SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal quarter ended March 31, 2006


[_]  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 333-42036


                                SOYO GROUP, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as specified in its Charter)

                 Nevada                                  95-4502724
----------------------------------------    ------------------------------------
      (State or other Jurisdiction                    (I.R.S. Employer
    of Incorporation or Organization)              Identification Number)


            1420 South Vintage Avenue, Ontario, California 91761-3646
--------------------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (909) 292-2500
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:  None

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required  to be filed by  Section  13 or 15(d) of the  Exchange  Act  during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]


                                       1
<PAGE>

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

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

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

     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of Common Stock as of the latest practicable date.

     As of May 15, 2006, there were 48,720,511 shares Outstanding.

     Documents Incorporated by Reference: None















                                       2
<PAGE>

                         SOYO GROUP, INC. AND SUBSIDIARY

                                      INDEX


PART I.  FINANCIAL INFORMATION

     Item 1.  Financial Statements

              Condensed Consolidated Balance Sheets - March 31, 2006
              (Unaudited) and December 31, 2005                                4

              Condensed Consolidated Statements of Operations (Unaudited) -
              Three Months Ended March 31, 2006 and 2005                       6

              Condensed Consolidated Statements of Cash Flows (Unaudited) -
              Three Months Ended March 31, 2006 and 2005                       8

              Notes to Condensed Consolidated Financial Statements
              (Unaudited) - Three Months Ended March 31, 2006 and 2005        10


     Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                       15

     Item 3.  Quantitative and Qualitative Disclosures about Market Risk      23

     Item 4.  Controls and Procedures                                         24


PART II. OTHER INFORMATION

     Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases
              of Equity Securities                                            26

     Item 3.  Defaults upon Senior Securities                                 26

     Item 4.  Submission of Matters to a vote of security holders             26

     Item 5.  Other information                                               27

     Item 6.  Exhibits and Reports on Form 8-K                                27


SIGNATURES                                                                    28





                                       3
<PAGE>
<TABLE>
<CAPTION>

                         SOYO Group, Inc. and Subsidiary
                      Condensed Consolidated Balance Sheets

                         SOYO Group, Inc. and Subsidiary
                           Consolidated Balance Sheets


                                                         March 31,          December 31,
-------------------------------------------------    ----------------    ----------------
                                                     2006 (unaudited)          2005
-------------------------------------------------    ----------------    ----------------
<S>                                                  <C>                 <C>
ASSETS
-------------------------------------------------    ----------------    ----------------
CURRENT
-------------------------------------------------    ----------------    ----------------
Cash and cash equivalents                            $         54,411    $        828,294
-------------------------------------------------    ----------------    ----------------
Accounts receivable, net of allowance for doubtful          6,821,483           7,278,520
accounts of $639,224 at March 31, 2006 and
December 31, 2005 respectively

-------------------------------------------------    ----------------    ----------------
Inventories                                                11,255,016           7,991,030
-------------------------------------------------    ----------------    ----------------
Prepaid Expenses                                                2,105              20,984
-------------------------------------------------    ----------------    ----------------
Income tax refund receivable                                        0                   0
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
Total Current Assets                                       18,133,015          16,118,828
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
Property and Equipment                                        917,304             867,122
-------------------------------------------------    ----------------    ----------------
  Less:  accumulated depreciation and amortization           (141,296)           (115,480)
-------------------------------------------------    ----------------    ----------------
                                                              776,008             751,642
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
Deposits                                                       42,445              36,920
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
Total Assets                                               18,951,468          16,907,390
-------------------------------------------------    ----------------    ----------------


                                  (continued)


                                       4
<PAGE>

                         SOYO Group, Inc. and Subsidiary
                      Condensed Consolidated Balance Sheets

                         SOYO Group, Inc. and Subsidiary
                     Consolidated Balance Sheets (continued)


