales of 96% in North America, 2% in Asia and 2% in Europe.

         Additional financial information relating to foreign and domestic sales
and operations for each of the twelve months ended December 31, 2005 and the
year ended in the period ended December 31, 2004 is set forth in Note 1, "
Geographic Sales and Significant Customers," of the Notes to Consolidated
Financial Statements.


                                      -12-
<PAGE>


COMPETITION

         There are very few companies that have products that directly compete
in America, against our page-fed scanner markets. There are however, several
companies that sell competitive products in the European market where the
enforcement of our patents is considerably more difficult. There is currently no
single company that competes with us in all of our product areas. Within Image
Display, we will compete with Sony, Samsung, Sharp, Sanyo and LG. Our HDTV
products could compete with some of these companies products, however, we intend
to enter into OEM and private label relationships with some of those
competitors. In addition, there are several smaller vertically positioned
companies in the image display technologies that may be competitive with our
solutions. Current and potential competitors have established, or may establish,
cooperative relationships among themselves or with third parties to increase the
ability of their technologies to address the needs of our prospective customers.
Most of our competitors in each of the markets in which we compete have
significantly greater financial, technical and marketing resources than us.
These competitors may be able to respond more rapidly than we can to new or
emerging technologies or changes in customer requirements. They may also devote
greater resources to the development, promotion and sale of products than we do.

EMPLOYEES

         As of December 31, 2005, we employed 26 people on a full-time basis, 17
in the United States and 9 internationally. Of the total, 14 were in product
research and development, 4 in sales and marketing, 2 in operations and support,
and 6 in finance and administration. None of our employees located in the United
States or internationally are represented by unions or collective bargaining
agreements. We have experienced no work stoppages and believe that our employee
relations are good. We have utilized the services of consultants, third-party
developers, and other vendors in our sales, development, manufacturing
activities and finance and administration functions.

AVAILABLE INFORMATION

         We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file with the Commission at the Commission's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549, 233 Broadway,
New York, New York 10279, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330
for further information on the public reference rooms. Our Commission filings
are also available to the public from the Commission's Website at
"http://www.sec.gov." We make available free of charge our annual, quarterly and
current reports, proxy statements and other information upon request. To request
such materials, please contact our Corporate Secretary at our address as set
forth above.

         We maintain a Website at "http://www.syscaninc.com" (this is not a
hyperlink, you must visit this website through an internet browser). Our Website
and the information contained therein or connected thereto are not incorporated
into this Annual Report on Form 10-KSB.



                                      -13-
<PAGE>


                                  RISK FACTORS

         An investment in our company is extremely risky. You should carefully
consider the following risks, in addition to the other information presented in
this Annual Report before deciding to purchase our securities. If any of the
following risks actually materialize, our business and prospects could be
seriously harmed, the price and value of our securities could decline and you
could lose all or part of your investment.

RISKS RELATING TO OUR BUSINESS

BECAUSE WE DEPEND ON A SMALL NUMBER OF KEY CUSTOMERS, OUR BUSINESS COULD BE
ADVERSELY AFFECTED IF WE FAIL TO RETAIN THESE CLIENTS AND/OR OBTAIN NEW CLIENTS
AT A LEVEL SUFFICIENT TO SUPPORT OUR OPERATIONS AND/OR BROADEN OUR CLIENT BASE.

         During the year ended December 31, 2005 three of our customers
accounted for approximately 66% of total revenues. During the year ended
December 31, 2004, three customers accounted collectively for approximately 69%
of total revenues. The loss of any of our largest clients could have a material
adverse effect on our business.

FOR THE YEAR ENDED DECEMBER 31, 2005 WE SUFFERED A NET LOSS AND WE MAY CONTINUE
TO INCUR LOSSES FOR THE FORESEEABLE FUTURE.

         During the fiscal year ended December 31, 2005, we had an increase in
revenues but we sustained an operating loss and cannot be sure that we will
again operate profitably in the future. During the fiscal year ended December
31, 2005, our revenues increased by $1.79 million (29.5%) from $6.06 million for
the year ended December 31, 2004 to $7.85 million for the year ended December
31, 2005. In addition, we had a net loss of $2,728,464 for the year ended
December 31, 2005, as compared to net loss of $179,866 for the year ended
December 31, 2004.

WE OUTSOURCE THE MANUFACTURING OF OUR IMAGE SCANNING PRODUCTS TO SYSCAN
TECHNOLOGY HOLDINGS LIMITED (STH), THE PARENT COMPANY OF OUR MAJORITY
SHAREHOLDER, AND IF THE OPERATIONS STH ARE INTERRUPTED OR IF OUR ORDERS EXCEED
THE MANUFACTURING CAPABILITIES OF STH, WE MAY NOT BE ABLE TO DELIVER OUR
PRODUCTS TO CUSTOMERS ON TIME.

         We currently utilize the manufacturing services of STH the parent
company of our majority stockholder to manufacture all of our current products.
STH serves as the exclusive manufacturer of all current and future image capture
products to be produced by us, although there is no written agreement between us
and STH. STH operates a single facility and if our customers place orders for
large quantities of our products, or if STH's other customers place large orders
of products, may not be able to produce our products in sufficient quantities.
In addition, if the operations of STH were halted or restricted, even
temporarily, or they are unable to fulfill large orders, we could experience
business interruption, increased costs, damage to our reputation and loss of our
customers. Although we have the right to utilize other manufacturers at any
time, identifying and qualifying a new manufacturer to replace STH as the
manufacturer of our products could take several months during which time, we
would likely lose customers and our revenues could be materially delayed and/or
reduced.


                                      -14-
<PAGE>


BECAUSE OF OUR RELATIONSHIP WITH STH, CONFLICTS OF INTEREST MAY ARISE BETWEEN US
AND STH.

         Our majority stockholder is a wholly-owned subsidiary of STH and our
Chairman of the Board and Chief Executive Officer was formerly an officer of STH
and beneficially owns approximately 5.33% of STH's outstanding capital stock. In
addition, Darwin Hu our Chairman and Chief Executive Officer serves as a
director of our majority stockholder Syscan Imaging Limited, which is
wholly-owned by STH. This could create, or appear to create, potential conflicts
of interest when members of our senior management are faced with decisions that
could have different implications for us and for STH. For example, conflicts of
interest could arise between us and STH in various areas such as fundraising,
competing for new business opportunities, and other areas. In addition, STH
serves as the exclusive manufacturer of our products. No assurance can be given
as to how potentially conflicted members of our management team will evaluate
their fiduciary duties to us and our majority stockholder, respectively, or how
such individuals will act under such circumstances. Furthermore, the appearance
of conflicts, even if such conflicts do not materialize, might adversely effect
the public's perception of us.

WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS FOR OUR COMPONENTS AND RAW MATERIALS
AND ANY INTERRUPTION IN THE AVAILABILITY OF THESE COMPONENTS AND RAW MATERIALS
USED IN OUR PRODUCT COULD REDUCE OUR REVENUES.

         We rely on a limited number of suppliers for the components and raw
materials used in our image scanning products. Although there are many suppliers
for each of our component parts and raw materials, we are dependent on a single
or limited number of suppliers for many of the significant components and raw
materials. This reliance involves a number of significant risks, including:

     -    unavailability of materials and interruptions in delivery of
          components and raw materials from our suppliers;
     -    manufacturing delays caused by such unavailability or interruptions in
          delivery; and
     -    fluctuations in the quality and the price of components and raw
          materials.

         We do not have any long-term or exclusive purchase commitments with any
of our suppliers. Our failure to maintain existing relationships with our
suppliers or to establish new relationships in the future could also negatively
affect our ability to obtain our components and raw materials used in our
products in a timely manner. If we are unable to obtain ample supply of product
from our existing suppliers or alternative sources of supply, we may be unable
to satisfy our customers' orders which could reduce our revenues and adversely
affect our relationships with our customers


                                      -15-
<PAGE>


OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL TO ADAPT TO EMERGING AND
EVOLVING MARKETS.

         The markets for our products are changing rapidly and evolving and,
therefore, the ultimate level of demand for our products is subject to
substantial uncertainty. Most of our historic revenue was generated from selling
image scanning products only. We expect that our future revenues will be
generated by the sale of image scanning and image display products. We intend to
expend significant resources towards developing our image display products. Any
significant decline in demand for image scanning and/or image display products
could materially and adversely affect our business and prospects.

IF WE SHOULD EXPERIENCE RAPID GROWTH, SUCH GROWTH COULD STRAIN OUR MANAGERIAL
AND OPERATIONAL RESOURCES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.

         Any rapid growth that we may experience would most likely place a
significant strain on our managerial and operational resources. If we continue
to acquire other companies, we will be required to manage multiple relationships
with various clients, strategic partners and other third parties. Further growth
(organic or by acquisition) or an increase in the number of strategic
relationships may increase this strain on existing managerial and operational
resources, inhibiting our ability to achieve the rapid execution necessary to
implement our growth strategy without incurring additional corporate expenses.

WE DEPEND ON OUR MANAGEMENT. IF WE FAIL TO RETAIN KEY PERSONNEL, OUR BUSINESS
COULD BE ADVERSELY AFFECTED.

         There is intense competition for qualified personnel in the areas in
which we operate. The loss of existing personnel or the failure to recruit
additional qualified managerial, technical and sales personnel, as well as
expenses in connection with hiring and retaining personnel could adversely
affect our business. We also depend upon the performance of our executive
officers and key employees in particular, Messrs. Darwin Hu and William Hawkins.
Although we intend to enter into employment agreements with each of Messrs. Hu
and Hawkins, the loss of either of these individuals could have a material
adverse effect upon us. In addition, we have not obtained "key man" life
insurance on the lives of either Messrs. Hu or Hawkins.

         We will need to attract, train and retain more employees for
management, engineering, research and development, sales and marketing and
support positions. As noted above, competition for qualified employees,
particularly engineers and research and development personnel, continues to be
intense. Consequently, we may not be able to attract, train and retain the
personnel we need to continue to offer our products to current and future
customers in a cost effective manner, if at all.

IF WE FAIL TO RAISE CAPITAL THAT WE MAY NEED TO SUPPORT AND INCREASE OUR
OPERATIONS, OUR BUSINESS COULD BE ADVERSELY AFFECTED.

Our future capital uses and requirements will depend on numerous factors,
including:


                                      -16-
<PAGE>


     -    the extent to which our products gain market acceptance;
     -    the level of revenues from current and future products;
     -    the expansion of operations;
     -    the costs and timing of product developments and sales and marketing
          activities;
     -    the costs related to acquisitions of technology or businesses; and
     -    competitive developments.

         We may require additional capital in order to continue to support and
increase our sales and marketing efforts, continue to expand and enhance the
products we offer to current and future customers and fund potential
acquisitions. This capital may not be available on terms acceptable to us, if at
all. In addition, we may be required to spend greater-than-anticipated funds if
unforeseen difficulties arise in the course of these or other aspects of our
business. As a consequence, we will be required to raise additional capital
through public or private equity or debt financings, collaborative
relationships, bank facilities or other arrangements. We cannot assure you that
such additional capital will be available on terms acceptable to us, if at all.
Any additional equity financing is expected to be dilutive to our stockholders,
and debt financing, if available, may involve restrictive covenants and
increased interest costs. Our inability to obtain sufficient financing may
require us to delay, scale back or eliminate some or all of our expansion
programs or to limit the marketing of our products. This could have a material
and adverse effect on our business.

WE HAVE NOT PAID DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY DIVIDENDS IN THE
FUTURE, AND ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF YOUR STOCK.

         We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future and any return on investment may be limited to the value of your stock.
We plan to retain any future earnings to finance growth.

OUR MAJORITY STOCKHOLDER, SYSCAN IMAGING LIMITED, AND ITS PARENT COMPANY STH OWN
AND CONTROL A SIGNIFICANT NUMBER OF THE OUTSTANDING SHARES OF OUR COMMON STOCK
AND WILL CONTINUE TO HAVE SIGNIFICANT OWNERSHIP OF OUR VOTING SECURITIES FOR THE
FORESEEABLE FUTURE.

         Syscan Imaging Limited, our majority stockholder, and STH its parent
company, beneficially own approximately 76.3% of our outstanding common stock.
As a result, these entities will have the ability to control our affairs and
business, including the election of directors and subject to certain
limitations, approval or preclusion of fundamental corporate transactions. This
concentration of ownership of our common stock may:

     -    delay or prevent a change in the control;
     -    impede a merger, consolidation, takeover or other transaction
          involving us; or
     -    discourage a potential acquirer from making a tender offer or
          otherwise attempting to obtain control of us.


                                      -17-
<PAGE>


THE AUTHORIZATION AND ISSUANCE OF "BLANK CHECK" PREFERRED STOCK COULD HAVE AN
ANTI-TAKEOVER EFFECT DETRIMENTAL TO THE INTERESTS OF OUR STOCKHOLDERS.

         Our certificate of incorporation allows the Board of Directors to issue
preferred stock with rights and preferences set by our board without further
stockholder approval. The issuance of shares of this "blank check preferred"
under particular circumstances could have an anti-takeover effect. For example,
in the event of a hostile takeover attempt, it may be possible for management
and the board to endeavor to impede the attempt by issuing shares of blank check
preferred, thereby diluting or impairing the voting power of the other
outstanding shares of common stock and increasing the potential costs to acquire
control of us. Our Board of Directors has the right to issue blank check
preferred without first offering them to holders of our common stock, as the
holders of our common stock have no preemptive rights.

WE MAY NOT BE ABLE TO COMPLY WITH THE SARBANES-OXLEY ACT.

         The enactment of the Sarbanes-Oxley Act in July 2002 created a
significant number of new corporate governance requirements and additional
requirements may be enacted in the future. Although we expect to implement the
requisite changes to become compliant with existing and new requirements when
they do apply to us, we may not be able to do so, or to do so in a timely
manner.

RISKS RELATED TO OUR INTELLECTUAL PROPERTY AND TECHNOLOGY

UNAUTHORIZED USE OF OUR PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY WILL
ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.

         Our success and competitive position depend in large part on our
ability to obtain and maintain intellectual property rights protecting our
products. We currently and may in the future rely on a combination of patents,
copyrights, trademarks, service marks, trade secrets, confidentiality provisions
and licensing arrangements to establish and protect our intellectual property
and proprietary rights. Unauthorized parties may attempt to copy aspects of our
products or to obtain, license, sell or otherwise use information that we regard
as proprietary. Policing unauthorized use of our products is difficult and we
may not be able to protect our technology from unauthorized use. Additionally,
our competitors may independently develop technologies that are substantially
the same or superior to ours and that do not infringe our rights. In these
cases, we would be unable to prevent our competitors from selling or licensing
these similar or superior technologies. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as the laws
of the United States.

         Third parties have claimed and may claim in the future that we are
infringing their intellectual property, and we could be exposed to significant
litigation or licensing expenses or be prevented from selling our products if
such claims are successful. From time to time, we are subject to claims that we
or our customers may be infringing or contributing to the infringement of the
intellectual property rights of others. We may be unaware of intellectual
property rights of others that may cover some of our technologies and products.
If it appears necessary or desirable, we may seek licenses for these


                                      -18-
<PAGE>

intellectual property rights. However, we may not be able to obtain licenses
from some or all claimants, the terms of any offered licenses may not be
acceptable to us, and we may not be able to resolve disputes without litigation.
Any litigation regarding intellectual property could be costly and
time-consuming and could divert the attention of our management and key
personnel from our business operations. In the event of a claim of intellectual
property infringement, we may be required to enter into costly royalty or
license agreements. Third parties claiming intellectual property infringement
may be able to obtain injunctive or other equitable relief that could
effectively block our ability to develop and sell our products.

THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE AND RAPIDLY CHANGING, AND
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY.

         There are a number of companies that develop or may develop products
that compete in our targeted markets; however, currently there is no single
company that competes with us in all of our product areas. The individual
markets in which we compete are highly competitive, and are subject to rapid
technological change. Within image capture, we compete directly with Plustek,
Mustek and Silitek. Within Image Display, we will compete with Sony, Samsung,
Sharp, Sanyo and Phillips. In image scanning, we compete with numerous
companies, some of which are our private label partners. In addition, a number
of smaller companies in both image scanning and image display technologies are
in some markets competitive with our solutions. Current and potential
competitors have established, or may establish, cooperative relationships among
themselves or with third parties to increase the ability of their technologies
to address the needs of our prospective customers. Most of our competitors in
each of the markets in which we compete have significantly greater financial,
technical and marketing resources than us. These competitors may be able to
respond more rapidly than we can to new or emerging technologies or changes in
customer requirements. They may also devote greater resources to the
development, promotion and sale of products than we do.

         The market for image scanning and image display products is rapidly
evolving. Significant technological changes could render our products obsolete.
We must adapt to this rapidly changing market by continually improving the
functionality and features of our products to meet clients' needs. If we are
unable to develop new products and enhance functionalities or technologies to
adapt to these changes in a cost-effective and timely manner, our business could
be materially and adversely affected.

RISKS RELATING TO ACQUISITIONS

ANY ACQUISITIONS WE MAKE COULD RESULT IN DILUTION TO OUR EXISTING SHAREHOLDERS
AND COULD BE DIFFICULT TO INTEGRATE WHICH COULD CAUSE DIFFICULTIES IN MANAGING
OUR BUSINESS, RESULTING IN A DECREASE THE VALUE OF YOUR INVESTMENT.

        We believe that we will need to make strategic acquisitions of other
businesses in order to achieve growth and profitability. Evaluating acquisition
targets is difficult and acquiring other businesses involves risk. Our
consummation of the acquisition of other businesses would subject us to a number
of risks, including the following:


                                      -19-
<PAGE>


     -    difficulty in integrating the acquired operations and retaining
          acquired personnel;
     -    limitations on our ability to retain acquired sales and distribution
          channels and customers;
     -    diversion of management's attention and disruption of our ongoing
          business; and
     -    limitations on our ability to incorporate acquired technology and
          rights into our product offerings and maintain uniform standards,
          controls, procedures and policies.

         Furthermore, we may incur indebtedness or issue equity securities to
pay for future acquisitions. The issuance of equity or convertible debt
securities would be dilutive to our then existing shareholders.

RISKS RELATING TO OUR COMMON STOCK

IN THE EVENT THE SEC REVIEWS OUR FORM 10-KSB AND CONSOLIDATED FINANCIAL
STATEMENTS INCLUDED THEREIN, IT MAY BE DETERMINED THAT INFORMATION DISCLOSED
THEREIN MUST BE AMENDED.

             The SEC has not in the past reviewed our annual or quarterly
financial statements. In the event that the SEC determines to review our
financial statements the SEC Staff may determine that information contained
therein must be modified, removed or amended, in whole or in part, including but
not limited to, certain accounting issues and treatments, which could result in
the restatement and/or adjustment of our financial statements for the years
ended December 31, 2005 and December 31, 2004. In the event we are required to
make any such modifications, removals or amendments, including but not limited
to, accounting adjustments, reclassifications and/or write-downs of a material
amount of our assets, we may be in violation of certain financial covenants
under our credit facility, our results of operations for the restated periods
could be materially adversely affected and our financial condition could be
adversely affected.