                                                         March 31,         December 31,
-------------------------------------------------    ----------------    ----------------
                                                           2006                2005
-------------------------------------------------    ----------------    ----------------
LIABILITIES
-------------------------------------------------    ----------------    ----------------
CURRENT
-------------------------------------------------    ----------------    ----------------
Accounts payable                                           16,930,908          13,977,579
-------------------------------------------------    ----------------    ----------------
Total Accounts Payable                                     16,930,908          13,977,579
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
Accrued liabilities                                           347,509           1,287,108
-------------------------------------------------    ----------------    ----------------
Advances from officers, directors and major                         0                   0
shareholder
-------------------------------------------------    ----------------    ----------------
Business Loan                                                       0                   0
-------------------------------------------------    ----------------    ----------------
Short Term Loan                                               100,000             165,000
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
Current Liabilities                                        17,378,417          15,429,687
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
Total Liabilities                                          17,378,417          15,429,687
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
EQUITY
-------------------------------------------------    ----------------    ----------------
Class A Preferred stock, $0.001 par value                           0                   0
-------------------------------------------------    ----------------    ----------------
Class B Preferred stock, $0.001 par value                   1,752,342           1,702,486
-------------------------------------------------    ----------------    ----------------
Preferred Stock Backup Withholding                            (99,956)            (84,999)
-------------------------------------------------    ----------------    ----------------
Common stock, $0.001 par value  Authorized -                   48,721              48,682
75,000,000 shares
-------------------------------------------------    ----------------    ----------------
Additional paid-in capital                                 17,610,140          17,225,738
-------------------------------------------------    ----------------    ----------------

-------------------------------------------------    ----------------    ----------------
Accumulated deficit                                       (17,738,196)        (17,414,204)
-------------------------------------------------    ----------------    ----------------
      Total Shareholder's Equity (Deficiency)               1,573,051           1,477,703
-------------------------------------------------    ----------------    ----------------
Total Liabilities plus Shareholders' Equity          $     18,951,468    $     16,907,390
-------------------------------------------------    ----------------    ----------------
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>

                         SOYO Group, Inc. and Subsidiary
           Condensed Consolidated Statements of Operations (unaudited)


                                             Three months ended March 31,
                                             ----------------------------
-----------------------------------------    ------------    ------------
                                                 2006            2005
-----------------------------------------    ------------    ------------
Net revenues                                 $ 11,548,187    $  3,962,520
-----------------------------------------    ------------    ------------
Cost of revenues                                9,897,099       3,440,485

-----------------------------------------    ------------    ------------
Prior Years Purchase Discounts                          0       1,089,172
-----------------------------------------    ------------    ------------
Gross margin                                    1,651,088       1,611,207
-----------------------------------------    ------------    ------------
Costs and expenses:
-----------------------------------------    ------------    ------------
Sales and marketing                                74,886         239,465
-----------------------------------------    ------------    ------------
General and administrative                      1,484,994         933,973
-----------------------------------------    ------------    ------------
Provision for doubtful accounts                    50,000          31,124
-----------------------------------------    ------------    ------------
Depreciation and amortization:
-----------------------------------------    ------------    ------------
   Property and equipment                          25,815           8,749
-----------------------------------------    ------------    ------------
Total costs and expenses                        1,635,695       1,213,311
-----------------------------------------    ------------    ------------
Income (Loss) from operations                      15,393         397,896
-----------------------------------------    ------------    ------------
Other income (expense):
-----------------------------------------    ------------    ------------
   Interest income                                  3,247               0
-----------------------------------------    ------------    ------------
   Interest expense                               (72,387)        (11,221)
-----------------------------------------    ------------    ------------
   Other income (expense)                           4,531               0
-----------------------------------------    ------------    ------------
   Other income (expense), net                    (64,609)        (11,221)

-----------------------------------------    ------------    ------------
Income (Loss) before cumulative effect of         (49,216)        386,675
change in accounting principle
-----------------------------------------    ------------    ------------
Cumulative Effect on Prior Years of              (224,919)              0
Changing to Fair Value
Method of Accounting for Stock Based
Compensation
-----------------------------------------    ------------    ------------
Net Income (loss)                                (274,135)        386,675
-----------------------------------------    ------------    ------------

-----------------------------------------    ------------    ------------
Less: Dividends on Convertible Preferred           49,856          39,213
Stock
-----------------------------------------    ------------    ------------
Net income (loss) attributable to common         (323,991)   $    347,462
shareholders
-----------------------------------------    ------------    ------------
Net loss per common share - Basic and                (.01)            .01
diluted                                              (.01)            .01
-----------------------------------------    ------------    ------------
Weighted average number of shares of           48,540,681      40,530,000
common stock outstanding - Basic and           53,296,071      44,748,149
diluted
-----------------------------------------    ------------    ------------

                                  (continued)

                                        6
<PAGE>

                         SOYO Group, Inc. and Subsidiary
     Condensed Consolidated Statements of Operations (unaudited) (continued)


-----------------------------------------    ------------    ------------
Earnings per common share
-----------------------------------------    ------------    ------------
Income (loss) before cumulative effect of             .00             .01
a change in accounting principle and
preferred stock dividends
-----------------------------------------    ------------    ------------
Cumulative effect on prior years of                  (.01)              0
changing to fair value method of
accounting for stock-based compensation
-----------------------------------------    ------------    ------------
Preferred stock dividends                             .00             .00
-----------------------------------------    ------------    ------------
Net income (loss)                                    (.01)            .01
-----------------------------------------    ------------    ------------
Earnings per common share assuming
dilution-
-----------------------------------------    ------------    ------------
Income (loss) before cumulative effect of             .00             .01
a change in accounting principle and
preferred stock dividends
-----------------------------------------    ------------    ------------
Cumulative effect on prior years of                  (.01)              0
changing to fair value method of
accounting for stock-based compensation
-----------------------------------------    ------------    ------------
Preferred stock dividends                             .00             .00
-----------------------------------------    ------------    ------------
Net income (loss)                                    (.01)            .01
-----------------------------------------    ------------    ------------




     See accompanying notes to condensed consolidated financial statements.


                                       7
<PAGE>

                         SOYO Group, Inc. and Subsidiary
           Condensed Consolidated Statements of Cash Flows (Unaudited)


                                                   Three Months Ended March 31,
-----------------------------------------------    ------------    ------------
                                                       2006            2005
-----------------------------------------------    ------------    ------------
OPERATING ACTIVITIES
-----------------------------------------------    ------------    ------------
     Net income                                    $   (274,135)   $    386,675
-----------------------------------------------    ------------    ------------
Adjustments to reconcile net
       income to net cash used in
       operating activities:
-----------------------------------------------    ------------    ------------
  Depreciation and Amortization                          25,815           8,749
-----------------------------------------------    ------------    ------------
  Non cash payments for Director's Compensation          24,570            --
-----------------------------------------------    ------------    ------------
  Stock based Compensation                              359,871            --
-----------------------------------------------    ------------    ------------
  Provision for doubtful Accounts                        50,000          31,124
-----------------------------------------------    ------------    ------------
Changes in operating assets and
liabilities:
-----------------------------------------------    ------------    ------------
(Increase) decrease in:
 -----------------------------------------------    ------------    ------------
     Accounts receivable                                407,037        (593,089)
-----------------------------------------------    ------------    ------------
     Inventories                                     (3,263,986)      1,043,196
-----------------------------------------------    ------------    ------------
     Prepaid expenses                                    18,879          (3,503)
-----------------------------------------------    ------------    ------------
     Deposits                                            (5,525)         15,840
-----------------------------------------------    ------------    ------------
Increase (decrease) in:
-----------------------------------------------    ------------    ------------
     Accounts payable -                               2,953,329      (1,906,334)
-----------------------------------------------    ------------    ------------
     Accrued liabilities                               (939,599)       (254,332)
-----------------------------------------------    ------------    ------------
Net cash used in operating activities                  (643,744)     (1,271,674)
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
INVESTING ACTIVITIES
-----------------------------------------------    ------------    ------------
   Purchase of property and equipment                   (50,182)           --
-----------------------------------------------    ------------    ------------
   Proceeds from sale of equipment                         --            56,662
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
Net cash used in investing activities                   (50,182)         56,662
-----------------------------------------------    ------------    ------------


                                  (continued)


                                       8
<PAGE>

                         SOYO Group, Inc. and Subsidiary
     Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)


-----------------------------------------------    ------------    ------------
FINANCING ACTIVITIES
-----------------------------------------------    ------------    ------------
Advances from officer, director and                     (65,000)        (60,000)
major shareholder
-----------------------------------------------    ------------    ------------
Proceeds from issuance of                                  --           500,000
  Common Stock
-----------------------------------------------    ------------    ------------
Payment of backup withholding tax on                    (14,957)           --
accreted dividends on preferred stock
-----------------------------------------------    ------------    ------------
Net cash provided by financing activities               (79,957)        440,000
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
CASH AND CASH EQUIVALENTS
-----------------------------------------------    ------------    ------------
     Net decrease                                      (773,883)       (775,012)
-----------------------------------------------    ------------    ------------
     At beginning of period                             828,294       1,288,351
-----------------------------------------------    ------------    ------------
     At end of period                                    54,411    $    513,339
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
Cash paid for Interest                                   72,387               0
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
Accretion of discount on preferred stock                 49,856          39,213
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
Directors' compensation                                  24,570            --
-----------------------------------------------    ------------    ------------

-----------------------------------------------    ------------    ------------
Stock option compensation                               359,871            --
-----------------------------------------------    ------------    ------------

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

     See accompanying notes to condensed consolidated financial statements.