THE LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE POSSIBLE VOLATILITY
IN OUR STOCK PRICE.

         There has only been a limited public market for our securities and
there can be no assurance that an active trading market in our securities will
be maintained. The Over The Counter Bulletin Board (OTCBB) is an unorganized,
inter-dealer, over-the-counter market which provides significantly less
liquidity than NASDAQ and the national securities exchange, and quotes for
securities quoted on the OTCBB are not listed in the financial sections of
newspapers as are those for NASDAQ and the national securities exchange. In
addition, the overall market for securities in recent years has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many smaller companies. The trading price of our common stock is
expected to be subject to significant fluctuations including, but not limited
to, the following:


                                      -20-
<PAGE>


     -    quarterly variations in operating results and achievement of key
          business metrics;
     -    changes in earnings estimates by securities analysts, if any;
     -    any differences between reported results and securities analysts'
          published or unpublished expectations;
     -    announcements of new products by us or our competitors;
     -    market reaction to any acquisitions, joint ventures or strategic
          investments announced by us or our competitors;
     -    demand for our products;
     -    shares being sold pursuant to Rule 144 or upon exercise of warrants
          and options or conversion of Series A Preferred Stock; and
     -    general economic or stock market conditions unrelated to our operating
          performance.

         These fluctuations, as well as general economic and market conditions,
may have a material or adverse effect on the market price of our common stock.

THERE ARE LIMITATIONS IN CONNECTION WITH THE AVAILABILITY OF QUOTES AND ORDER
INFORMATION ON THE OTCBB.

         Trades and quotations on the OTCBB involve a manual process and the
market information for such securities cannot be guaranteed. In addition, quote
information, or even firm quotes, may not be available. The manual execution
process may delay order processing and intervening price fluctuations may result
in the failure of a limit order to execute or the execution of a market order at
a significantly different price. Execution of trades, execution reporting and
the delivery of legal trade confirmation may be delayed significantly.
Consequently, one may not able to sell shares of our common stock at the optimum
trading prices.

THERE ARE DELAYS IN ORDER COMMUNICATION ON THE OTCBB.

         Electronic processing of orders is not available for securities traded
on the OTCBB and high order volume and communication risks may prevent or delay
the execution of one's OTCBB trading orders. This lack of automated order
processing may affect the timeliness of order execution reporting and the
availability of firm quotes for shares of our common stock. Heavy market volume
may lead to a delay in the processing of OTCBB security orders for shares of our
common stock, due to the manual nature of the market. Consequently, one may not
able to sell shares of our common stock at the optimum trading prices.

PENNY STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF OUR
SECURITIES.

         The SEC has adopted regulations which generally define a "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. As a result, our shares of common stock are subject to rules
that impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established clients and "accredited
investors". For transactions covered by these rules, the broker-dealer must make
a special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the


                                      -21-
<PAGE>

purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the SEC relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our shares of common stock and
may affect the ability of investors to sell such shares of common stock in the
secondary market and the price at which such investors can sell any of such
shares.

         Investors should be aware that, according to the SEC, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include:

     -    control of the market for the security by one or a few broker-dealers
          that are often related to the promoter or issuer;
     -    manipulation of prices through prearranged matching of purchases and
          sales and false and misleading press releases;
     -    "boiler room" practices involving high pressure sales tactics and
          unrealistic price projections by inexperienced sales persons;
     -    excessive and undisclosed bid-ask differentials and markups by selling
          broker-dealers; and
     -    the wholesale dumping of the same securities by promoters and
          broker-dealers after prices have been manipulated to a desired level,
          along with the inevitable collapse of those prices with consequent
          investor losses.

         Our management is aware of the abuses that have occurred historically
in the penny stock market.

THERE IS A RISK OF MARKET FRAUD.

         OTCBB securities are frequent targets of fraud or market manipulation.
Not only because of their generally low price, but also because the OTCBB
reporting requirements for these securities are less stringent than for listed
or NASDAQ traded securities, and no exchange requirements are imposed. Dealers
may dominate the market and set prices that are not based on competitive forces.
Individuals or groups may create fraudulent markets and control the sudden,
sharp increase of price and trading volume and the equally sudden collapse of
the market price for shares of our common stock.

THERE IS LIMITED LIQUIDITY ON THE OTCBB.

         When fewer shares of a security are being traded on the OTCBB,
volatility of prices may increase and price movement may outpace the ability to
deliver accurate quote information. Due to lower trading volumes in shares of
our common stock, there may be a lower likelihood of one's orders for shares of
our common stock being executed, and current prices may differ significantly
from the price one was quoted by the OTCBB at the time of one's order entry.


                                      -22-
<PAGE>


THERE IS A LIMITATION IN CONNECTION WITH THE EDITING AND CANCELING OF ORDERS ON
THE OTCBB.

         Orders for OTCBB securities may be canceled or edited like orders for
other securities. All requests to change or cancel an order must be submitted
to, received and processed by the OTCBB. Due to the manual order processing
involved in handling OTCBB trades, order processing and reporting may be
delayed, and one may not be able to cancel or edit one's order. Consequently,
one may not able to sell shares of our common stock at the optimum trading
prices.

INCREASED DEALER COMPENSATION COULD ADVERSELY AFFECT THE STOCK PRICE.

         The dealer's spread (the difference between the bid and ask prices) may
be large and may result in substantial losses to the seller of shares of our
common stock on the OTCBB if the stock must be sold immediately. Further,
purchasers of shares of our common stock may incur an immediate "paper" loss due
to the price spread. Moreover, dealers trading on the OTCBB may not have a bid
price for shares of our common stock on the OTCBB. Due to the foregoing, demand
for shares of our common stock on the OTCBB may be decreased or eliminated.

ADDITIONAL AUTHORIZED SHARES OF OUR COMMON STOCK AND PREFERRED STOCK AVAILABLE
FOR ISSUANCE MAY ADVERSELY AFFECT THE MARKET.

         We are authorized to issue 50,000,000 shares of our common stock. As of
April 10, 2006, there were 24,601,096 shares of common stock issued and
outstanding. However, the total number of shares of our common stock issued and
outstanding does not include shares reserved in anticipation of the exercise of
options or warrants or the conversion of our Series A Preferred Stock. As of
March 15, 2006, we had outstanding Series A Preferred Stock, stock options and
warrants to purchase approximately 9,985,919 shares of our common stock, the
exercise or conversion prices of which range between $0.01 and $2.50 per share,
and we have reserved shares of our common stock for issuance in connection with
the potential exercise thereof. Of the reserved shares, a total of 1,810,000
shares are currently reserved for issuance in connection with our 2002 Stock
Option Plan, of which options to purchase an aggregate of 1,810,000 shares have
been issued under the plan. A significant number of such options and warrants
contain provisions for cashless exercise. To the extent such options or warrants
are exercised, the holders of our common stock will experience further dilution.
In addition, in the event that any future financing should be in the form of, be
convertible into or exchangeable for, equity securities, and upon the exercise
of options and warrants, investors may experience additional dilution.

         The exercise of the outstanding derivative securities will reduce the
percentage of common stock held by our stockholders. Further, the terms on which
we could obtain additional capital during the life of the derivative securities
may be adversely affected, and it should be expected that the holders of the
derivative securities would exercise them at a time when we would be able to
obtain equity capital on terms more favorable than those provided for by such
derivative securities. As a result, any issuance of additional shares of common
stock may cause our current stockholders to suffer significant dilution which
may adversely affect the market.


                                      -23-
<PAGE>


         In addition to the above-referenced shares of common stock which may be
issued without stockholder approval, we have 2,000,000 shares of authorized
preferred stock, the terms of which may be fixed by our Board of Directors. We
currently have 60,000 shares of Series A Preferred Stock authorized, 16,150 of
which are issued and outstanding. While we have no present plans to issue any
shares of preferred stock other than the Series A Preferred Stock, our Board of
Directors has the authority, without stockholder approval, to create and issue
one or more series of such preferred stock and to determine the voting, dividend
and other rights of holders of such preferred stock. The issuance of any of such
series of preferred stock may have an adverse effect on the holders of common
stock.

SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.

         From time to time, certain of our stockholders may be eligible to sell
all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the
Securities Act of 1933 (Securities Act), subject to certain limitations. In
general, pursuant to Rule 144, a stockholder (or stockholders whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock
or the average weekly trading volume of the class during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of securities, without any limitation, by our stockholders that are
non-affiliates that have satisfied a two-year holding period. Any substantial
sale of our common stock pursuant to Rule 144 or pursuant to any resale
prospectus may have material adverse effect on the market price of our
securities.

DIRECTOR AND OFFICER LIABILITY IS LIMITED.

         As permitted by Delaware law, our certificate of incorporation limits
the liability of our directors for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of our
charter provision and Delaware law, stockholders may have limited rights to
recover against directors for breach of fiduciary duty. In addition, our
certificate of incorporation provides that we shall indemnify our directors and
officers to the fullest extent permitted by law.

ITEM 2.     PROPERTIES

         Our corporate headquarters are located at 1772 Technology Drive, San
Jose, CA 95110, where we operate under a lease agreement expiring in March 2008.
Our offices contain 6,800 square feet of office space and our monthly rental
expense is approximately $10,000. We also maintain a sales office in the
Netherlands at IJsselburcht 3, Lorentz Building, Suite 201, 6825 BS Arnhem,
Netherlands. The lease is on a month-to-month basis at a monthly rate of $480.

         We believe that our current facilities are adequate for our current
operations.


                                      -24-
<PAGE>


ITEM 3.     LEGAL PROCEEDINGS

         Syscan, Inc., the Company's wholly-owned subsidiary, filed a lawsuit
captioned Syscan v. PPL (Case No. C03-02367 VRW) in United States District
Court, Northern District of California in San Francisco. Syscan alleges claims
against Portable Peripheral Co., Ltd., Image Recognition Integrated Systems,
Inc., Cardreader Inc., and Targus, Inc. for patent infringement. Syscan is
claiming that its various A-6 and A-8 mobile scanners sold by defendants in US
have infringed upon its patents including US Patent Nos. 6,054,707 (Portable
Scanners Capable of Scanning both Opaque and Transparent Materials), 6,275,309
(Lightweight Mobile Scanners) and 6,459,506 Lightweight Dual-mode Mobile Scanner
Powered from a Universal Serial Bus Port). Syscan is seeking: (1) a temporary
restraining order, preliminary injunction and permanent injunction against
defendants, restraining defendants from patent infringement and unfair
competition; (2) treble damages due to defendants' willful infringement; (3)
punitive damages; (4) accounting of unjust enrichment by defendants, resulting
from defendants' unfair competition; and (5) attorney's fees and costs.

            The defendants are jointly represented by PPL's counsel. PPL has
initiated counterclaims against Syscan for patent invalidity. This case is
currently pending for claim construction. Syscan intends to continue this case
unless a reasonable settlement amount from defendants or a licensing agreement
to the satisfaction of Syscan is entered. Syscan has not yet been able to
quantify its damage claim against PPL. Syscan intends to vigorously pursue this
claim and denies PPL's counterclaim of patent invalidity.

           Syscan is suing the aforesaid defendants for patent infringement.
Specifically, Syscan is claiming that its various A-6 and A-8 mobile scanners
sold by defendants in the US have infringed upon Syscan's US Patent No.
#6,054,707 (Portable Scanners Capable of Scanning both Opaque and Transparent
Materials), #6,275,309 (Lightweight Mobile Scanners), and #6,459,506
(Lightweight Dual-mode Mobile Scanner Powered from a Universal Serial Bus Port).
The complaint was filed on May 20, 2003, and claim construction was heard on
October 14, 2005. The court rendered a claim construction order on March 27,
2006, and Syscan has filed a motion for reconsideration for certain claim terms
construction that are believed to be erroneous. The motion has been set for
hearing and oral argument on June 29, 2006.

           Syscan expects to continue this case unless a reasonable settlement
from the defendants is offered or a licensing agreement to the satisfaction of
Syscan is entered.

            Other than as disclosed above, we are not a party to any material
legal proceedings. We from time to time experience routine litigation in the
normal course of our business. We do not believe that any pending litigation
will have a material adverse effect on our financial condition, results of
operations or cash flows.


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

         No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year ended December 31, 2005.


                                      -25-
<PAGE>



                                     PART II

ITEM 5.     MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
            BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

         Market Information. Our common stock has been listed and quoted on the
OTC Bulletin Board since December 1998. From January 1, 2003 through April 1,
2004 our common stock traded under the symbol "BKET" and since April 2, 2004
under the symbol "SYII". All prices reflected herein have been adjusted to
reflect the 1-for-10 reverse split of our common stock that was effected on
April 2, 2004.

         The following chart sets forth the high and low bid prices for each
quarter during the fiscal years ended December 31, 2004 and 2005, respectively.
Such prices represent quotations between dealers, without dealer markup,
markdown or commissions, and may not represent actual transactions.

                                                  HIGH              LOW
                                                  ----              ---

                 2004 BY QUARTER
                 January 1 - March 31            $   4.20        $   0.70
                 April 1 - June 30               $   4.75        $   1.10
                 July 1 - September 30           $   4.26        $   1.40
                 October 1 - December 31         $   4.10        $   2.05

                 2005 BY QUARTER
                 January 1 - March 31            $   3.25        $   1.20
                 April 1 - June 30               $   1.30        $   0.53
                 July 1 - September 30           $   1.15        $   0.30
                 October 1 - December 31         $   0.98        $   0.35


         On April 10, 2006, the closing sale price for shares of our common
stock in the over-the-counter market, as reported by NASD's OTCBB was $0.65.

         No prediction can be made as to the effect, if any, that future sales
of shares of our common stock or the availability of our common stock for future
sale will have on the market price of our common stock prevailing from
time-to-time. Sales of substantial amounts of our common stock in the public
market could adversely affect the prevailing market price of our common stock.

RECORD HOLDERS. As of April 10, 2006, there were 359 record holders of our
common stock. As of April 10, 2006, there were 24,601,096 shares of common stock
issued and outstanding.


                                      -26-
<PAGE>


DIVIDENDS. We have not paid dividends on our common stock in the past and do not
anticipate doing so in the foreseeable future. We currently intend to retain
future earnings, if any, to fund the development and growth of our business. The
holders of our Series A Preferred Stock are entitled to receive dividends at a
rate of 5% per annum, payable in cash or shares of our common stock, on a
cumulative basis.

<TABLE>
<CAPTION>

                      EQUITY COMPENSATION PLAN INFORMATION
----------------------------------------------- --------------------- --------------------- ------------------------
                                                     Number of          Weighted average     Number of securities
                                                  securities to be     exercise price of      remaining available
                                                    issued upon           outstanding         for future issuance
                                                    exercise of        options, warrants         under equity
                                                    outstanding            and rights         compensation plans
                                                 options, warrants                           (excluding securities
                                                     and rights                               reflected in column
                                                        (a)                    (b)               (a))   (c)
----------------------------------------------- --------------------- --------------------- ------------------------
<S>                                                    <C>                   <C>                    <C>
Equity compensation plans approved                     200,000               $2.00                 -0-
by security holders
----------------------------------------------- --------------------- --------------------- ------------------------
Equity compensation plans not                         7,129,000             $0.857                990,000
approved by security holders
----------------------------------------------- --------------------- --------------------- ------------------------
         Total                                        7,329,000             $0.888                990,000
----------------------------------------------- --------------------- --------------------- ------------------------
</TABLE>



SALES OF UNREGISTERED SECURITIES

         Set forth below is information regarding the issuance and sales of our
securities without registration during the last three years. No such sales
involved the use of an underwriter and no commissions were paid in connection
with the sale of any securities. Except as otherwise noted, all sales below were
made in reliance on Section 4(2) of the Securities Act.

         On October 24, 2005, we issued an aggregate of 500,000 shares of our
common stock to the former shareholders of Nanodisplay, Inc., a California
corporation, in connection with an Agreement and Plan of Merger and
Reorganization by and among us, Nano Acquisition Corp. (our wholly-owned
subsidiary), Nanodisplay, Inc. and the shareholders of Nanodisplay, Inc.,
pursuant to which we acquired all of the issued and outstanding capital stock of
Nanodisplay, Inc.


ISSUER REPURCHASES OF EQUITY SECURITIES

None.


                                      -27-
<PAGE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this annual report. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those which are not within our control.

 Management's discussion and analysis of financial condition and results of
operations ("MD&A") is provided as a supplement to the accompanying consolidated
financial statements and footnotes to help provide an understanding of Syscan
Imaging, Inc.'s (the "Company") financial condition, changes in financial
condition and results of operations. The MD&A is organized as follows:

     o    Overview. This section provides a general description of the Company's
          business, as well as recent developments that we believe are important
          in understanding the results of operations and to anticipate future
          trends in those operations.
     o    Critical accounting policies. This section provides an analysis of the
          significant estimates and judgments that affect the reported amounts
          of assets, liabilities, revenues and expenses, and related disclosure
          of contingent assets and liabilities.
     o    Results of operations. This section provides an analysis of our
          results of operations for the years ended December 31, 2005 compared
          to the same periods in 2004. A brief description is provided of
          transactions and events, including related party transactions that
          impact the comparability of the results being analyzed.
     o    Liquidity and capital resources. This section provides an analysis of
          our financial condition and cash flows as of and for the year ended
          December 31, 2005.

The following management's discussion and analysis should be read in conjunction
with our consolidated audited financial statements for the fiscal years ended
December 31, 2005 and 2004 and related notes to those financial statements.

OVERVIEW

Management's Discussion and Analysis (MD&A) contains statements that are
forward-looking. These statements are based on current expectations and
assumptions that are subject to risks and uncertainties. Actual results could
differ materially because of factors discussed in this report, as well as
factors not within our control. We undertake no duty to update any
forward-looking statement to conform the statement to actual results or changes
in our expectations.

We are in the business of developing, designing and delivering imaging
technology solutions. We currently have 14 issued patents held by us, all of
which are U.S. patents. Our technology is also covered by 5 issued patents in
Taiwan. We also have 5 patent applications currently pending with the US Patent
& Trademark Office, 3 of which relate to image display technology and 2 of which


                                      -28-
<PAGE>

relate to image scanning. Our approach to research and development (R&D) is
focused on creating new deliverable and marketable technologies. We sell our
products to clients throughout the world, including the United States, Canada,
Europe, South America, Australia and Asia. We intend to expand our business and
product offerings into the much larger image display market where we intend to
leverage our experience and expertise. We also believe that we may benefit from
a level of transfer of technologies from image capture to image display.