                                       9
<PAGE>

                         SOYO Group, Inc. and Subsidiary
        Notes to Condensed Consolidated Financial Statements (Unaudited)
                   Three Months Ended March 31, 2006 and 2005


1. Organization and Basis of Presentation

Organization - Effective October 24, 2002, Vermont Witch Hazel Company,  Inc., a
Nevada  corporation  ("VWHC"),  acquired SOYO, Inc., a Nevada corporation ("SOYO
Nevada"),  from SOYO Computer,  Inc., a Taiwan  corporation  ("SOYO Taiwan),  in
exchange for the issuance of 1,000,000 shares of convertible preferred stock and
28,182,750  shares of common  stock,  and changed  its name to SOYO Group,  Inc.
("SOYO"). The 1,000,000 shares of preferred stock were issued to SOYO Taiwan and
the  28,182,750  shares of common  stock were issued to certain  members of SOYO
Nevada management.

Subsequent to this  transaction,  SOYO Taiwan  maintained an equity  interest in
SOYO, continued to be the primary supplier of inventory to SOYO, and was a major
creditor. In addition,  there was no change in the management of SOYO and no new
capital invested, and there was a continuing family relationship between certain
members of the management of SOYO and SOYO Taiwan. As a result, this transaction
was accounted for as a  recapitalization  of SOYO Nevada,  pursuant to which the
accounting  basis  of  SOYO  Nevada  continued   unchanged   subsequent  to  the
transaction date. Accordingly,  the pre-transaction financial statements of SOYO
Nevada are now the historical financial statements of the Company.

In conjunction with this  transaction,  SOYO Nevada  transferred  $12,000,000 of
accounts  payable to SOYO Taiwan to long-term  payable,  without  interest,  due
December  31, 2005.  During the three  months ended March 31, 2004,  the Company
agreed with a third  party to convert the  long-term  payable  into  convertible
preferred stock.

On December 9, 2002,  SOYO's Board of Directors  elected to change SOYO's fiscal
year end from July 31 to  December  31 to conform to SOYO  Nevada's  fiscal year
end.

On October 24, 2002,  the primary  members of SOYO Nevada  management  were Ming
Tung Chok, the Company's  President,  Chief Executive Officer and Director,  and
Nancy Chu, the Company's Chief Financial  Officer.  Ming Tung Chok and Nancy Chu
are husband and wife.  Andy Chu, the  President  and major  shareholder  of SOYO
Taiwan, is the brother of Nancy Chu.

Unless the context indicates  otherwise,  SOYO and its wholly-owned  subsidiary,
SOYO Nevada, are referred to herein as the "Company".

Basis  of  Presentation  - The  accompanying  condensed  consolidated  financial
statements  include  the  accounts  of SOYO and  SOYO  Nevada.  All  significant
intercompany  accounts and transactions  have been eliminated in  consolidation.
The condensed consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles.

Interim Financial Statements - The accompanying  interim condensed  consolidated
financial  statements  are  unaudited,  but in the opinion of  management of the
Company,  contain all adjustments,  which include normal recurring  adjustments,
necessary  to present  fairly the  financial  position  at March 31,  2006,  the
results of  operations  for the three months ended March 31, 2006 and 2005,  and
cash flows for the three  months  ended March 31, 2006 and 2005.  The  condensed
consolidated balance sheet as of December 31, 2005 is derived from the Company's
audited consolidated financial statements.


                                       10
<PAGE>

Certain  information  and footnote  disclosures  normally  included in financial
statements  that have been prepared in  accordance  with  accounting  principles
generally  accepted in the United States have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission, although
management  of the Company  believes  that the  disclosures  contained  in these
condensed consolidated financial statements are adequate to make the information
presented  therein  not  misleading.  For  further  information,  refer  to  the
consolidated  financial  statements  and  the  notes  thereto  included  in  the
Company's  Annual  Report on Form 10-K for the fiscal  year ended  December  31,
2005, as filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with United States general
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amounts  of  assets  and  liabilities,
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. Significant estimates primarily relate to the realizable value
of accounts  receivable,  vendor programs and inventories.  Actual results could
differ from those estimates.

The  results of  operations  for the three  months  ended  March 31, 2006 is not
necessarily  indicative of the results of operations to be expected for the full
fiscal year ending December 31, 2006.