Our wholly-owned operating subsidiary, Syscan, Inc. ("SI"), was incorporated on
May 1, 1995, under the laws of the State of California and is headquartered in
San Jose with additional strategic offices in Arnhem (the Netherlands) and Hong
Kong. Our majority stockholder is Syscan Imaging Limited, which is wholly-owned
by Syscan Technology Holdings Limited. Syscan Technology Holdings Limited is a
publicly-held company incorporated in Bermuda whose shares are listed on The
Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.

Our strategy is to expand our image capture product line and technology while
leveraging our assets in other areas of the imaging industry. We are actively
shipping six categories of image capture products under several "house brands"
or their OEM counterparts versus five categories in 2004. The introduction of
the A4 duplex scanners (DocketPORT) in the third quarter created a broader base
of products. This new category quickly contributed over 7% of unit sales in
2005, despite its mid-year introduction. The A4 simplex scanner (TravelScan)
category represented approximately 19% of our sales during the year ended
December 31, 2005, a decrease from 2004 (21%) of approximately 2%. The A6
simplex scanners that are widely used for capturing images of bank checks,
drivers licenses and various identification cards, represented the largest unit
sales in 2005 at 54%. This represented an increase of 8.1% over 2004 unit sales.
The A5 security document scanner experienced a 3% increase in unit sales in 2005
to 3% from less than 1% in 2004. Our fifth scanner product category,
representing approximately 15% of our sales ending the 12 months ended December
31, 2005, is the A8 business card reader scanner. In 2004 the A8 scanner
category represented approximately 21% of our sales, so we experienced a net
reduction in this category of 6%.

In addition to the finished scanner product line, we also design, configure and
sell the Contact Image Sensor (CIS) Modules that we use in our products
separately as an OEM component to manufacturers. This CIS business represented
approximately 5% of our overall sales during 2005, a decrease of 5% from the
previous year (2004 - 10%).

We intend to expand our image capture product line with 7 new products in 2006.
These new products are being introduced as both Syscan branded and OEM/ VAR
branded products launch. Many of these new scanners are being driven by
increased market demand for faster and easier-to-use products. They will also
concentrate more on the identity-security and financial transaction market
needs.

Over the past twelve months we have begun focusing our sales and marketing
efforts substantially towards the vertical markets such as the Value Added
Reseller (VAR) and small-office-home-office (SOHO) markets. We believe focusing
on these markets is the most effective way to showcase our technological
capabilities and manufacturing efficiencies, while enabling us to maintain
higher margins, and require fewer resources than working directly with the mass
retailers.


                                      -29-
<PAGE>


While we continue to grow our presence in image capture technology, we have
begun creating, through acquisition and research and development, new technology
solutions for the substantially larger, image display market. More specifically
we are creating products and technologies to accent and enhance the HDTV
television market. Our first image display product is expected to be available
for delivery during the first quarter of 2007. We believe that these HDTV
products will provide advanced image quality at a highly competitive price
point, creating a value point product.

In addition to future products and technologies in various stages of research
and development, one of our objectives is to acquire companies in the image
capture and display industry that could compliment our business model, improve
our competitive positioning and expand our offerings to the marketplace, all of
which there can be no assurance. In identifying potential acquisition candidates
we will seek to acquire companies with varied distribution channels, rich
intellectual property (IP) and high caliber engineering personnel.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to revenue recognition, accounts receivable and
allowance for doubtful accounts, inventories, intangible and long-lived assets,
and income taxes. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which 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.

An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used or changes in the accounting estimate that are reasonably
likely to occur could materially change the financial statements. We believe the
following critical accounting policies reflect our more significant estimates
and assumptions used in the preparation of our consolidated financial
statements:

REVENUE RECOGNITION

         Revenues consist of sales of merchandise, including optical image
capturing devices, modules of optical image capturing devices, and chips and
other optoelectronic products. Revenue is recognized when the product is shipped
and the risks and rewards of ownership have transferred to the customer. We
recognize shipping and handling fees as revenue, and the related expenses as a
component of cost of sales. All internal handling charges are charged to
selling, general and administrative expenses.


                                      -30-
<PAGE>


ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

         We present accounts receivable, net of allowances for doubtful
accounts, to ensure accounts receivable are not overstated due to
un-collectibility. The allowances are calculated based on detailed review of
certain individual customer accounts, historical rates and an estimation of the
overall economic conditions affecting our customer base. We review a customer's
credit history before extending credit. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. In the event that our
trade receivables became uncollectible after exhausting all available means of
collection, we would be forced to record additional adjustments to receivables
to reflect the amounts at net realizable value. The effect of this entry would
be a charge to income, thereby reducing our net profit. Although we consider the
likelihood of this occurrence to be remote based on past history and the current
status of our accounts, there is a possibility of this occurrence.

INVENTORIES

             Inventories consist of finished goods, which are stated at the
lower of cost or net realizable value, with cost computed on a first in,
first-out basis. Provision is made for obsolete, slow-moving or defective items
where appropriate. The amount of any provision of inventories is recognized as
an expense in the period the provision occurs. The amount of any reversal of any
provision is recognized as other income in the period the reversal occurs. Our
inventory purchases and commitments are made in order to build inventory to meet
future shipment schedules based on forecasted demand for our products. We
perform a detailed assessment of inventory for each period, which includes a
review of, among other factors, demand requirements, product life cycle and
development plans, component cost trends, product pricing and quality issues.
Based on this analysis, we record adjustments to inventory for excess,
obsolescence or impairment, when appropriate, to reflect inventory at net
realizable value. Revisions to our inventory adjustments may be required if
actual demand, component costs or product life cycles differ from our estimates.
In the event we were unable to sell our products, the demand for our products
diminished, other competitors offered similar or better technology, and/or the
product life cycles deteriorated causing quality issues, we would be forced to
record an adjustment to inventory for impairment or obsolescence to reflect
inventory at net realizable value. The effect of this entry would be a charge to
income, thereby reducing our net profit. Although we consider the likelihood of
this occurrence to be remote based on our forecasted demand for our products,
there is a possibility of this occurrence.


                                      -31-
<PAGE>


INTANGIBLE AND LONG-LIVED ASSETS

         We evaluate our intangible assets and long-lived assets, which
represent goodwill, long-term investments, and fixed assets, for impairment
annually and when circumstances indicate the carrying value of an asset may not
be recoverable. If impairment exists, an adjustment is made to write the asset
down to its fair value, and a loss is recorded as the difference between the
carrying value and fair value would be charged to operations. We do not believe
any impairment exists for any of these types of assets as of December 31, 2005.
INCOME TAXES

         The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards ("SFAS" No. 109), "Accounting for Income
Taxes," whereby deferred income tax assets and liabilities are computed for
differences between the financial statements and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred income tax assets to the amount
expected to be realized.

CONTINGENCIES

         Currently, there are no outstanding legal proceedings or claims, other
than that disclosed in Note 7 of the Consolidated Financial Statements. The
outcomes of potential legal proceedings and claims brought against us are
subject to significant uncertainty. SFAS 5, Accounting for Contingencies,
requires that an estimated loss from a loss contingency such as a legal
proceeding or claim should be accrued by a charge to income if it is probable
that an asset has been impaired or a liability has been incurred and the amount
of the loss can be reasonably estimated. Disclosure of a contingency is required
if there is at least a reasonable possibility that a loss has been incurred. In
determining whether a loss should be accrued we evaluate, among other factors,
the degree of probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of loss. Changes in these factors could
materially impact our financial position or results of operations.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY

The Company accounts for its 5% Series A Convertible Preferred Stock pursuant to
SFAS 133 and EITF Abstract No. 00-19. Accordingly, the embedded conversion
feature associated with the 5% Convertible Preferred Stock and the warrants
issued to the 5% Convertible Preferred Stock purchasers have been determined to
be derivative instruments. The fair value of these derivative instruments has
been recorded as a liability on the consolidated balance sheet with the
corresponding amount recorded as a discount to the 5% Convertible Preferred
Stock. Such discount is being accreted from the date of issuance to the
redemption date of the 5% Convertible Preferred Stock. The change in the fair
value of the liability for derivative contracts is calculated at each balance
sheet date and the change is credited to other income/(expense) in the
consolidated statements of operations.


                                      -32-
<PAGE>


The 5% Convertible Preferred Stock is Mandatorily Redeemable Preferred Stock as
defined by SFAS 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", and would also qualify as
"Preferred Stocks Subject to Mandatory Redemption Requirements or Whose
Redemption is Outside the Control of the Issuer" as defined by Accounting Series
Release ("ASR") No. 268 - "Redeemable Preferred Stocks". The conversion feature
associated with the 5% Convertible Preferred Stock is not a non-substantive or
minimal feature and therefore the provisions of ASR No. 268 have been applied in
classifying the 5% Convertible Preferred Stock separate from stockholders'
equity.


RESULTS OF OPERATIONS - Twelve months ended December 31, 2005 compared to
December 31, 2004

REVENUE

During the fiscal year ended December 31, 2005, our revenues increased by $1.79
million (29.5%) from $6.06 million for the year ended December 31, 2004 to $7.85
million for the year ended December 31, 2005.

Scanner products and imaging modules comprised approximately 99% of our revenues
during each of these periods. Our revenue mix has been gradually trending
towards the Value Added Reseller (VAR) and small office home office (SOHO)
markets, which is a result of our efforts to appeal to customers in these sales
channels. During the year ended December 31, 2005 four of our customers
accounted for approximately 79% of total revenues. During the year ended
December 31, 2004, these same four customers accounted collectively for
approximately 78% of total revenues. The loss of any of our largest clients
could have a material adverse effect on our business.

COST OF SALES

         Cost of goods sold (COGS) includes all direct costs related to the
transfer of scanners, imaging modules and services related to the delivery of
those items manufactured in China. A relatively small percentage (< 2%) of COGS
is due to engineering services and (< 6%) of COGS is due to software royalties
paid by us. COGS was approximately 63.6% for the year ended December 31, 2005
compared to 68.8% for the same period in 2004. COGS decreased as a percentage of
revenues for the year ended December 31, 2005 as compared to the same period in
2004 primarily as a result of greater gross margins and better pricing
elasticity than projected. We anticipate that our COGS may remain at the current
level during 2006 as a result of "flat" unit sales prices and stable material
costs.

GROSS PROFIT

         Gross profit increased to $2,859,389 or 31.2% of net revenues for the
year ended December 31, 2005 from $1,890,681 or 51.2% of net revenues for the
same period in 2004. This increase in gross profit is primarily a result of
increased revenue and increased margins realized with our new products. We
anticipate that our gross profit margins may continue to increase during 2006,
as we discontinue older and less-profitable products.


                                      -33-
<PAGE>


SELLING AND MARKETING

         Selling and marketing expenses include payroll, employee benefits and
other costs associated with sales, marketing and account management personnel.
Other direct selling and marketing costs include market development funds and
promotions (retail channels only), tradeshows, website support costs,
warehousing, logistics and certain sales representative fees. Selling and
marketing expenses increased to $951,990 for the year ended December 31, 2005
from $745,557 for the same period in 2004, an increase of $206,433 or
approximately 27.7%. The increase during the year ended December 31, 2005 is
primarily attributable to changes in staffing and marketing activities related
to the display imaging group and the addition of direct sales personnel in
Europe and Asia.

GENERAL AND ADMINISTRATIVE

         General and administrative costs include accounting, legal,
administrative personnel and other headcount-related costs associated with the
facilities and certain human resources, as well as other professional and
administrative fees. General and administrative expenses increased to $1,511,252
for the year ended December 31, 2005 from $824,286 for the same period in fiscal
2004, an increase of $686,966 or approximately 83.3%. The increase for the year
ended December 31, 2005 is primarily attributable to the additional cost of
outside fees incurred in connection with our public listing compliance expenses
costs incurred related to our image display subsidiary.

Research and Development (R&D) costs include payroll, employee benefits, and
other headcount-related costs associated with the product design, development,
compliance testing, documentation and transition to production. R&D expenses
increased to $866,102 for the year ended December 31, 2005 from $528,417 for the
same period in fiscal 2004, an increase of $337,685 or approximately 64%. This
significant increase for the year ended December 31, 2005 is primarily
attributable to engineering staff and expenditures for the image display
products. We believe that this investment is necessary to establish a strong
intellectual property (IP) position within this highly competitive market.

OTHER INCOME (EXPENSE)

         Our other income (expense) for the year ended December 31, 2005 was
($2,255,277) compared to $28,513 during the same period of 2004.

Other expense for 2005 consisted mainly of the following items:

(i) Stock-based compensation cost of $2,812,000 represents a non-cash charge to
our statement of operations as a result of granting certain options to certain
consultants, executive officers and key employees at less than the fair market
value on the date of grant.


                                      -34-
<PAGE>


(ii) Change in fair value of derivative instruments of ($1,112,005) represent
the a non-cash entry for the change in the fair value of the Company's 5% Series
A Preferred Stock (derivative instrument) from the acquisition date to December
31, 2005.

(iii) In connection with the sale of the Company's 5% Series A Convertible
Preferred Stock, the paid issuance costs of $236,500 and recorded a non-cash
charge for the fair value of 186,500 warrants issued to the placement agent for
the sale of the preferred stock. The fair value of these warrants totaled
$290,000. Total issuance costs of $526,500 were charged to other expense during
2005.

Other income in 2004 primarily consisted of the sale of certain inventory items
previously considered not-sellable.

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

         Net loss available to common stockholders for the year ended December
31, 2005 was $3,273,899 versus net loss of $179,866 during the same period in
2004. The increase in net loss was primarily the result of (i) costs incurred
and non-cash accounting entries in connection with the sale of our 5% Series A
Preferred Stock and. (ii) compensatory cost recorded for the grant of stock
options at less than fair market value.

RELATED PARTY TRANSACTIONS

         We purchase significantly all of our finished scanner imaging products
from the parent company of our majority stockholder, Syscan Technology Holdings
Limited ("STH"). Our Chairman and CEO, Darwin Hu, was formerly the CEO of STH,
and beneficially owns approximately 5.33% of the issued and outstanding capital
stock of STH. The following is a summary of significant related party
transactions, which were carried out in the normal course of the Company's
business, during the years ended December 31, 2005 and 2004:

The following is a summary of significant related party purchases from entities
that are wholly-owned subsidiaries of STH. The transactions were carried out in
the normal course of our business.

                                                    2005             2004
                                                ------------     ------------

SYSCAN Intervision Limited, a wholly-owned
subsidiary of STH (purchases)                      $4.915M           $3.825M

                                                ============    =============

SYSCAN Optoelectronics Technology
(Shenzhen) Company Limited, a wholly-owned
subsidiary of STH (purchases)                           --           $0.520M

                                                ============     ============




                                      -35-
<PAGE>








AMOUNTS DUE TO/FROM RELATED PARTIES ARE UNSECURED, INTEREST-FREE AND REPAYABLE
ON DEMAND AND CONSISTED OF THE FOLLOWING:


Due from STH                                           $      345,998

Due from Majority Stockholder
                                                              100,000

Due from various subsidiaries
  wholly-owned by STH                                       1,956,522
                                                      ----------------
                                                       $    2,402,520
                                                      ================








LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were approximately $1.4M as of December 31, 2005
compared to approximately $686K as of December 31, 2004, an increase of
approximately 104%. Working capital at December 31, 2005 was approximately $4.6M
as compared to approximately $3.7M at December 31, 2004, an increase of
approximately 24%. The increase in cash and working capital is primarily
attributable cash received in connection with the sale of our 5% Series A
Preferred stock, better cash-flow management and inventory "turn" time.

Operating Activities. Net cash flows used in operating activities was $241,394
and $382,036 for the years ended December 31, 2005 and 2004, respectively. Net
cash used in operating activities for 2005 primarily reflects net loss adjusted
by (i) non-cash accounting entries in connection with the sale of our 5% Series
A Preferred Stock, (ii) increases in inventory levels as we built up inventories
to respond to forecasted demand for our products from the prior year's fourth
quarter, and (iii) increase in sales over the prior year.

 Net cash used in operating activities for 2004 primarily reflects net loss
adjusted for a reversal of provision for slow-moving inventories by a decrease
in trade receivables resulting from cash collections and increases in inventory
levels as we built up inventories to respond to forecasted demand for our
products from the prior year's fourth quarter.

Investing Activities. Net cash flows used in investing activities for 2005
primarily consisted of cash paid for capital expenditures and the acquisition of
a subsidiary. Cash flows from investing activities in 2004 were minimal.

Financing Activities. Net cash flows provided by financing activities for 2005
primarily consisted of $1,865,000 cash received from the sale of our 5% Series A
Convertible Preferred Stock. Other cash flows from financing activities for 2005
and 200 consisted of advances / repayments under our line of credit totaling to
fund working capital and funds advanced under a letter(s) of credit for goods
shipped on account. For both periods presented, advances to and/or repayments
from related party receivables and payables were made in the ordinary course of
business.


                                      -36-
<PAGE>


We have financed our activities primarily with cash flows from operations,
borrowings under our credit facilities, and the sale of our 5% Series A
Convertible Preferred Stock. We have a $2,500,000 bank line of credit, which
bears interest at prime plus .5%, which is secured by all of our general
business assets. The subject bank line of credit had $1,486,964 available for
use as of December 31, 2005. In order to implement our growth strategy and
expansion into the image display area, additional funds will be required. Our
plans for the next twelve months include continuing to increase our presence in
the image capture market, heavily investing our resources into the image display
market and adding future products and technologies to our current product
offerings. Additionally, we intend to seek to identify acquisition candidates in
the image capture and display industry that we believe could compliment our
business model, improve our competitive positioning and expand our offerings to
the marketplace, of which there can be no assurance. In identifying potential
acquisition candidates, we will seek to acquire companies with varied
distribution channels, rich intellectual property (IP) and high caliber
engineering personnel.

To finance our business expansion plans, we plan to aggressively pursue
additional sources of funds, the form of which will vary depending on the
prevailing market and other conditions, and may include the issuance and sale of
debt or equity securities. However, there is no assurance that such additional
funds will be available for us to finance our expansion plans. Furthermore,
there is no assurance the net proceeds from any successful financing arrangement
will be sufficient to cover cash requirements as we expand our business
operations.


CONCENTRATION OF CREDIT RISK

Concentration of credit risk for cash held at banks. We maintain cash balances
at several banks. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. As of December 31, 2005, the
Company had consolidated balances of approximately $920,000, which were not
guaranteed by FDIC. The Company has not experienced any losses in such accounts
and believes the exposure is minimal.

Concentration of credit risk due to geographic sales and significant customers.
We operate in a single industry segment - scanner and fax modules. We market our
products in the United States, Europe and the Asia Pacific region through our
sales personnel and independent sales representatives.

Our geographic sales as a percent of total revenue were as follows for the years
ended December 31st :

                                         2005               2004
                                     ---------------    --------------
United States                            87%               96%
Asia Pacific                              9%                2%
Europe and others                         4%                2%




                                      -37-
<PAGE>


Sales to major customers as a percentage of total revenues were as follows for
the years ended December 31st :

                                      2005               2004
                                 ----------------    --------------
Customer A                             33%                38%
Customer B                             18%                16%
Customer C                             16%                15%
Customer D                             12%                9%






Concentration of credit risk due to accounts receivable. Financial instruments
that potentially subject us to a concentration of credit risk consist primarily
of trade receivables. Our customers are concentrated in the industrial/consumer
electronics channels and with major original equipment manufacturers. As of
December 31, 2005 and 2004, the concentration was approximately 92.5% (3
customers) and 93.8% (3 customers), respectively. The loss of any of these
customers could have a material adverse effect on our results of operations,
financial position and cash flows.

Concentration of credit risk due to significant vendors. For each of the years
ended December 31, 2005 and 2004, our purchases have primarily been concentrated
with the wholly-owned subsidiary of our majority stockholder. If this vendor was
unable to provide materials in a timely manner and we were unable to find
alternative vendors, our business, operating results and financial condition
would be materially adversely affected.

Concentration of credit risk due to product sales. We had 3 different product
categories in 2005 and 4 different products in 2004 that each accounted for more
than 10% of sales. If any of these products were to become obsolete or
unmarketable and we were unable to successfully develop and market alternative
products, our business, operating results and financial condition could be
adversely affected

   OFF-BALANCE SHEET ARRANGEMENTS

          We do not have any transactions, agreements or other contractual
arrangements that constitute off-balance sheet arrangements.

   CONTRACTUAL OBLIGATIONS

Our Contractual Obligations and Commercial Commitments are detailed below:

<TABLE>
<CAPTION>

---------------------------- ------------------------------------------------------------------------------------
                                                           Payments Due by Period

        Contractual
        Obligations
---------------------------- ------------------------------------------------------------------------------------
                                                     Less
                                                    Than 1               1-3             4 - 5         After 5
                                   Total             Year               Years            Years          Years
---------------------------- --------------- ------------------ ------------------- ------------- ---------------
<S>                            <C>               <C>                    <C>          <C>              <C>
Line / letter of credit (1)      $2,500,000       $2,500,000              --             --               --
---------------------------- --------------- ------------------ ------------------- ------------- ---------------
Operating Leases ((2))             $274,000         $139,000          $135,000           --               --
---------------------------- --------------- ------------------ ------------------- ------------- ---------------
Total Cash Contractual
Obligations
                                 $2,774,000       $2,639,000          $135,000           --               --
---------------------------- --------------- ------------------ ------------------- ------------- ---------------
</TABLE>



                                      -38-
<PAGE>

(1) LINE OF CREDIT / letter of credit - We have a line of credit to borrow up to
$2,500,000, bearing interest at the rate of prime (7.25% at December 31, 2005)
plus 0.5%, (7.25% at December 31, 2005) and secured by all of our assets.
Interest payments are due monthly and all unpaid interest and principal is due
in full on October 30, 2006. Upon certain events of defaults as more fully
described in the agreement, the default variable interest rate increases to
prime plus 5.5%. We had $1,486,964 available for use at December 31, 2005. We
issue letters of credit in the normal course of business. The total amount
available can never be more than the face amount of all advances under bank line
of credit or letters of credit outstanding.


(2) OPERATING LEASES - We are committed under various non-cancelable operating
leases which expire through November 2007. Future minimum rental commitments are
as follows: 2006-$139,000 and 2007-$135,000. Rent expense charged to operations
was approximately $131,000 for 2005 (2004: $99,000).






                                      -39-
<PAGE>


 ITEM 7.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our Consolidated Financial Statements and Notes thereto and the report
of Clancy and Co., P.L.L.C., our independent registered public accounting firm,
are set forth on pages F-1 through F-18 of this Annual Report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
NONE.

ITEM 8A - CONTROLS AND PROCEDURES

         Based on an evaluation as of the date of the end of the period covered
by this Form 10-KSB, our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as required by Exchange Act Rule 13a-15.
Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as
of the end of the period covered by this report to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified by the SEC's rules and forms.

         There were no changes in our internal controls over financial reporting
that occurred during the quarter ended December 31, 2005 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.


ITEM 8B -  OTHER INFORMATION

None.





                                      -40-
<PAGE>




                                    PART III

ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT


         The following table sets forth the names and ages of our current
directors and executive officers, the principal offices and positions with us
held by each person and the date such person became a director or executive
officer.

         Our directors and executive officers are as follows:
<TABLE>
<CAPTION>

-------------------------- ----------------------- ------- -----------------------------------------------
NAME                       YEAR FIRST ELECTED AS    AGE    POSITION(S) HELD
                           AN OFFICER OR DIRECTOR
-------------------------- ----------------------- ------- -----------------------------------------------
-------------------------- ----------------------- ------- -----------------------------------------------
<S>                                 <C>              <C>  <C>
Darwin Hu                           2004             53    President, Chief Executive Officer and
                                                           Chairman
-------------------------- ----------------------- ------- -----------------------------------------------
-------------------------- ----------------------- ------- -----------------------------------------------
William Hawkins                     2004             50    Chief Operating Officer, Acting Chief
                                                           Financial Officer and Secretary
-------------------------- ----------------------- ------- -----------------------------------------------
-------------------------- ----------------------- ------- -----------------------------------------------
David Clark                         2004             37    Senior Vice President of Business Development
                                                           and Director
-------------------------- ----------------------- ------- -----------------------------------------------
-------------------------- ----------------------- ------- -----------------------------------------------
Peter Mor                           2004             56    Director
-------------------------- ----------------------- ------- -----------------------------------------------
-------------------------- ----------------------- ------- -----------------------------------------------
Lawrence Liang                      2004             70    Director
-------------------------- ----------------------- ------- -----------------------------------------------
</TABLE>

There are no family relationships between any director, executive officer, or
person nominated or chosen to become a director or executive officer.

DARWIN HU became our Chairman, President and Chief Executive Officer on April 2,
2004, in connection with our acquisition of Syscan, Inc. Prior thereto, Mr. Hu
was the President and Chief Executive Officer of Syscan, Inc., our wholly-owned
subsidiary. Mr. Hu has over 21 years of experience in the high-tech industry and
has held various management related positions within organizations related to
color graphic imaging input scanning, display output and imaging communication
product development, manufacturing and sales and marketing. Before joining
Syscan, Inc. in April 1998, Mr. Hu held senior management positions at Microtek,
Xerox, OKI, AVR, DEST, Olivetti and Grundig. Mr. Hu holds a bachelor's degree in
Engineering Science from National Cheng-Kung University, Taiwan, and a master's
degree in Computer Science and Engineering from California State University,
Chico, USA.


                                      -41-
<PAGE>


WILLIAM HAWKINS became our Chief Operating Officer and Secretary on April 2,
2004, in connection with our acquisition of Syscan, Inc. On April 1, 2005 he
became our interim Chief Financial Officer, after the departure of our former
CFO. Mr. Hawkins has held various management positions at Syscan, Inc., the
Company's wholly-owned subsidiary, since 1999, including V.P. of Sales and
Marketing, President and General Manager Syscan Imaging Group. Prior thereto,
Mr. Hawkins' product focus has been primarily in the imaging systems and
computer peripheral markets, including senior positions with General Electric
(UK), Kaman Aerospace, British Aerospace Engineering, Gartner Research and Per
Scholas. Mr. Hawkins received a bachelor's degree in physics from the University
of Maryland in 1978 and an MBA from Johns Hopkins University in Management of
Technology Concentration (MOT).

DAVID CLARK has been our Senior Vice President of Business Development and a
director since July 15, 2004,. In July 2005, Mr. Clark was appointed President
of Sysview Technology Inc., our wholly owned subsidiary. From October, 2003 to
July, 2004 Mr. Clark was President of Nautical Vision, Inc. a market specific
image display company where he created and implemented the company's business
plan which involved product sourcing, sales and marketing and general
management. From June, 2001 to October, 2003 Mr. Clark actively invested in and
consulted to a diverse group of companies in addition to being involved in
residential development. Mr. Clark was President and CEO of Homebytes.com from
November, 1998 to May of 2001, where he was primarily responsible for raising in
excess of twenty five million dollars in funding from investors including
America Online, FBR Technology Venture Partners, PNC Bank, and Bank of America,
as well as being instrumental in the acquisition of a key competitor of
Homebytes.com. Prior thereto Mr. Clark was the head of distribution and a
director of Take Two Interactive (NASDAQ:TTWO) which was a result of TTWO's
acquisition of Inventory Management Systems, Inc. (I.M.S.I.), of which Mr. Clark
was a co-founder and President. Prior to founding I.M.S.I., Mr. Clark held
various management positions with Acclaim Entertainment (NASDAQ:AKLM), and the
Imagesoft division of SONY Music (NYSE:SNE). Mr. Clark received a B.S. in
Business from the State University of New York at Binghamton in 1990.

PETER MOR has been a director since April 2, 2004. Mr. Mor has been the Senior
Vice President of Engineering & Operations of Focus Enhancements since February
1, 2005. Prior to joining Focus Enhancements, Mr. Mor served as a Vice President
of Engineering of SONY Corp. from July 23, 1999 to January 31, 2005 where he was
responsible for research and development of SONY's VAIO Notebook and Desktop
PCs, accessories and web based network services. Prior thereto, Mr. Mor has
extensive experience in engineering, operations and manufacturing, as well as
off-shore manufacturing, international outsourcing and procurement and ODM
management. Prior to joining SONY Corp., since 1980 Mr. Mor held various senior
positions with AMAX Engineering, AVR Technologies, Fujitsu Computer Products of
America, XEROX and QUME. Mr. Mor holds a master's degree in Computer Science
from the University of Oregon and a bachelor's degree in Electrical Engineering
from National Cheng-Kung University, Taiwan.

LAWRENCE LIANG has been a director since April 2, 2004. Since 1984 Mr. Liang has
been the President and Vice President of Genoa Systems Corporation, a graphics
company that developed the flicker free and true color technologies in the late
1980's, the President of Telecom Marketing, a marketing consultant for
telecommunications infrastructure, and the President of Cwaves Technology, a
wireless LAN/WAN company. Mr. Liang has also worked for IBM's Technology
Component Division to help develop semiconductor products and RISC CPU
Instruction sets. Mr. Liang also spent five years in IBM's Disk Drive division
in Silicon Valley where he held various management positions. Mr. Liang holds a
master's degree in Applied Mathematics from the City University of New York.


                                      -42-
<PAGE>


BOARD COMMITTEES

         Our board of directors does not currently have any standing committees.
We intend to establish an audit committee which we expect will be comprised of a
majority of independent directors.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that our directors and executive officers and persons who beneficially
own more than 10% of our common stock (referred to herein as the "reporting
persons") file with the SEC various reports as to their ownership of and
activities relating to our common stock. Such reporting persons are required by
the SEC regulations to furnish us with copies of all Section 16(a) reports they
file. Based solely upon a review of copies of Section 16(a) reports and
representations received by us from reporting persons, and without conducting
any independent investigation of our own, in 2005, we believe all Forms 3, 4 and
5 were timely filed with the SEC by such reporting persons.

CODE OF ETHICS

         Our board of directors has adopted a Code of Ethics which is applicable
to our chief executive officer, senior financial officers and members of our
board of directors, including our principal executive officer and principal
financial officer, principal accounting officer or controller, or other persons
performing similar functions.

            Any amendment of our Code of Ethics or waiver thereof applicable to
any of our principal executive officer, principal financial officer and
controller, principal accounting officer, directors or persons performing
similar functions will be disclosed on our website within 5 days of the date of
such amendment or waiver. In the case of a waiver, the nature of the waiver, the
name of the person to whom the waiver was granted and the date of the waiver
will also be disclosed. A copy of our Code of Ethics has been previously filed
as Exhibit 14 to our Form 10-KSB for the year ended December 31, 2004.



                                      -43-
<PAGE>


ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth, for the fiscal years indicated, all
compensation awarded to, paid to or earned by the following type of executive
officers for the fiscal years ended December 31, 2003, 2004 and 2005: (i)
individuals who served as, or acted in the capacity of, our principal executive
officer for the fiscal year ended December 31, 2005; and (ii) our other most
highly compensated executive officers, who together with the principal executive
officer are our most highly compensated officers whose salary and bonus exceeded
$100,000 with respect to the fiscal years ended December 31, 2005, 2004 and 2003
and who were employed by us at the end of fiscal year 2005.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE*

                                                                                              LONG TERM COMPENSATION
                                                                                              ----------------------
                                               ANNUAL COMPENSATION                    AWARDS                        PAYOUTS
                                               -------------------                    ------                        -------

NAME AND PRINCIPAL POSITION      YEAR      SALARY     BONUS    OTHER ANNUAL    RESTRICTED    SECURITIES       LTIP       ALL OTHER
                                                               COMPENSATION      STOCK       UNDERLYING     PAYOUTS    COMPENSATION
                                                                                AWARD(S)    OPTIONS/SARS
-----------------------------------------------------------------------------------------------------------------------------------
                                            ($)        ($)         ($)            ($)           (#)            ($)          ($)

<S>                              <C>      <C>          <C>         <C>          <C>           <C>             <C>          <C>
 Darwin Hu, Chief Executive      2005     200,000       --          --            --        1,500,000(1)        --             --
 Officer and Chairman.

                                 2004     200,000       --          --            --             --             --             --
                                 2003     200,000       --          --            --             --             --             --

 William Hawkins                 2005     160,000       --          --            --        1,000,000(2)        --             --
 Chief Operating Officer,
 Acting Chief Financial
 Officer and Secretary.
                                 2004     160,000       --          --            --             --             --             --
                                 2003     160,000       --          --            --             --             --             --

 David Clark                     2005     150,000       --          --            --         800,000(3)         --           --
 Senior Vice President of        2004      68,750
 Business Development .

                                                        --          --            --             --             --           --
<FN>

-------------------------
* Salary reflects total compensation paid to these executives (both before and
  after the merger described in Item 1).

(1) As of the date hereof, 1,000,000 of such options have vested.
(2) As of the date hereof, 666,667 of such options have vested.
(3) As of the date hereof, 533,333 of such options have vested.
</FN>
</TABLE>


                                      -44-
<PAGE>


                          OPTION GRANTS IN FISCAL 2005

     The following table sets forth certain information regarding stock options
held as of December 31, 2005 by the named executive officers.

<TABLE>
<CAPTION>

                                                   Number of
                                                   Securities   % of Total Granted
                                                   Underlying     to Employees in       Exercise      Expiration
                                                    Options         Fiscal Year       Price ($/Sh)       Date
Name and Principal Position                         Granted
-----------------------------------------------------------------------------------------------------------------
<S>                                                <C>                 <C>                <C>                <C>
Darwin Hu                                          1,500,000           35.4%              $.01         April 26,
   President and Chief Executive Officer                                                                 2012

William Hawkins                                    1,000,000           16.4%              $.01         April 26,
   Chief Operating Officer, Acting Chief                                                                 2012
   Financial Officer and Secretary

David Clark                                         800,000            18.9%              $.01         April 26,
   Senior Vice President of                                                                              2012
   Business Development





                                AGGREGATE OPTIONS EXERCISEABLE IN LAST FISCAL YEAR
                                         AND FISCAL YEAR END OPTION VALUES

                                                      Number of Securities              Value of Unexercised
                                                     Underlying Unexercised             In-the-Money Options
                                                  Options at December 31, 2005        at December 31, 2005 (1)
                                                  ----------------------------        ------------------------
Name and Principal Position                      Exercisable     Unexercisable     Exercisable     Unexercisable
---------------------------                      -----------     -------------     -----------     -------------
Darwin Hu                                          500,000         1,560,000      $    320,000   $      640,000
   President, Chief Executive Officer
   and Chairman of the Board


William Hawkins                                    333,333         1,026,666      $     213,333  $      426,666
   Chief operating Officer, Acting Chief
Financial Officer and Secretary.

David Clark                                        266,666          933,334       $    170,666   $     341,333
   Vice President of Business Development

----------------------------------------------- --------------- ----------------- -------------- ------------------
<FN>

(1)      As of December 31, 2005, the market value of a share of common stock was $0.65.
</FN>
</TABLE>

     No shares were exercised by named executive officers in fiscal year ended
December 31, 2005.


                                      -45-
<PAGE>



         As of December 31, 2005, options to purchase a total of 2,210,000
shares of common stock were granted under our 2002 Amended and Restated Stock
option Plan, at exercise prices of $0.65 to $2.00 per share. One-fourth of the
options granted vest on the first anniversary, one-fourth of the options granted
vest on the second anniversary, one-fourth of the options granted vest on the
third anniversary and one-fourth of the options vest on the fourth anniversary.
The options expire on the ten year anniversary of their grant date.

         All options described above have been issued pursuant to the 2002
Amended and Restated Stock Option Plan described below.

2002 AMENDED AND RESTATED STOCK OPTION PLAN

DESCRIPTION OF THE 2002 PLAN

         The Purpose of the 2002 Plan. The purpose of the 2002 Plan is to
provide additional incentive to the Directors, officers, employees and
consultants of the Company who are primarily responsible for the management and
growth of the Company. Each option shall be designated at the time of grant as
either an incentive stock option (an "ISO") or as a non-qualified stock option
(a "NQSO").

         The purpose of the 2002 Plan is to provide additional incentives to the
directors, officers, employees and consultants of the Company who are primarily
responsible for the management and growth of the Company. Each option shall be
designated at the time of grant as either an incentive stock option (an "ISO")
or a non-qualified stock option (a "NQSO"). The Board of Directors believes that
the ability to grant stock options to employees which qualify for ISO treatment
provides an additional material incentive to certain key employees. The Internal
Revenue Code requires that ISOs be granted pursuant to an option plan that
receives shareholder approval within one year of its adoption. The Company
adopted the 2002 Plan in order to comply with this statutory requirement and
preserve its ability to grant ISOs.

         The benefits to be derived from the 2002 Plan, if any, are not
quantifiable or determinable.

         Administration of the Plan. The 2002 Plan shall be administered by the
Board of Directors of the Company, or by any committee that the Company may in
the future form and to which the Board of Directors may delegate the authority
to perform such functions (in either case, the "Administrator"). The Board of
Directors shall appoint and remove members of the committee in its discretion in
accordance with applicable laws. In the event that the Company establishes such
a committee and is required to comply with Rule 16b-3 under the Exchange Act and
Section 162(m) of the Internal Revenue Code (the "Code"), the committee shall,
in the Board of Director's discretion, be comprised solely of "non-employee
directors" within the meaning of said Rule 16b-3 and "outside directors" within
the meaning of Section 162(m) of the Code. Notwithstanding the foregoing, the
Administrator may delegate non-discretionary administrative duties to such
employees of the Company as it deems proper and the Board of Directors, in its
absolute discretion, may at any time and from time to time exercise any and all
rights and duties of the Administrator under the 2002 Plan.