Business - The Company sells products under three  different  product lines:  1)
Computer   Components   and   Peripherals   2)  Consumer   Electronics   and  3)
Communications Equipment and Services. The products are sold to distributors and
retailers primarily in North, Central and South America.

Earnings  Per Share -  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings Per Share",  requires presentation of basic earnings per share ("Basic
EPS") and diluted earnings per share ("Diluted EPS").  Basic income per share is
computed by dividing net income available to common shareholders by the weighted
average number of common shares  outstanding  during the period.  Diluted income
per share gives  effect to all  dilutive  potential  common  shares  outstanding
during the period.  Potentially  dilutive  securities consist of the outstanding
shares of preferred stock.

As of March 31, 2006,  potentially  dilutive  securities  consisted of 2,948,342
shares of Class B Convertible Preferred Stock with a stated liquidation value of
$1.00 per share that are convertible into common stock at fair market value, but
not less than $0.25 per share.

As of March 31,  2006,  4,755,390  shares of common  stock  were  issuable  upon
conversion  of the Class B  Convertible  Preferred  Stock based on the $0.62 per
share conversion price.

As of March 31, 2005,  potentially  dilutive  securities  consisted of 1,000,000
shares of Class A Convertible Preferred Stock with a stated liquidation value of
$1.00 per share that are convertible into common stock at fair market value, and
2,653,408  shares  of  Class  B  Convertible   Preferred  Stock  with  a  stated
liquidation  value of $1.00 per share that are convertible  into common stock at
fair market value, but not less than $0.25 per share.

As of March 31,  2005,  4,248,149  shares of common  stock  were  issuable  upon
conversion  of  the  Class  A  Convertible  Preferred  Stock  and  the  Class  B
Convertible  Preferred  Stock,  consisting  of 1,162,791  shares of common stock
issuable upon conversion of the Class A Convertible  Preferred  Stock,  based on
the closing  price of $0.86 per common  share at March 31, 2005,  and  3,085,358


                                       11
<PAGE>

shares of common  stock  issuable  upon  conversion  of the Class B  Convertible
Preferred Stock, based on the $0.86 per share conversion price.

Comprehensive Income (Loss) - The Company displays comprehensive income or loss,
its  components  and  accumulated   balances  in  its   consolidated   financial
statements.  Comprehensive  income or loss includes all changes in equity except
those  resulting from  investments by owners and  distributions  to owners.  The
Company did not have any items of  comprehensive  income (loss) during the three
months ended March 31, 2006 and 2005.

Significant  Risks  and  Uncertainties  -  The  Company  operates  in  a  highly
competitive industry subject to aggressive pricing practices, pressures on gross
margins,  frequent introductions of new products,  rapid technological advances,
continual improvement in product price/performance characteristics, and changing
consumer demand.

As a result of the  dynamic  nature of the  business,  it is  possible  that the
Company's  estimates  with  respect  to the  realizability  of  inventories  and
accounts  receivable  may be materially  different  from actual  amounts.  These
differences  could  result in higher than  expected  allowance  for bad debts or
inventory  reserve  costs,  which could have a materially  adverse effect on the
Company's financial position and results of operations.

Stock-Based  Compensation - Prior to January 1, 2006, the Company  accounted for
employee stock-based  compensation using the intrinsic value method supplemented
by pro forma  disclosures in accordance with APB 25 and SFAS 123 "Accounting for
Stock-Based  Compensation"  ("SFAS 123"), as amended by SFAS No.148  "Accounting
for Stock-Based  Compensation--Transition  and Disclosures." Under the intrinsic
value  method,  compensation  cost is  measured as the excess of, if any, of the
market  price of the  Company's  common  stock at the date of  grant,  or at any
subsequent measurement date, over the amount an employee must pay to acquire the
stock.  Such  amounts are  amortized  as  compensation  expense over the vesting
period of the related  stock  options.  Under the intrinsic  value  method,  the
Company was not required to recognize stock-based compensation.

Effective  January 1, 2006 the  Company  adopted  SFAS 123R  using the  modified
prospective  approach and  accordingly  prior  periods have not been restated to
reflect the impact of SFAS 123R.  Under SFAS 123R,  stock-based  awards  granted
prior to its  adoption  will be  expensed  over the  remaining  portion of their
vesting period. These awards will be expensed under the accelerated amortization
method using the same fair value measurements which were used in calculating pro
forma stock-based  compensation  expense under SFAS 123. For stock-based  awards
granted on or after  January 1, 2006,  the  Company  will  amortize  stock-based
compensation expense on a straight-line basis over the requisite service period,
which is generally a three-four year vesting period.