                                      -46-
<PAGE>


         Subject to the other provisions of the 2002 Plan, the Administrator
shall have the authority, in its discretion: (i) to grant options; (ii) to
determine the fair market value of the Common Stock subject to options; (iii) to
determine the exercise price of options granted; (iv) to determine the persons
to whom, and the time or times at which, options shall be granted, and the
number of shares subject to each option; (v) to interpret the 2002 Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to the 2002 Plan;
(vii) to determine the terms and provisions of each option granted (which need
not be identical), including but not limited to, the time or times at which
options shall be exercisable; (viii) with the consent of the optionee, to modify
or amend any option; (ix) to defer (with the consent of the optionee) the
exercise date of any option; (x) to authorize any person to execute on behalf of
the Company any instrument evidencing the grant of an option; and (xi) to make
all other determinations deemed necessary or advisable for the administration of
the 2002 Plan. The Administrator may delegate non-discretionary administrative
duties to such employees of the Company as it deems proper.

         Shares of Stock Subject to the 2002 Plan. Subject to the conditions
outlined below, the total number of shares of stock which may be issued under
options granted pursuant to the 2002 Plan shall not exceed 200,000 shares of
Common Stock, $.001 par value per share. In April 2004, the Board of Directors
unanimously voted to increase the total number of shares of stock which may be
issued under options granted pursuant to the 2002 Plan from 200,000 to 2,200,000
and subsequently increased in July 2004 to 3,200,000. The Company's stockholders
will be asked to ratify the increase in the authorized number of shares of stock
that may be issued under the 2002 Plan at the next annual meeting of
stockholders.

         The number of shares of Common Stock subject to options granted
pursuant to the 2002 Plan may be adjusted under certain conditions. If the stock
of the Company is changed by reason of a stock split, reverse stock split, stock
dividend, recapitalization, combination or reclassification, appropriate
adjustments shall be made by the Board of Directors in (i) the number and class
of shares of stock subject to the 2002 Plan, and (ii) the exercise price of each
outstanding option; provided, however, that the Company shall not be required to
issue fractional shares as a result of any such adjustments. Each such
adjustment shall be subject to approval by the Board of Directors in its sole
discretion.

         In the event of the proposed dissolution or liquidation of the Company,
the Administrator shall notify each optionee at least thirty days prior to such
proposed action. To the extent not previously exercised, all options will
terminate immediately prior to the consummation of such proposed action;
provided, however, that the Administrator, in the exercise of its sole
discretion, may permit exercise of any options prior to their termination, even
if such options were not otherwise exercisable. In the event of a merger or
consolidation of the Company with or into another corporation or entity in which
the Company does not survive, or in the event of a sale of all or substantially
all of the assets of the Company in which the Shareholders of the Company
receive securities of the acquiring entity or an affiliate thereof, all options
shall be assumed or equivalent options shall be substituted by the successor
corporation (or other entity) or a parent or subsidiary of such successor
corporation (or other entity); provided, however, that if such successor does
not agree to assume the options or to substitute equivalent options therefor,
the Administrator, in the exercise of its sole discretion, may permit the
exercise of any of the options prior to consummation of such event, even if such
options were not otherwise exercisable.


                                      -47-
<PAGE>


         Participation. Every person who at the date of grant of an option is an
employee of the Company or of any Affiliate (as defined below) of the Company is
eligible to receive NQSOs or ISOs under the 2002 Plan. Every person who at the
date of grant is a consultant to, or non-employee director of, the Company or
any Affiliate (as defined below) of the Company is eligible to receive NQSOs
under the 2002 Plan. The term "Affiliate" as used in the 2002 Plan means a
parent or subsidiary corporation as defined in the applicable provisions
(currently Sections 424(e) and (f), respectively) of the Code. The term
"employee" includes an officer or director who is an employee of the Company.
The term "consultant" includes persons employed by, or otherwise affiliated
with, a consultant.

         Option Price. The exercise price of a NQSO shall be not less than 85%
of the fair market value of the stock subject to the option on the date of
grant. To the extent required by applicable laws, rules and regulations, the
exercise price of a NQSO granted to any person who owns, directly or by
attribution under the Code (currently Section 424(d)), stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of any Affiliate (a "10% Shareholder") shall in no event be less than
110% of the fair market value of the stock covered by the option at the time the
option is granted. The exercise price of an ISO shall be determined in
accordance with the applicable provisions of the Code and shall in no event be
less than the fair market value of the stock covered by the option at the time
the option is granted. The exercise price of an ISO granted to any 10% Percent
Shareholder shall in no event be less than 110% of the fair market value of the
stock covered by the Option at the time the Option is granted.

         Term of the Options. The Administrator, in its sole discretion, shall
fix the term of each option, provided that the maximum term of an option shall
be ten years. ISOs granted to a 10% Shareholder shall expire not more than five
years after the date of grant. The 2002 Plan provides for the earlier expiration
of options in the event of certain terminations of employment of the holder.

         Restrictions on Grant and Exercise. Except with the express written
approval of the Administrator which approval the Administrator is authorized to
give only with respect to NQSOs, no option granted under the 2002 Plan shall be
assignable or otherwise transferable by the optionee except by will or by
operation of law. During the life of the optionee, an option shall be
exercisable only by the optionee.

         Termination of the 2002 Plan. The 2002 Plan shall become effective upon
adoption by the Board or Directors; provided, however, that no option shall be
exercisable unless and until written consent of the Shareholders of the Company,
or approval of Shareholders of the Company voting at a validly called
Shareholders' meeting, is obtained within twelve months after adoption by the
Board of Directors. If such Shareholder approval is not obtained within such
time, options granted pursuant to the 2002 Plan shall be of the same force and
effect as if such approval was obtained except that all ISOs granted pursuant to
the 2002 Plan shall be treated as NQSOs. Options may be granted and exercised
under the 2002 Plan only after there has been compliance with all applicable
federal and state securities laws. The 2002 Plan shall terminate within ten
years from the date of its adoption by the Board of Directors.


                                      -48-
<PAGE>


         Termination of Employment. If for any reason other than death or
permanent and total disability, an optionee ceases to be employed by the Company
or any of its Affiliates (such event being called a "Termination"), options held
at the date of Termination (to the extent then exercisable) may be exercised in
whole or in part at any time within three months of the date of such
Termination, or such other period of not less than thirty days after the date of
such Termination as is specified in the Option Agreement or by amendment thereof
(but in no event after the expiration date of the option (the "Expiration
Date")); provided, however, that if such exercise of the option would result in
liability for the optionee under Section 16(b) of the Exchange Act, then such
three-month period automatically shall be extended until the tenth day following
the last date upon which optionee has any liability under Section 16(b) (but in
no event after the Expiration Date). If an optionee dies or becomes permanently
and totally disabled (within the meaning of Section 22(e)(3) of the Code) while
employed by the Company or an Affiliate or within the period that the option
remains exercisable after Termination, options then held (to the extent then
exercisable) may be exercised, in whole or in part, by the optionee, by the
optionee's personal representative or by the person to whom the option is
transferred by devise or the laws of descent and distribution, at any time
within twelve months after the death or twelve months after the permanent and
total disability of the optionee or any longer period specified in the Option
Agreement or by amendment thereof (but in no event after the Expiration Date).
"Employment" includes service as a director or as a consultant. For purposes of
the 2002 Plan, an optionee's employment shall not be deemed to terminate by
reason of sick leave, military leave or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed 90 days or, if
longer, if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.

         Amendments to the Plan. The Board of Directors may at any time amend,
alter, suspend or discontinue the 2002 Plan. Without the consent of an optionee,
no amendment, alteration, suspension or discontinuance may adversely affect
outstanding options except to conform the 2002 Plan and ISOs granted under the
2002 Plan to the requirements of federal or other tax laws relating to ISOs. No
amendment, alteration, suspension or discontinuance shall require Shareholder
approval unless (i) shareholder approval is required to preserve incentive stock
option treatment for federal income tax purposes or (ii) the Board of Directors
otherwise concludes that shareholder approval is advisable.

         Tax Treatment of the Options. Under the Code, neither the grant nor the
exercise of an ISO is a taxable event to the optionee (except to the extent an
optionee may be subject to alternative minimum tax); rather, the optionee is
subject to tax only upon the sale of the Common Stock acquired upon exercise of
the ISO. Upon such a sale, the entire difference between the amount realized
upon the sale and the exercise price of the option will be taxable to the
optionee. Subject to certain holding period requirements, such difference will
be taxed as a capital gain rather than as ordinary income. Optionees who receive
NQSOs will be subject to taxation upon exercise of such options on the spread
between the fair market value of the Common Stock on the date of exercise and
the exercise price of such options. This spread is treated as ordinary income to
the optionee, and the Company is permitted to deduct as an employee expense a
corresponding amount. NQSOs do not give rise to a tax preference item subject to
the alternative minimum tax.


                                      -49-
<PAGE>

EMPLOYMENT AGREEMENTS


         In April 2005, we entered into an employment agreement with Mr. Darwin
Hu pursuant to which he will serve as our President and Chief Executive Officer.
The agreement provides for an initial term of three years, an annual salary to
Mr. Hu of $200,000 and an annual bonus to be determined by our board of
directors. In connection with the agreement, Mr. Hu was issued non-qualified
options to purchase up to 1,500,000 shares of our common stock at an exercise
price of $0.01 per share. One-third of the options vested immediately upon the
execution of the employment agreement, one-third shall vest on April 3, 2006 and
one-third shall vest on April 2, 2007. The agreement also provides for the
executive's ability to participate in our health insurance program. In the event
that Mr. Hu's employment is terminated other than with good cause, he will
receive a payment of the lesser of his then remaining salary due pursuant to the
employment agreement or six months of base salary at his then current annual
salary.

         In April 2005, we entered into an employment agreement with Mr. William
Hawkins pursuant to which he will serve as our Chief Operating Officer. The
agreement provides an initial term of three years, an annual salary to Mr.
Hawkins of $160,000 and an annual bonus to be determined by our board of
directors. In connection with the agreement, Mr. Hawkins was issued
non-qualified options to purchase up to 1,000,000 shares of our common stock at
an exercise price of $0.01 per share. One-third of the options vested
immediately upon the execution of the employment agreement, one-third shall vest
on April 3, 2006 and one-third shall vest on April 2, 2007. The agreement also
provides for the executive's ability to participate in our health insurance
program. In the event that Mr. Hawkins' employment is terminated other than with
good cause, he will receive a payment of the lesser of his then remaining salary
due pursuant to the employment agreement or six months of base salary at his
then current annual salary.

         In April 2005, we entered into an employment agreement with Mr. David
Clark pursuant to which he will serve as our Senior Vice President of Business
Development. The agreement provides for an initial term of three years, an
annual salary to Mr. Clark of $150,000 and an annual bonus to be determined by
our board of directors. In connection with the agreement, Mr. Clark was issued
non-qualified options to purchase up to 800,000 shares of our common stock at an
exercise price of $0.01 per share. One-third of the options vested immediately
upon the execution of the employment agreement, one-third shall vest on April 3,
2006 and one-third shall vest on April 2, 2007. The agreement also provides for
the executive's ability to participate in our health insurance program. In the
event that Mr. Clark's employment is terminated other than with good cause, he
will receive a payment of the lesser of his then remaining salary due pursuant
to the employment agreement or six months of base salary at his then current
annual salary.




                                      -50-
<PAGE>


ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of April 10, 2006, information regarding the
beneficial ownership of our common stock based upon the most recent information
available to us for: (i) each person known by us to own beneficially more than
five (5%) percent of our outstanding common stock, (ii) each of our officers and
directors, and (iii) all of our officers and directors as a group. Unless
otherwise indicated, each of the persons listed below has sole voting and
investment power with respect to the shares beneficially owned by them. As of
April 10, 2006 there were 24,601,096 shares of our common stock outstanding.

<TABLE>
<CAPTION>

NAME AND ADDRESS OF BENEFICIAL OWNER(1)       NUMBER OF COMMON SHARES       PERCENTAGE OF COMMON SHARES
                                               BENEFICIALLY OWNED(2)             BENEFICIALLY OWNED

<S>                                                  <C>                               <C>
Darwin Hu (3)                                         1,000,000                         3.9%
William Hawkins (4)                                     666,667                         2.6%
David Clark (5)                                         583,333                         2.3%
Peter Mor (6)                                               -0-                            -
Lawrence Liang (6)                                          -0-                            -
Syscan Imaging Limited(7)                            18,773,514                        76.3%
All Directors and Officers as a group
 (5 persons) (3)-(6)                                  2,250,000                         8.3%
* less than one percent

<FN>

(1) Unless otherwise indicated, the address of each person listed below is c/o
Syscan Imaging, Inc., 1772 Technology Drive, San Jose, California 95110.

(2) Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of common stock that an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purposes of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding for the
purposes of computing the percentage ownership of any other person shown in the
table.

(3) Includes 1,000,000 shares of common stock issuable upon the exercise of
options issued to Mr. Hu in connection with his employment agreement with us.
Does not include 560,000 shares issuable upon the exercise of options granted
pursuant to the Company's Amended and Restated 2002 Stock Option Plan, 420,000
of which are not exercisable within 60 days of the date hereof and all of which
are subject to stockholder approval of the Amended and Restated Stock Option
Plan under which such options were issued. Also does not include 500,000 shares
underlying options issued to Mr. Hu in connection with the execution of his
employment agreement with us, which are not exercisable within 60 days of the
date hereof. Mr. Hu also disclaims beneficial ownership of any shares of common
stock held by Syscan Imaging Limited, our majority-stockholder, of which Mr. Hu
is a director.

(4) Includes 666,667 shares of common stock issuable upon the exercise of
options issued to Mr. Hawkins in connection with his employment agreement with
us. Does not include 360,000 shares issuable upon the exercise of options
granted pursuant to the Company's Amended and Restated 2002 Stock Option Plan,
270,000 of which are not exercisable within 60 days of the date hereof and all
of which are subject to stockholder approval of the Amended and Restated Stock
Option Plan under which such options were issued. Also does not include 333,333
shares underlying options issued to Mr. Hawkins in connection with the execution
of his employment agreement with us, which are not exercisable within 60 days of
the date hereof.


                                      -51-
<PAGE>


(5) Includes 50,000 shares of common stock and 533,333 shares of common stock
issuable upon the exercise of options issued to Mr. Clark in connection with his
employment agreement with us. Does not include 400,000 shares issuable upon the
exercise of options granted pursuant to the Company's Amended and Restated 2002
Stock Option Plan, 300,000 of which are not exercisable within 60 days of the
date hereof and all of which are subject to stockholder approval of the Amended
and Restated Stock Option Plan under which such options were issued. Also does
not include 266,667 shares underlying options issued to Mr. Clark in connection
with the execution of his employment agreement with us, which are not
exercisable within 60 days of the date hereof.

(6) Does not include 80,000 shares issuable upon the exercise of options granted
pursuant to the Company's Amended and Restated 2002 Stock Option Plan, 60,000 of
which are not exercisable within 60 days of the date hereof and all of which are
subject to stockholders approval of the Amended and Restated Stock Option Plan
under which such options were issued.

(7) The sole shareholder of Syscan Imaging Limited is Syscan Technology Holdings
Limited, a publicly-held company whose shares are listed on The Growth
Enterprise Market of The Stock Exchange of Hong Kong Limited. The address for
Syscan Imaging Limited is Unit 808, 8th floor, K. Wah Centre, 191 Java Road,
North Point Hong Kong.
</FN>
</TABLE>


ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Manufacturing

            All of our products are manufactured by Syscan Technology Holdings
(STH), the parent company of our majority stockholder. We and STH have
established an internal-pricing agreement that is updated on a semi-annual
basis. STH currently serves as the manufacturer of all current image capture
products produced by us. We believe, for quality control and pricing reasons,
that this type of relationship is more favorable then could be attained from
unaffiliated third-parties. We purchase and provide STH with critical parts and
components necessary to manufacture our products.

         We purchase significantly all of our finished scanner imaging products
from the parent company of our majority stockholder, Syscan Technology Holdings
Limited ("STH"). Our Chairman and CEO, Darwin Hu, was formerly the CEO of STH,
and beneficially owns approximately 5.33% of the issued and outstanding capital
stock of STH. The following is a summary of significant related party
transactions, which were carried out in the normal course of the Company's
business, during the years ended December 31, 2005 and 2004:

THE FOLLOWING IS A SUMMARY OF SIGNIFICANT RELATED PARTY PURCHASE TRANSACTIONS,
WHICH WERE CARRIED OUT IN THE NORMAL COURSE OF THE COMPANY'S BUSINESS:



                                                     2005               2004
                                               --------------    -------------

SYSCAN Intervision Limited, a wholly-owned         $4.915M         $3.825M
subsidiary of STH (purchases)
                                               ===============   =============

SYSCAN Optoelectronics Technology                  --              $0.520M
(Shenzhen) Company Limited, a
wholly-owned subsidiary of STH (purchases)
                                               ===============   =============




                                      -52-
<PAGE>








AMOUNTS DUE TO/FROM RELATED PARTIES ARE UNSECURED, INTEREST-FREE AND REPAYABLE
ON DEMAND AND CONSISTED OF THE FOLLOWING:




Due from STH                                                    $      345,998

Due from Majority Stockholder
                                                                       100,000

Due from various subsidiaries wholly-owned by STH                    1,956,522
                                                              -----------------
                                                               $     2,402,520
                                                              =================




         In April 2005 we entered into employment agreements with each of Darwin
Hu, our Chief Executive Officer, William Hawkins, our Chief Operating Officer
and Acting Chief Financial Officer, and David Clark, our Senior Vice President
of Business Development. In connection therewith we granted options to each of
Messrs. Hu, Hawkins and Clark to purchase 1,500,000, 1,000,000 and 800,000
shares of our common stock, respectively, at an exercise price of $0.01 per
share. Such options shall vest one-third on the execution date of the employment
agreement, one-third on April 3, 2006 and one-third on April 2, 2007. Pursuant
to such employment agreements, each of Messrs. Hu, Hawkins and Clark shall be
entitled to receive annual salaries of $200,000, $160,000 and $150,000,
respectively.

         Other than those described above, we have no material transactions
which involved or are planned to involve a direct or indirect interest of a
director, executive officer, greater than 5% stockholder or any family member of
such parties.

         We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. All future transactions between us and our officers, directors
and principal shareholders and their affiliates will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by the independent members of our board of directors.

ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K

(a)  Exhibits

     2.1  Share Exchange Agreement (previously filed as exhibit 99.1 on Form 8-K
          dated April 19, 2004).

     3.1  Certificate of Incorporation dated February 15, 2002 (previously filed
          as exhibit 3.1 on Form 10-KSB dated March 31, 2005).


                                      -53-
<PAGE>


     3.2  Certificate of Amendment to the Company's Certificate of Incorporation
          dated March 19, 2004 (previously filed as exhibit 3.2 on Form 10-KSB
          dated March 31, 2005).

     3.3  Certificate of Designation of Preferences, Rights and Limitations of
          Series A Preferred Stock as filed with the Secretary of State of the
          State of Delaware on March 15, 2005 (previously filed as exhibit 10.4
          on Form 8-K dated March 21, 2005)

     3.4  Amended and Restated Bylaws (previously filed as exhibit 3.4 on Form
          10-KSB dated March 31, 2005).

     10.1 Form of Convertible Preferred Stock and Common Stock Warrant Purchase
          Agreement entered into by and between the Company and the purchasers
          (previously filed as exhibit 10.1 on Form 8-K dated March 21, 2005).

     10.2 Form of Common Stock Purchase Warrant (previously filed as exhibit
          10.2 on Form 8-K dated March 21, 2005).

     10.3 Form of Registration Rights Agreement (previously filed as exhibit
          10.3 on Form 8-K dated March 21, 2005).

     10.4 2002 Amended and Restated Stock Option Plan (previously filed as
          exhibit 10.4 on Form 10-KSB dated March 31, 2005).

     14   Code of Ethics adopted by the Company's board of directors on March
          28, 2005 (previously filed as exhibit 14 on Form 10-KSB dated March
          31, 2005).

     21*  Subsidiaries of the Company

     31.1* Certification of the Company's Chief Executive Officer pursuant to 18
          U.S.C. Section 1350, as adopted pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002.

     31.2* Certification of the Company's Chief Financial Officer pursuant to 18
          U.S.C. Section 1350, as adopted pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002.

     32.1* Certification of the Company's 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 the Company's Chief Financial Officer pursuant to 18
          U.S.C. Section 1350, as adopted pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002.

--------------------
* filed herewith

(b) Reports on Form 8-K.


                                      -54-
<PAGE>


         There were no reports filed on Form 8-K during the fourth quarter of
the year ended December 31, 2005.

         ITEM 14.          PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following table sets forth fees billed to us by our independent
registered public accounting firm, Clancy and Co., P.L.L.C., during the fiscal
years ended December 31, 2005, and December 31, 2004, for: (i) services rendered
for the audit of our annual financial statements and the review of our quarterly
financial statements; (ii) services by our independent registered public
accounting firms that are reasonably related to the performance of the audit or
review of our financial statements and that are not reported as Audit Fees;
(iii) services rendered in connection with tax compliance, tax advice and tax
planning; and (iv) all other fees for services rendered. Since we do not
currently have an audit committee, our board of directors approved the audit
services provided by Clancy and Co, P.L.L.C. and the fees incurred in connection
therewith.

                                         December 31, 2004     December 31, 2005
         Audit Fees                          $49,100                $36,950
         Audit Related Fees                    -0-                    -0-
         Tax Fees                              4,900                  -0-
         All Other Fees                        -0-                    -0-




                                      -55-
<PAGE>


                      SYSCAN IMAGING, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



Report of Independent Registered Public Accounting Firm ..................   F-2

Consolidated Balance Sheet ...............................................   F-3

Consolidated Statements of Operations ....................................   F-4

Consolidated Statements of Changes in Stockholders' Equity ...............   F-5

Consolidated Statements of Cash Flows ....................................   F-6

Notes to Consolidated Financial Statements ...............................   F-7





                                      F-1
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Syscan Imaging, Inc.

We have audited the accompanying consolidated balance sheet of Syscan Imaging,
Inc. (a Delaware Corporation) and Subsidiaries (the "Company") as of December
31, 2005, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 2005 and
2004. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2005, and the consolidated results of its operations
and its cash flows for the years ended December 31, 2005 and 2004, in conformity
with generally accepted accounting principles in the United States of America.



Clancy and Co., P.L.L.C.
Scottsdale, Arizona

April 12, 2006


<PAGE>
<TABLE>
<CAPTION>


                      SYSCAN IMAGING, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2005

                                     ASSETS
--------------------------------------------------------------------------------
Current assets
<S>                                                                <C>
   Cash and cash equivalents                                       $  1,426,138
   Trade receivables, net                                             1,284,766
   Inventories                                                          751,228
   Prepayments, deposits and other current assets                       319,270
   Due from related parties                                           2,402,520
                                                                   ------------
Total current assets                                                  6,183,922

Fixed assets, net                                                       167,219

Other assets
   Goodwill                                                             555,485
   Long-term investment                                                 997,692
                                                                   ------------
Total other assets                                                    1,553,177
                                                                   ------------

TOTAL ASSETS                                                       $  7,904,318
                                                                   ============

                            LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                   ------------
Current liabilities
   Bank line of credit                                             $    833,036
   Letter of credit                                                     180,000
   Trade payables                                                       259,365
   Other payables and accruals                                          185,699
   Accrued dividends on 5% convertible preferred stock                   71,155
                                                                   ------------
Total current liabilities                                             1,529,255

Other liabilities
   Liability under derivative contracts                                 502,995
                                                                   ------------

Total liabilities                                                     2,032,250

Commitments and contingencies

5% Convertible preferred stock, $0.001 par value,
        2,000,000 shares authorized, 16,150 shares
        issued and outstanding, liquidation value
        of $16,150,000                                                  467,699

Stockholders' equity
   Common stock: $0.001 par value; 50,000,000
        shares authorized; 24,592,092 shares issued
        and 24,092,092 shares outstanding
        [escrow = 500,000 shares]                                        24,092
   Additional paid- in capital                                       29,372,859
   Accumulated deficit                                              (23,992,582)
                                                                   ------------
Total stockholders' equity                                            5,404,369
                                                                   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $  7,904,318
                                                                   ============

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>



                                      F-2
<PAGE>

<TABLE>
<CAPTION>


                      SYSCAN IMAGING, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             YEARS ENDED DECEMBER 31

                                                                  2005            2004
                                                              ------------    ------------
<S>                                                           <C>             <C>
NET SALES                                                     $  7,848,007    $  6,057,821

COSTS OF SALES                                                   4,988,618       4,167,140
                                                              ------------    ------------

GROSS PROFIT                                                     2,859,389       1,890,681

OPERATING EXPENSES
   Selling and marketing expenses                                  951,990         745,557
   General and administrative expenses                           1,511,252         824,286
   Research and development expenses                               866,102         528,417
                                                              ------------    ------------
Total operating expenses                                         3,329,344       2,098,260
                                                              ------------    ------------

OPERATING LOSS                                                    (469,955)       (207,579)

Other income (expense)
   Stock-based compensation cost - options                      (2,812,000)           --
   Change in fair value of derivative instruments                1,112,005            --
   Fair value of warrants issued                                  (290,000)           --
   Preferred stock issuance costs                                 (236,500)           --
   Interest income                                                  23,642           5,966
   Write back of provision for bad debts                              --            41,178
   Other income - exchange gain                                      4,673           8,613
   Loss on disposal of fixed assets                                   --           (15,623)
   Interest expense                                                (57,097)        (11,621)
                                                              ------------    ------------
   Total other income (expense)                                 (2,255,277)         28,513
                                                              ------------    ------------

NET LOSS BEFORE PROVISION FOR INCOME TAXES                      (2,725,232)       (179,066)

Provision for income taxes                                           3,232             800
                                                              ------------    ------------

NET LOSS                                                        (2,728,464)       (179,866)

Dividend on 5% convertible preferred stock and accretion of
    preferred stock redemption value                              (545,435)           --
                                                              ------------    ------------

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS                     $ (3,273,899)   $   (179,866)
                                                              ============    ============

BASIC AND DILUTED LOSS PER SHARE                              $      (0.14)   $      (0.01)
                                                              ============    ============

WEIGHTED AVERAGE SHARES OUTSTANDING                             23,279,389      22,599,454
                                                              ============    ============



   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>



                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                      SYSCAN IMAGING, INC. AND SUBISIDARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2005 AND 2004

                                               COMMON         COMMON      ADDITIONAL
                                               STOCK           STOCK        PAID IN        ACCUMULATED
                                              (SHARES)        (AMOUNT)      CAPITAL          DEFICIT          TOTAL
                                          --------------------------------------------------------------------------

                                          --------------------------------------------------------------------------
<S>                                         <C>                <C>      <C>             <C>             <C>
BALANCE - DECEMBER 31, 2003                  21,082,935         21,083   $ 25,480,290    $(20,538,817)   $  4,962,556
                                          --------------------------------------------------------------------------

Recapitalization to effect reverse
     acquisition                              2,027,580          2,027         (2,027)           --              --

Net loss                                           --             --                        (179,866)       (179,866)

                                          --------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2004                  23,110,515     25,478,263    (20,718,683)      4,782,690         23,110
                                          --------------------------------------------------------------------------

Common stock issued for Series A
     preferred stock conversions                256,581            257        256,324            --           256,581

Issuance of common stock for services
     rendered                                   224,996            225        156,772            --           156,997

Stock-based compensation cost - options
                                                   --             --        2,812,000            --         2,812,000

Fair value of warrants issued for
     payment of preferred stock issuance
     expenses                                      --             --          290,000            --           290,000

Common stock issued for acquisition
    of subsidiary, 1,000,000 shares
    less 500,000 held in escrow per
    agreement                                   500,000            500        379,500            --           380,000

Net loss                                           --             --             --        (3,273,899)     (3,273,899)

                                          --------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2005                  24,092,092   $     24,092   $ 29,372,859    $(23,992,582)   $  5,404,369
                                          ===========================================================================





   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>



                                      F-4
<PAGE>



<TABLE>
<CAPTION>

                     SYSCAN IMAGING, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             YEARS ENDED DECEMBER 31
                                                                               2005           2004
                                                                           -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                        <C>            <C>
   Net loss                                                                $(3,273,899)   $  (179,866)
                                                                           -----------    -----------
   Adjustments to reconcile net loss to net cash flows used in operating
      activities
   Depreciation                                                                 31,303          3,279
   Loss on disposal of fixed assets                                               --            9,861
   Common stock issued for services                                            156,997           --
   Stock-based compensation cost - options                                   2,812,000           --
   Fair value adjustment to liabilities under derivative contracts          (1,112,005)          --
   Accretion of 5% convertible preferred stock redemption value                467,699           --
   Preferred stock issuance expenses paid by issuance of warrants              290,000           --
   Conversion of Series A preferred stock dividends for common stock             6,581           --
   Write back of provision for doubtful accounts                                  --           41,178
   Changes in assets and liabilities
      (Increase) decrease trade receivables                                   (156,893)       930,231
      (Increase) decrease in inventories                                      (254,548)      (297,130)
      (Increase) decrease in other current assets                             (101,130)      (207,325)
       Increase (decrease) in trade payables                                   197,060         36,661
       Increase (decrease) in other payables and accruals                      135,587       (362,898)
                                                                           -----------    -----------
   Net cash flows used in operating activities                                (801,248)       (26,009)
                                                                           -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Cash acquired in reverse acquisition                                           --           28,288
   Cash paid for subsidiary                                                    (97,896)          --
   Capital expenditures                                                       (169,588)       (26,309)
                                                                           -----------    -----------
Net cash flows provided by (used in) investing activities                     (267,484)         1,979
                                                                           -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from the issuance of preferred stock                             1,865,000           --
   Advances under bank line of credit                                          150,000        700,000
   Repayments under bank lines of credit                                      (250,000)          --
   Advances under bank letters of credit                                       180,000        233,036
   Advances / repayments - related party amounts                              (137,533)    (1,241,425)
                                                                           -----------    -----------
Net cash flows provided by (used in) financing activities                    1,807,467       (308,389)
                                                                           -----------    -----------

Increase (decrease) in cash and cash equivalents                               738,735       (332,419)

Cash and cash equivalents, beginning of year                                   687,403      1,019,822
                                                                           -----------    -----------

                                                                           -----------    -----------
Cash and cash equivalents, end of year                                     $ 1,426,138    $   687,403
                                                                           ===========    ===========

Cash paid for:
   Interest                                                                $    57,097    $    11,621
                                                                           ===========    ===========
   Income taxes                                                            $     3,232    $       800
                                                                           ===========    ===========

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>



                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                      SYSCAN IMAGING, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             YEARS ENDED DECEMBER 31
                                                                                     2005        2004
                                                                                  ----------  ----------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
<S>                                                                               <C>             <C>
   Common stock issued for services                                               $  156,997     --
   Stock-based compensation cost - options                                        $2,812,000     --
    Proceeds from issuance of 5% Convertible Preferred Stock to Liability under
      Derivative Contracts                                                        $1,865,000     --
    Conversion of Series A Preferred Stock for Common Stock                       $  256,581     --
   Preferred stock issuance expenses paid by issuance of warrants                 $  290,000     --


















   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>


                                      F-6
<PAGE>



                      SYSCAN IMAGING, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

================================================================================

NOTE 1 - BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
         POLICIES

BACKGROUND

Syscan Imaging, Inc., (referred to herein as "Syscan" or the "Company")
develops, designs and delivers various imaging technology solutions to the
corporate/enterprise, small office-home office (SOHO), professional practice and
consumer markets. Syscan is headquartered in San Jose, California, and is
principally engaged in the design, development and marketing of Contact Image
Sensor ("CIS") modules for use in scanners and fax machines. Syscan's
manufacturing is completed at an affiliated China-based facility, which provides
a low-cost manufacturing base for these industrial and consumer products.
Syscan's products are ideally suited for the mobile computer user who needs to
scan and/or fax documents while away from their office.

On April 2, 2004, Syscan Imaging, Inc. (formerly known as "BankEngine
Technologies, Inc." and referred to herein as the "Company") completed its
acquisition of 100% of the issued and outstanding capital stock of Syscan, Inc.
pursuant to a Share Exchange Agreement ("Agreement") dated March 29, 2004, in
exchange for 20,859,459 shares of the Company's common stock. Pursuant to the
Agreement, the sole stockholder of Syscan, Inc., Syscan Imaging Limited,
received 18,773,514 post-reverse split shares of the Company's common stock in
exchange for all of the issued and outstanding capital stock of Syscan, Inc. In
connection with the issuance of the Company's common stock to Syscan Imaging
Limited, Syscan Imaging Limited beneficially became the owner of 81.2% of the
issued and outstanding securities of the Company. Its ultimate holding company
is Syscan Technology Holdings Limited, a company which is incorporated in
Bermuda and its shares are listed on The Growth Enterprise Market of The Stock
Exchange of Hong Kong Limited.


BASIS OF PRESENTATION

As a result of the reverse acquisition, the financial statements of the Company
become those of Syscan and thus, the consolidated financial statements of the
Company represent the activities of its 100% owned subsidiary, Syscan and the
Company's other wholly-owned subsidiaries. Although the Company is the legal
acquirer, Syscan will be treated as having acquired the Company for accounting
purposes and all of the operations reported represent the historical financial
statements of Syscan and the Company's other wholly-owned subsidiaries.


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. The results of subsidiaries
acquired or disposed of during the periods presented are consolidated from or to
their effective dates of acquisition or disposal. All significant inter-company
balances and transactions have been eliminated in consolidation.

Use of estimates - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management 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. Management makes its best estimate of the ultimate
outcome for these items based on historical trends and other information
available when the financial statements are prepared. Changes in estimates are
recognized in accordance with the accounting rules for the estimate, which is
typically in the period when new information becomes available to management.
Actual results could differ from those estimates.


                                      F-7
<PAGE>

Fair value of financial instruments - For certain of the Company's financial
instruments, including cash and cash equivalents, trade receivables and
payables, prepaid expenses and other current assets, amounts due to / from
related parties, and other payables and accruals, the carrying amounts
approximate fair values due to their short maturities.

Related party transactions - A related party is generally defined as (i) any
person that holds 10% or more of the Company's securities and their immediate
families, (ii) the Company's management, (iii) someone that directly or
indirectly controls, is controlled by or is under common control with the
Company, or (iv) anyone who can significantly influence the financial and
operating decisions of the Company. A transaction is considered to be a related
party transaction when there is a transfer of resources or obligations between
related parties.

Cash and cash equivalents - The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash
equivalents.

Concentration of credit risk - Credit risk represents the accounting loss that
would be recognized at the reporting date if counterparties failed completely to
perform as contracted. Concentrations of credit risk (whether on or off balance
sheet) that arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would cause
their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions are described below.

Financial instruments that subject the Company to credit risk are cash balances
maintained in excess of federal depository insurance limits and accounts
receivable with no collateral or security. The Company maintains cash balances
at several banks. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to $100,000. As of December 31, 2005,
the Company had consolidated balances of approximately $920,000, which were not
guaranteed by FDIC. The Company has not experienced any losses in such accounts
and believes the exposure is minimal. As of December 31, 2005, all the Company's
receivables were unsecured.

Other potential areas that potentially expose the Company to a concentration of
credit risk are as follows:

Geographic sales and significant customers - The Company operates in a single
industry segment that being scanner and fax modules. The Company markets its
products in the United States, Europe and the Asia Pacific region through its
sales personnel and independent sales representatives.

The Company's geographic sales as a percent of total revenue are as follows:

                                          2005               2004
                                      ---------------    --------------
United States                              87%                96%
Asia Pacific                               9%                 2%
Europe and others                          4%                 2%





Sales to major customers, as a percentage of total revenues, are as follows:

                                           2005               2004
                                      ---------------    --------------
Customer A                                  33%                38%
Customer B                                  18%                16%
Customer C                                  16%                15%
Customer D                                  12%                 9%

Trade receivables - The Company's customers are concentrated in the
industrial/consumer electronics channels and with major original equipment
manufacturers. As of December 31, 2005, the concentration was approximately
92.5% (3customers). The loss of any of these customers could have a material
adverse effect on the company results of operations, financial position and cash
flows.

Significant vendors - For the years ended December 31, 2005 and 2004, the
Company's purchases of finished scanner imaging products have primarily been
concentrated with one vendor that is a subsidiary of the Company's majority
stockholder. If this vendor was unable to provide materials in a timely manner
and the Company was unable to find alternative vendors, the Company's business,
operating results and financial condition would be materially adversely
affected.


                                      F-8
<PAGE>


Product sales - The Company had 3 (2004: 4) different product categories in 2005
that each accounted for more than 10% of sales. If any of these products were to
become obsolete or unmarketable and the Company was unable to successfully
develop and market alternative products, the Company's business, operating
results and financial condition could be adversely affected

Inventories - Inventories consist of finished goods, which are stated at the
lower of cost or net realizable value, with cost computed on a first-in,
first-out basis. Provision is made for obsolete, slow-moving or defective items
where appropriate. The amount of any provision of inventories is recognized as
an expense in the period the provision occurs. The amount of any reversal of any
provision is recognized as other income in the period the reversal occurs. There
was no provision recorded at December 31, 2005.

Fixed assets - Fixed assets, stated at cost, are depreciated over the estimated
useful lives of the assets using the straight-line method over periods ranging
from three to ten years. Significant improvements and betterments are
capitalized. Routine repairs and maintenance are expensed when incurred. Gains
and losses on disposal of fixed assets are recognized in the statement of
operations based on the net disposal proceeds less the carrying amount of the
assets. Depreciation expense charged to operations in 2005 was $31,303 (2003:
$3,279).

Long-lived assets - Long-lived assets, such as fixed assets, are reviewed for
impairment when circumstances indicate the carrying value of an asset may not be
recoverable. For assets that are to be held and used, an impairment loss is
recognized when the estimated undiscounted cash flows associated with the asset
or group of assets is less than their carrying value. If impairment exists, an
adjustment is made to write the asset down to its fair value, and a loss is
recorded as the difference between the carrying value and fair value. Fair
values are determined based on quoted market values, discounted cash flows or
internal and external appraisals, as applicable. Assets to be disposed of are
carried at the lower of carrying value or estimated net realizable value.

Long-term investments - Long-term investments are carried at cost less provision
for any impairment in value. Income from long-term investments is accounted for
to the extent of dividends received or receivable. Upon disposal of investments,
any profit and loss thereon is accounted for in the statement of operations.

Revenue recognition - Revenues consist of product sales including optical image
capturing devices, modules of optical image capturing devices, and chips and
other optoelectronic products. Revenue is recognized when the product is shipped
and the risks and rewards of ownership have transferred to the customer. The
Company recognizes shipping and handling fees as revenue, and the related
expenses as a component of cost of sales. All internal handling charges are
charged to selling, general and administrative expenses.

Allowance for doubtful accounts and return allowances - The Company presents
trade receivables, net of allowances for doubtful accounts and returns, to
ensure trade receivable are not overstated due to uncollectibility. The
allowances are calculated based on detailed review of certain individual
customer accounts and an estimation of the overall economic conditions affecting
the Company's customer base. The Company reviews a customer's credit history
before extending credit. If the financial condition of its customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. There was no allowance for doubtful
accounts at December 31, 2005, as management believes all of its trade
receivables are collectible.

Research and development expenses - Research and development costs are expensed
as incurred and amounted to $866,102 in 2005 (2004: $528,417).

Advertising costs - Advertising costs are expensed as incurred and were
immaterial for both periods presented.

Income taxes - The Company accounts for income taxes under the liability method
of accounting for income taxes in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Current income tax expense or benefit is the amount of income taxes expected to
be payable or refundable for the current year. A deferred income tax asset or
liability is computed for the expected future impact of differences between the
financial reporting and tax basis of assets and liabilities and for the expected
future tax benefit to be derived from tax credits and loss carryforwards.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.


                                      F-9
<PAGE>


Intangible assets - Intangible assets represents goodwill arising from the
excess of the purchase consideration over the fair value of the net assets at
the date of acquisition of subsidiaries. Goodwill arising in a business
combination initiated after June 30, 2001 is not amortized, but assessed
annually for indicators of impairment.

Comprehensive income - The Company includes items of other comprehensive income
by their nature in a financial statement and displays the accumulated balance of
other comprehensive income separately in the equity section of the balance
sheet.

Foreign currency translation - The reporting currency used in the preparation of
these consolidated financial statements is U.S. dollars. Local currencies are
the functional currencies for the Company's subsidiaries. For the purpose of
consolidation, assets and liabilities of subsidiaries with functional currencies
other than U.S. dollars are translated into U.S. dollars at the applicable rates
of exchange in effect at the balance sheet date and income and expense items are
translated into U.S. dollars at the average applicable rates during the year.
Translation gains and losses resulting from fluctuations in exchange rates are
recorded as a separate component of other comprehensive income within
stockholders' equity as cumulative translation adjustments. Gains and losses
resulting from foreign currency transactions are included in results of
operations.

Earnings per share - Basic earnings or loss per share ("EPS") is calculated
using net earnings or loss (numerator) divided by the weighted-average number of
shares outstanding (denominator) during the reporting period. Diluted EPS is
based on the weighted average number of common shares outstanding and dilutive
common stock equivalents. All EPS amounts in the financial statements are basic
EPS, as defined by SFAS No. 128, "Earnings Per Share." Diluted EPS does not
differ materially from basic EPS for all periods presented. Convertible
securities that could potentially dilute basic earnings per share in the future
such as options and warrants are not included in the computation of diluted EPS
because to do so would be antidilutive. All per share and per share information
are adjusted retroactively to reflect stock splits and changes in par value.

Stock-based compensation - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation
cost for stock options, if any, is measured as the excess of the quoted market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock. SFAS No.123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. The Company has elected to remain on its current method of accounting as
described above, and has adopted the disclosure requirements of SFAS No. 123. In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting
for Stock-Based Compensation". This statement amends Statement No. 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. See Note 5 for a description of the stock-based compensation plan.

The weighted average fair value on the date of grant was $0.7695 for those
options granted in 2005. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes Option pricing model with the following
weighted-average assumptions: dividend yield of 0%, expected volatility of 144%,
risk-free interest rate of 5%, and expected life of two years. For 2004, the
estimated fair value of the options on the date of grant using the Black-Scholes
option pricing model was based on a risk free interest rate of 1.91%, an
expected volatility of 100%, an expected life of 2 years and no dividend yield.

Had compensation expense for the Company's stock-based compensation plans been
determined under SFAS No. 123, based on the fair market value at the grant
dates, the Company's pro forma net earnings and pro forma net earnings per share
would have been reflected as follows for the years ended December 31:


                                      F-10
<PAGE>



<TABLE>
<CAPTION>
                                                              2005                2004
                                                          --------------------------------
<S>                                                        <C>              <C>
Net  loss available to common stockholders, as reported    $(3,273,899)     $   (179,866)
Less: stock-based compensation cost, net of tax             (2,992,045)           (3,824)
                                                          --------------------------------
Pro forma net loss                                         $(6,265,944)     $   (183,690)
                                                          ================================

Basic and diluted net loss per share
     As reported                                             $   (0.14)      $     (0.01)
     Pro forma                                               $   (0.27)      $     (0.01)
</TABLE>

Recent accounting pronouncements - The Financial Accounting Standards Board
issued the following new accounting pronouncements:

In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R addresses all forms of share-based
payment ("SBP") awards, including shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation rights. SFAS No.
123R will require the Company to expense SBP awards with compensation cost for
SBP transactions measured at fair value. On March 29, 2005, the SEC issued Staff
Accounting Bulletin (SAB) 107 which expresses the views of the SEC regarding the
interaction between SFAS No. 123R and certain SEC rules and regulations and
provides the SEC's views regarding the valuation of share-based payment
arrangements for public companies. In April 2005, the SEC issued a release which
amends the compliance dates for SFAS No. 123R. We expect the adoption of SFAS
No. 123R and SAB 107 to have a material impact on the Company's financial
statements.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections". SFAS No. 154 replaces APB Opinion No. 20 "Accounting Changes" and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS
No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. We do not expect the adoption of SFAS No. 154 to have any impact on the
Company's financial statements.

Reclassifications and adjustments - Certain prior period amounts have been
reclassified to conform to the current period presentation.


NOTE 2 - RELATED PARTY TRANSACTIONS

The Company purchases significantly all of its finished scanner imaging products
from the parent company of its majority stockholder, Syscan Technology Holdings
Limited ("STH"). The Company's Chairman and CEO, Darwin Hu, was formerly the CEO
of STH, and beneficially owns approximately 5.33% of the issued and outstanding
capital stock of STH.

The following is a summary of significant related party purchases from entities
that are wholly-owned subsidiaries of STH. The transactions were carried out in
the normal course of the Company's business.

<TABLE>
<CAPTION>

                                                               2005             2004
                                                          --------------    -------------
<S>                                                          <C>               <C>
SYSCAN Intervision Limited, a wholly-owned subsidiary of     $4.915M           $3.825M
STH (purchases)
                                                          ==============    =============

SYSCAN Optoelectronics Technology (Shenzhen) Company            --             $0.520M
Limited, a wholly-owned subsidiary of STH (purchases)
                                                          ===============   =============
</TABLE>



                                      F-11
<PAGE>



Amounts due from related parties are unsecured, interest-free and repayable on
demand and consisted of the following:


Due from STH                                                          $ 345,998

Due from Majority Stockholder
                                                                        100,000

Due from various subsidiaries wholly-owned by STH                     1,956,522
                                                               -----------------
                                                                    $ 2,402,520
                                                               =================



NOTE 3 - FIXED ASSETS, NET

Fixed assets consist of the following:

Computer and office equipment                      $ 62,286
Furniture and fixtures                                2,565
Tooling and product design                          137,018
                                                 -----------
                                                    201,869
Less: accumulated depreciation                       34,650
                                                 ----------
                                                  $ 167,219
                                                 ==========



NOTE 4 - LONG-TERM INVESTMENT

Long-term investment consists of an equity interest in CMOS Sensor, Inc.
("CMOS"), a California corporation, which is principally engaged in the research
and development of infra-red sensors and CMOS sensors. On June 26, 2002, the
Company acquired 100% equity interest of Syscan Laser Technology Ltd. ("Syscan
Laser") from Syscan Holdings Limited, a fellow subsidiary of the Company, for
total consideration of $1. At the date of acquisition, Syscan Laser held 9.7%
equity interest (representing 750,000 shares purchased at $0.80 per share) in
CMOS. On October 29, 2003, the Company acquired 100% equity interest of
Leadbuilt Technology Limited ("Leadbuilt") from Syscan InterVision Limited, a
fellow subsidiary of the Company, for total consideration of $1. At the date of
acquisition, Leadbuilt held 6.4% (representing 500,000 shares purchased at $0.80
per share) equity interest in CMOS. As a result of both transactions, the
Company increased its equity interest in CMOS from 9.7% to 16.1%. The Company's
management and directors are of the opinion that the underlying value of the
long-term investment is not less than the carrying value at December 31, 2005.


NOTE 5 - STOCKHOLDERS' EQUITY

COMMON STOCK

The Company had the following equity activity during 2005:

     o    issuance of 224,996 shares of restricted common stock for investor
          relations services valued at the fair market value of the services
          rendered;
     o    issuance of 256,581 shares of common stock for the conversion of 2,500
          shares of Series A preferred stock; and
     o    issuance of 1,000,000 shares of common stock for the acquisition of
          Nanodisplay, Inc., 500,000 of which are held in escrow by the Company
          pending certain milestones to be met per the acquisition agreement.
          These shares have been accounted for as issued, but not outstanding.
          (Note 8)


                                      F-12
<PAGE>


In connection with investor relations services rendered for common stock issued,
the Company overpaid a consultant $30,000. The Company also has ended its
relationship with the consultant due to non-performance. The consultant has
agreed to repay the $30,000 overpayment by December 1, 2006 and return 75,000
shares. As of the date of issuance of these financial statements, both remain
outstanding. The shares are reflected as issued since they are outstanding and
no receivable has been set up for the repayment since it is uncertain whether or
not repayment will occur. Neither has a material effect on the overall financial
statement presentation.

The Company had the following equity activity during 2004:

On April 2, 2004, the Company completed its acquisition of 100% of the issued
and outstanding capital stock of Syscan pursuant to an Agreement dated March 29,
2004, in exchange for 20,859,459 shares of the Company's common stock. As part
of the reorganization of the Company on April 2, 2004, the common shares of the
Company were subject to a reverse split of 1 share for each 10 shares
outstanding.


Immediately prior to the Agreement, the Company had 2,027,580 shares of common
stock issued and outstanding. The acquisition was accounted for as
recapitalization of Syscan because the shareholders of Syscan controlled the
Company after the acquisition. Syscan was treated as the acquiring entity for
accounting purposes and the Company was the surviving entity for legal purposes.
The combined company is considered to be a continuation of the operations of
Syscan. The issued and outstanding common stock of Syscan prior to the
completion of the acquisition was restated to reflect the 21,082,935 common
stock issued by the Company.

PREFERRED STOCK

PREFERRED STOCK AUTHORIZED, RIGHTS AND PREFERENCES

The Company has authorized 2,000,000 shares of preferred stock, $0.001 par value
and the Company's Board of Directors has authorized 60,000 shares to be
designated as Series A Preferred Stock. The Company filed a certificate of
designation for the 5% Convertible Preferred Stock with the Delaware Secretary
of State on March 15, 2005. This filing constituted an amendment to the
Company's certificate of incorporation, designating the terms, rights and
preferences of a new series of preferred stock of the Company as follows:

Preferred Stock Conversion Rights. All or any portion of the stated value of
Preferred Stock outstanding may be converted into common stock at anytime by the
purchasers. The initial fixed conversion price of the preferred stock is $1.00
per share ("Conversion Price"). The Conversion Price is subject to anti-dilution
protection adjustments, on a full ratchet basis, at anytime that the preferred
stock is outstanding and prior to the effective date of the registration
statement required to be filed pursuant to the Registration Rights Agreement,
upon our issuance of additional shares of common stock, or securities
convertible into common stock, at a price that is less than the then Conversion
Price.

Dividends. The Preferred Stock accrues dividends at a rate of 5% per annum,
payable semiannually on July 1 and January 1 in cash, by accretion of the stated
value or in shares of common stock. Subject to certain terms and conditions, the
decision whether to accrete dividends to the stated value of the Preferred Stock
or to pay for dividends in cash or in shares of common stock, shall be at our
discretion.

Redemption. On March 15, 2008 (the "Redemption Date"), all of the outstanding
Preferred Stock shall be redeemed for a per share redemption price equal to the
stated value on the Redemption Date (the "Redemption Price"). The Redemption
Price is payable by us in cash or in shares of common stock at our discretion
and shall be paid within five trading days after the Redemption Date. In the
event we elect to pay all or some of the Redemption Price in shares of common
stock, the shares of common stock to be delivered to the purchasers shall be
valued at 85% of the fifteen-day volume weighted average price of the common
stock on the Redemption Date.

Right to Compel Conversion. If, on any date after March 15, 2006, (A) the
closing market price per share of our common stock for ten (10) consecutive
trading days equals at least $4.00 (subject to adjustment for certain events),
and (B) the average reported daily trading volume during such ten-day period
equals or exceeds 100,000 shares, then we shall have the right, at our option,
to convert, all, but not less than all, of the outstanding shares of Preferred
Stock at the Conversion Price; provided that there shall be an effective
registration statement covering the resale of the shares of common stock
underlying the preferred stock at all times during such 10-day period and during
the 30-day notice period to the holders thereof.


                                      F-13
<PAGE>

Restrictions on Conversion of Preferred Stock. No holder of our Preferred Stock
is entitled to receive shares upon payment of dividends on the Preferred Stock,
or upon conversion of the Preferred Stock held by such holder if such receipt
would cause such holder to be deemed to beneficially own in excess of 4.999% of
the outstanding shares of our common stock on the date of issuance of such
shares (such provision may be waived by such holder upon 61 days prior written
notice to us). In addition, no individual holder is entitled to receive shares
upon payment of dividends on the Preferred Stock, or upon conversion of the
Preferred Stock held by such holder if such receipt would cause such holder to
be deemed to beneficially own in excess of 9.999% of the outstanding shares of
our common stock on the date of issuance of such shares (such provision may be
waived by such holder upon 61 days prior written notice to us).

Registration Rights. Pursuant to the terms of a Registration Rights Agreement
between us and the holders of the preferred stock, we were obligated to file a
registration statement on Form SB-2 registering the resale of shares of our
common stock issuable upon conversion of the preferred stock and exercise of the
warrants. We were required to file the registration statement on or before April
24, 2005 and have the registration statement declared effective on or before
July 13, 2005, which we completed prior to that date. If the registration
statement was not declared effective within the timeframe described, or if the
registration was suspended other than as permitted in the Registration Rights
Agreement, we are obligated to pay each holder a fee equal to 1.0% of such
holders purchase price of the Preferred Stock during the first 90 days, and 2.0%
for each 30 day period thereafter (pro rated for partial periods), that such
registration conditions are not satisfied.

Right of First Refusal. Subject to certain conditions, we have granted the
holders a right of first refusal, for a period until one (1) year from the
effective date of the registration statement required to be filed in connection
with the purchase of the Preferred Stock, to participate in any subsequent
financing that we conduct.

Voting Rights. Holders of the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, we shall not,
without the affirmative vote of the holders of a majority of the shares of the
Preferred Stock then outstanding, (a) alter or change adversely the powers,
preferences or rights given to the Preferred Stock or alter or amend the Series
A Certificate of Designation, (b) authorize or create any class of stock ranking
as to dividends or distribution of assets upon a liquidation senior to or
otherwise pari passu with the Preferred Stock, (c) amend our certificate or
articles of incorporation or other charter documents so as to affect adversely
any rights of the holders of the Preferred Stock, (d) increase the authorized
number of shares of Preferred Stock, or (e) enter into any agreement with
respect to the foregoing.

Liquidation Preference. Upon our liquidation, dissolution or winding up, whether
voluntary or involuntary (a "Liquidation"), the holders of the Preferred Stock
shall be entitled to receive out of our assets, whether such assets are capital
or surplus, for each share of Preferred Stock an amount equal to the stated
value per share before any distribution or payment shall be made to the holders
of any of our securities with rights junior to the Preferred Stock, and if our
assets shall be insufficient to pay in full such amounts, then the entire assets
to be distributed to the holders of the Preferred Stock shall be distributed
among such holders ratably in accordance with the respective amounts that would
be payable on such shares if all amounts payable thereon were paid in full.

Anti-Dilution. Holders of the Preferred Stock are entitled to full ratchet
anti-dilution protection for issuances of common stock or common stock
equivalents, prior to the effective date of the registration statement covering
the resale of the shares of common stock underlying the Preferred Stock, at less
than the Conversion Price. Holders of Preferred Stock also have standard
anti-dilution protection for splits, dividends, subdivisions, distributions,
reclassifications and combinations of our common stock.

PREFERRED STOCK ISSUED

On March 15, 2005, the Company completed a private placement with a group of
accredited investors for the sale of 18,650 shares of the Company's 5% Series A
Convertible Preferred Stock along with warrants, expiring five years from the
date of issuance, to purchase additional shares of the Company's stock. Pursuant
to a registration rights agreement (Note 7), the Company has registered the
shares of common stock issuable upon conversion of the Preferred Stock and upon
exercise of the warrants with the Securities and Exchange Commission on Form
SB-2. The Company will not receive any proceeds from any sales made by the
selling stockholders but will pay the expenses of the offering. However, the
Company will receive the proceeds from the exercise of the warrants issued to
the selling stockholders if and when they are exercised. This registration was
declared effective by the SEC on July 7, 2005, and remains effective as of the
date of this filing.


                                      F-14
<PAGE>


Total common stock issuable upon conversions of the underlying the preferred
stock and warrants follows:

Series A Convertible Preferred stock  (1)                            1,865,000
Maximum accrued dividends on the shares
   of Series A Convertible Preferred stock  (1)                        279,750
Warrants issued to purchasers in private placement (2)                 932,500
Warrants issued to placement agent in the private placement (1)        186,500
                                                                --------------
                                                                     3,263,750
                                                                ==============

    (1) convertible at $1.00 per share, subject to adjustment pursuant to the
anti-dilution provisions
     (2) convertible at $2.00 per share, subject to adjustment pursuant to the
anti-dilution provisions

The 5% Series A Convertible Preferred Stock has no voting rights and ranks ahead
of the common stock of the Company upon liquidation of the Company and with
respect to the payment of dividends. The holders are entitled to receive
cumulative dividends at the rate per share of 5% per annum, payable
semi-annually on July 1 and January 1 from the date of original issuance through
the date of redemption or conversion thereof payable in cash, by accretion of
the stated value, or in shares of common stock, the form of which is at the
discretion of the Company.

The 5% Series A Convertible Preferred Stock was priced at $100 per share and the
Company received proceeds of $1,865,000 less offering costs and expenses.
Starboard Capital Markets, LLC, a NASD member firm, acted as placement agent in
the sale of the preferred stock for which it received $186,500 in commissions
and 186,500 warrants to purchase shares of the Company's common stock at an
exercise price equal to $1.00 per share. The fair value of these warrants
totaled $290,000 and such amount was charged to other income/(expense) and
credited to additional paid-in capital during 2005. The Company also incurred
cash expenses totaling $50,000.

The warrants must be exercised by the payment of cash, except if there is no
effective registration statement covering the resale of the shares of common
stock underlying the warrants, a holder may exercise their warrants on a
cashless basis. Holders of the warrants are entitled to full ratchet
anti-dilution protection for issuances of common stock or common stock
equivalents, prior to the effective date of the registration statement covering
the resale of the shares of common stock underlying the preferred stock, at less
than the exercise price of such warrants. Holders of warrants also have standard
anti-dilution protection for splits, dividends, subdivisions, distributions,
reclassifications and combinations of our common stock. None of the individual
holders of the warrants are entitled to exercise any such warrant held by them,
if such exercise would cause such holder to be deemed to beneficially own in
excess of 4.999% of the outstanding shares of the Company's common stock on the
date of issuance of such shares.


PREFERRED STOCK ACCOUNTING TREATMENT

Pursuant to SFAS 133 and EITF Abstract No. 00-19, the embedded conversion
feature associated with the 5% Convertible Preferred Stock and the warrants
issued to the 5% Convertible Preferred Stock purchasers have been determined to
be derivative instruments. Accordingly, the fair value of these derivative
instruments has been recorded as a liability on the consolidated balance sheet
with the corresponding amount recorded as a discount to the 5% Convertible
Preferred Stock. Such discount is being accreted from the date of issuance, less
conversions, to the redemption date of the 5% Convertible Preferred Stock and
totaled $467,699 for the period from the date of issuance (March 15, 2005) to
December 31, 2005. The change in the fair value of the liability for derivative
contracts totaled $(1,112,005) in 2005 and has been credited to other
income/(expense) in the consolidated statements of operations.

The Company computes fair value of these derivatives using the Black-Scholes
valuation model. The Black-Scholes model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. The
Company's derivative instruments have characteristics significantly different
from traded options, and the input assumptions used in the model can materially
affect the fair value estimate. The assumptions used in this model to estimate
fair value of each derivative instrument and the resulting value of the
derivative liability as of December 31, 2005 are as follows:


                                      F-15
<PAGE>

<TABLE>
<CAPTION>

                                                                         Embedded conversion
                                                                       feature associated with
                                                                         the 5% Convertible
                                              Warrants    Warrants           Preferred Stock
                                             ----------------------------------------------------
<S>                                        <C>          <C>     <C>         <C>
Exercise/Conversion Price                  $  1.00      2.00    $             1.00
Fair Value of the Company's Common Stock   $  0.62      0.62    $             0.62
Expected life in years                        4.25      4.25                  2.25
Expected volatility                          99.77     99.77    %            99.77
Expected dividend yield                        0.0      0.00    %              0.0
Risk free rate                                 4.0       4.0    %              4.0
Calculated fair value per share            $  0.46      0.37                  0.31
</TABLE>


The 5% Convertible Preferred Stock is Mandatorily Redeemable Preferred Stock as
defined by SFAS 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", and would also qualify as
"Preferred Stocks Subject to Mandatory Redemption Requirements or Whose
Redemption is Outside the Control of the Issuer" as defined by Accounting Series
Release ("ASR") No. 268 - "Redeemable Preferred Stocks". The conversion feature
associated with the 5% Convertible Preferred Stock is not a non-substantive or
minimal feature and therefore the provisions of ASR No. 268 have been applied in
classifying the 5% Convertible Preferred Stock separate from stockholders'
equity. The Company must redeem any outstanding 5% Convertible Preferred Stock
on March 15, 2008.

PREFERRED STOCK CONVERSIONS

During the third quarter of 2005, $250,000 of Series A Convertible Preferred
Stock (2,500 shares) plus dividend shares of 6,581 were converted into 256,581
shares of common stock. As of December 31, 2005, total Series A 5% Convertible
Preferred Stock outstanding was $1,615,000 or 16,150 shares.


STOCK OPTIONS

BOARD OF DIRECTOR APPROVED STOCK OPTIONS SUBJECT TO SHAREHOLDER APPROVAL AND
OTHER OUTSTANDING OPTIONS

On April 2, 2004, the Company's Board of Directors authorized the increase in
the number of stock options available under the 2002 Stock Option Plan (the
"Plan") from 200,000 to 2,200,000. On July 21, 2004, the Company's Board of
Directors further authorized the increase in the number of stock options
available under the 2002 Stock Option Plan from 2,200,000 to 3,200,000. The
subject increases are subject to stockholder ratification at the next annual or
special meeting of stockholders, which has not been obtained as of the date this
filing.

On April 13, 2004, the Company's Board of Directors authorized an aggregate of
1,700,000 options under the Plan to certain individuals at $1.50 per share, and
expiring through April 2014. These options were canceled by the Board of
Directors on May 7, 2004. On July 21, 2004, the Company's Board of Directors
further authorized an aggregate of 2,200,000 options under the 2002 Stock Option
Plan to be issued to certain individuals at $2.00 per share and expiring through
July 2014. During 2005, 220,000 options were canceled and the Company granted
230,000 options to certain individuals at $0.65, representing the fair market
value on the date of grant and expiring ten years from the date of grant,
bringing total options outstanding to 2,210,000. The grant of the above options
is subject to stockholder ratification of the Company's increase in the number
of stock options available for grant under the Plan. The Company plans to obtain
stockholder approval at its annual or special meeting of stockholders, which has
not yet been scheduled as of the date of this filing.

As part of an employment agreement signed in December 2003, the employee
received 500,000 options to acquire shares of the company at $0.09 per share for
a term of 2 years. Following the restructuring of the Company on April 2, 2004,
and in connection with the 1-for-10 reverse split, the options were re-issued as
50,000 options to acquire shares at $0.90 per share. The Company also issued
100,000 options to its former legal counsel in consideration of services
rendered. The options are exercisable at $0.25 per share for a term expiring
December 2006. These options have been re-issued as 10,000 options to acquire
shares at $2.50 per share following the reverse split in April 2004.


                                      F-16
<PAGE>


On April 26, 2005, the Company entered into employment agreements with its
executive officers, the terms of which were previously approved by the
independent members of the Company's board of directors. The employment
agreements extend through 2008 and provide for a base salary, annual bonus to be
determined by the Board of Directors, termination payments, stock options,
non-competition provisions, and other terms and conditions of employment. In
addition, the Company maintains employment agreements with other key employees
with similar terms and conditions.

Total options granted under the agreements with the Company's executive officers
were 3,300,000, exercisable at $0.01 per share. One-third of the options vest on
the date of execution of the employment agreement, one-third vest on April 3,
2006 and one-third vest on April 2, 2007.

Additionally, the Company issued an aggregate of 400,000 options exercisable at
$0.01 per share to two of its key employees in connection with the execution of
employment agreements with such individuals. One-third of such options vest on
April 26, 2005, one-third vest on April 3, 2006 and one-third vest on April 2,
2007.

Information about options outstanding and exercisable at December 31, 2005 is
summarized below:
<TABLE>
<CAPTION>

----------------------- -------------- ------------------- ------------ -------------- --------------- ------------

                                        WEIGHTED-AVERAGE                               WEIGHTED-AVERAGE
  RANGE OF EXERCISE        NUMBER          REMAINING       WEIGHTED-AVERAGENUMBER        REMAINING     WEIGHTED-AVERAGE
        PRICES           OUTSTANDING    CONTRACTUAL LIFE    EXERCISE     EXERCISABLE    CONTRACTUAL     EXERCISE
                                            (YEARS)           PRICE                     LIFE (YEARS)      PRICE

----------------------- -------------- ------------------- ------------ -------------- --------------- ------------
<S>     <C>               <C>                 <C>             <C>         <C>               <C>           <C>
        $0.01             3,700,000           1.25            $0.01       1,233,333         1.25          $0.01
----------------------- -------------- ------------------- ------------ -------------- --------------- ------------
     $0.90-$2.50           60,000             1.00            $1.17        60,000           1.00          $1.17
</TABLE>


NOTE 6- INCOME TAXES

Provision for income taxes for all periods presented represents the minimum
franchise tax due, $800 per annum, in the State of California for each
California entity of the consolidated entity and prior years franchise taxes
paid in 2005 for a total of $3,232 (2004: $800). No provision for Hong Kong
Profits Tax has been made for the periods presented as the Company and its
subsidiaries operating in Hong Kong have no assessable profits during the years
being reported.

The Company believes sufficient uncertainty exists regarding the realizability
of the net operating loss carryforwards and other timing differences for the
periods presented. Accordingly, a valuation allowance has been provided for the
entire amount related thereto. The valuation allowance increased (decreased) by
approximately $596,000 (2004: $142,000).

As of December 31, 2005, the Company has available net operating loss
carryforwards for federal and state income tax purposes of approximately
$6,716,000 and $600,000, which expire principally through 2025 and 2015,
respectively. State net operating loss carryforwards are based on federal net
operating losses, which are limited to certain percentages and carryover periods
based on the year incurred. Pursuant to the Tax Reform Act of 1986, annual
utilization of the Company's net operating loss carryforwards may be limited if
a cumulative change in ownership of more than 50% is deemed to occur within any
three-year period.

THE FOLLOWING TABLE RECONCILES THE STATUTORY RATES TO THE COMPANY'S EFFECTIVE
RATE:
                                             2005                2004
                                          -------------      --------------
U.S. and California statutory rate (%)      (43.0)              (43.0)
Change in valuation allowance                43.0                43.0
                                          -------------      --------------
                                               -                   -
                                          =============      ==============


                                      F-17
<PAGE>


THE NET DEFERRED INCOME TAX ASSET CONSISTED OF THE FOLLOWING:

                                                       2005             2004
                                                    -----------     -----------
Deferred tax assets
   Federal net operating loss carryforwards         $ 6,716,000     $ 5,633,000
   State net operating loss carryforwards               600,000       1,080,000
   Capitalized R&D Expenses                             932,000         932,000
   Tax credit carryforwards                             708,000         708,000
                                                    -----------     -----------
                                                      8,956,000       8,353,000
Less valuation allowance                              8,949,000       8,353,000
                                                    -----------     -----------

                                                          7,000           2,000
Deferred tax liability
   Excess tax over book depreciation                     (7,000)         (2,000)
                                                    -----------     -----------

Net deferred income tax asset                              --              --
                                                    ===========     ===========



NOTE 7- COMMITMENTS AND CONTINGENCIES

Operating leases

The Company is committed under various non-cancelable operating leases which
expire through November 2007. Future minimum rental commitments are as follows:
2006-$139,000 and 2007-$135,000. Rent expense charged to operations was
approximately $131,000 for 2005 (2004: $99,000).

Bank line of credit and letters of credit

The Company has a line of credit to borrow up to $2,500,000, bearing interest at
the rate of prime (7.25% at December 31, 2005) plus 0.5% and secured by all of
the assets of the Company. Interest payments are due monthly and all unpaid
interest and principal is due in full on October 30, 2006. Upon certain events
of defaults as more fully described in the agreement, the default variable
interest rate increases to prime plus 5.5%. The Company had $1,486,964 available
for use at December 31, 2005. The total amount available can never be more than
the face amount of all advances under line of credit and letters of credit
outstanding.

The Company issues letters of credit in the normal course of business. The
amount outstanding as of December 31, 2005, represents one letter of credit for
goods shipped to a related entity, expiring on January 24, 2006. The letter of
credit is secured by all goods and inventory covered by the document.

Employment Agreements

The Company maintains employment agreements with its executive officers which
extend through 2008. The agreements provide for a base salary, annual bonus to
be determined by the Board of Directors, termination payments, stock options,
non-competition provisions, and other terms and conditions of employment. In
addition, the Company maintains employment agreements with other key employees
with similar terms and conditions.

Litigation, claims and assessments

On May 20, 2003, Syscan, Inc., the Company's wholly-owned subsidiary, filed a
lawsuit named SYSCAN, INC. V. PORTABLE PERIPHERAL CO., LTD. ("PPL"), IMAGING
RECOGNITION INTEGRATED SYSTEMS, INC., CARDREADER INC. AND TARGUS INC. (Case No.
C03-02367 VRW) in United States District Court, Northern District of California.
Syscan alleges claims against the above-mentioned parties for patent
infringement of patent nos. 6,054,707, 6,275,309 and 6,459,506, and unfair
competition. Syscan expects to continue the case unless a reasonable settlement
amount from the defendants or a licensing agreement to the satisfaction of
Syscan is entered.


                                      F-18
<PAGE>


Syscan is seeking: (1) a temporary restraining order, preliminary injunction and
permanent injunction against defendants, restraining defendants from patent
infringement and unfair competition; (2) treble damages due to defendants'
willful infringement; (3) punitive damages; (4) accounting of unjust enrichment
by defendants, resulting from defendants' unfair competition; and (5) attorney's
fees and costs.

The defendants are jointly represented by PPL's counsel. PPL has initiated
counterclaims against Syscan for patent invalidity. Syscan has not yet been able
to quantify its damage claim against PPL. Syscan intends to vigorously pursue
this claim and denies PPL's counterclaim of patent invalidity.

There was a hearing in the Northern District of California on October 14, 2005,
in which arguments were presented to the court on the patent validity. The court
rendered a claim construction order on March 27, 2006 and the Company has filed
a motion for reconsideration for certain claim terms construction that are
believed to be erroneous. The motion has been set for hearing and oral argument
on June 29, 2006. The Company expects to continue this case unless a reasonable
settlement amount from defendants or a licensing agreement to the satisfaction
of the Company is entered.

The Company experiences routine litigation in the normal course of its business
and does not believe that any pending litigation will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.

Registration Rights Agreement

In connection with the issuance of 5% Convertible Preferred Stock (Note 5, the
Company executed a Registration Rights Agreement (the "agreement") with the
purchasers thereof under which the Company agreed to register the common shares
underlying the 5% Convertible Preferred Stock and related warrants. The
agreement provides for liquidated damages in the event a registration statement
is not declared effective by the SEC within 120 days of the March 15, 2005
closing date or if the registration statement is not maintained continuously
effective for a period of two years following the closing date. The liquidated
damages total an amount equal to one percent (pro-rated for partial months) of
the purchase price of the 5% Convertible Preferred Stock for each thirty day
period effectiveness of a registration statement is not maintained and two
percent for each thirty day period the registration statement ceases to remain
effective.


NOTE 8 - BUSINESS ACQUISITION

During the fourth quarter of 2005, the Company acquired Nanodisplay, Inc.,
("Nano") through its wholly-owned subsidiary SysView Technology Inc., which
focuses on introducing breakthrough price-performance technology in the high
definition television (HDTV) display market. The Company filed the "Certificate
of Merger" effective November 17, 2005. Nanodisplay is a leading designer of
liquid crystal on silicon (LCoS) HDTV technology and the Company believes that
the acquired technology and personnel will contribute significantly to its
efforts in the display market. The aggregate purchase price was $477,896,
including $97,896 of cash and 1,000,000 shares of common stock (500,000 of which
are being held in escrow pursuant to certain terms and conditions as outlined in
the agreement and have not been valued at the acquisition date) valued at
$380,000, which was determined based on the average market price of the
Company's common shares over the 1-week period before and after the terms of the
acquisition were agreed to. Nano's financial information is incorporated into
the consolidation of the Company effective November 17, 2005, the effective date
of the merger.


The estimated fair values of the assets and liabilities acquired are summarized
as follows:

Fixed assets                                          $    4,948
Goodwill                                                 541,992
                                                    -------------
Total assets acquired                                    546,940
Accounts payable and accrued liabilities                  69,042
                                                    -------------
Fair value of net assets acquired                     $  477,898
                                                    ============




                                      F-19
<PAGE>




Due to the start-up nature of Nano's operations and its recent formation
(September 27, 2004), it had no sales from inception to the effective date of
the merger and through December 31, 2005. Unaudited pro forma financial
information based on the assumption that the acquisition took place as of
beginning of the period (January 1, 2005), with comparative information for the
immediately preceding period as though the acquisition had been completed at the
beginning of that period follows:

                                                     2005             2004
                                                 ------------------------------
Net sales                                        $ 7,848,007     $  6,057,821
Net loss                                         $ 3,349,357     $    280,414
Basic and diluted net loss per share             $      0.14     $       0.01



                                      F-20



<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                                             Syscan Imaging, Inc.

Date:  April 17, 2006                        By: /s/ Darwin Hu
                                                 --------------
                                             Name:  Darwin Hu
                                             Title: Chief Executive Officer


Pursuant to and in accordance with the requirements of the Securities and
Exchange Act of 1934, as amended, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.


-------------------------- ----------------------------------- -----------------
Name                       Title                               Date
-------------------------- ----------------------------------- -----------------

-------------------------- ----------------------------------- -----------------
/s/ Darwin Hu              Chairman and Chief Executive        April 17, 2006
Darwin Hu                  Officer
-------------------------- ----------------------------------- -----------------

-------------------------- ----------------------------------- -----------------
/s/ William Hawkins        Chief Operating Officer and         April 17, 2006
William Hawkins            Acting Chief Financial Officer
-------------------------- ----------------------------------- -----------------

-------------------------- ----------------------------------- -----------------
/s/ David Clark            Senior Vice President of Business   April 17, 2006
David Clark                Development and Director
-------------------------- ----------------------------------- -----------------

-------------------------- ----------------------------------- -----------------
/s/ Peter Mor              Director                            April 17, 2006
Peter Mor
-------------------------- ----------------------------------- -----------------

-------------------------- ----------------------------------- -----------------
/s/ Lawrence Liang         Director                            April 17, 2006
Lawrence Liang
-------------------------- ----------------------------------- -----------------