On March 7, 2005,  the Company  registered its 2005 Stock  Compensation  Plan on
Form S-8 with the Securities and Exchange  Commission,  registering on behalf of
our employees,  officers,  directors and advisors up to 5,000,000  shares of our
common stock  purchasable by them pursuant to common stock options granted under
our 2005 Stock  Compensation  Plan.  The plan was approved by  shareholder  vote
during a special meeting of shareholders on February 17, 2006.

On July 22, 2005, the Company issued 2,889,000 option grants to employees at a
strike price of $.75. One third of those options will vest and be available for
purchase on July 22, 2006, one third on July 22, 2007, and one third on July 22,
2008. As a result, the fair value of the options will be expensed between now
and July 22, 2008. The grants will expire if unused on July 22, 2010.

The Company has calculated the fair value of each option granted to employees as
sixty three cents (.63) based on the Black Scholes option pricing model.

As of March 31,  2006,  employees  have left the Company and  forfeited  330,000
options.  Therefore, the charge against earnings was calculated on the remaining
2,559,000 options.


                                       12
<PAGE>

For the three  months  ended March 31, 2006,  the Company  recorded  stock-based
compensation  expense of $134,952 which reduced  income from  operations and net
income.  The cumulative  effect of the change from intrinsic value to fair value
method of accounting for stock-based  compensation in the amount of $224,919 was
also  recognized  and reduced  net  income.  The impact on basic and diluted net
income per share for the three  months  ended March 31, 2006 was  $(0.01).  SFAS
123R requires  forfeitures to be estimated at the time of grant and revised,  if
necessary,  in  subsequent  periods if actual  forfeitures  differ from  initial
estimates.  Stock-based  compensation  expense  was  recorded  net of  estimated
forfeitures  for the three  months  ended March 31,  2006 such that  expense was
recorded only for those stock-based awards that are expected to vest. Previously
under  APB  25 to the  extent  awards  were  forfeited  prior  to  vesting,  the
corresponding  previously  recognized  expense  was  reversed  in the  period of
forfeiture.

For the three month period ended March 31, 2006, the fair value of option grants
is estimated on the date of grant  utilizing  the  Black-Scholes  option-pricing
model with the weighted average assumption for options granted during 2005-2006,
expected life of the option is 5 years,  expected  volatility of 146%, risk free
interest  rate of 4.04% and a 0% dividend  yield on common  stock.  The weighted
average fair value at the grant date for such option is $0.63 per option.


2. Short Term Loan

In October 2005,  the Company  borrowed  $165,000 from an individual for working
capital purposes. As of March 31, 2006, $65,000 of the loan had been repaid, and
$100,000 was still outstanding.


3. Equity-Based Transactions

Effective  December 30,  2003,  SOYO Taiwan  entered  into an agreement  with an
unrelated  third party to sell the $12,000,000  long-term  payable due it by the
Company. As part of the agreement, SOYO Taiwan required that the purchaser would
be limited to  collecting a maximum of $1,630,000  of the  $12,000,000  from the
Company  without the prior  consent of SOYO Taiwan.  In  substance,  SOYO Taiwan
forgave debt in an amount equal to the difference  between the  $12,000,000  and
the  value of the  preferred  stock  issued in  settlement  of this  debt.  This
forgiveness of debt was treated as a capital transaction. Payment from the third
party was received by SOYO Taiwan in February and March 2004.  An agreement  was
reached during the three months ended March 31, 2004 whereby 2,500,000 shares of
Class B preferred  stock would be issued by the Company to the  unrelated  third
party in exchange for the long-term payable.

The Class B preferred  stock has a stated  liquidation  value of $1.00 per share
and a 6% dividend, payable quarterly in arrears, in the form of cash, additional
shares of preferred  stock, or common stock,  at the option of the Company.  The
Class B preferred  stock has no voting  rights.  The shares of Class B preferred
stock are  convertible,  in increments of 100,000 shares,  into shares of common
stock based on the $1.00 stated  value,  at any time through  December 31, 2008,
based on the fair  market  value of the common  stock,  subject,  however,  to a
minimum  conversion  price of $0.25 per share.  No more than  500,000  shares of
Class B preferred  stock may be converted  into common stock in any one year. On
December  31,  2008,  any   unconverted   shares  of  Class  B  preferred  stock
automatically convert into shares of common stock based on the fair market value
of the common stock,  subject,  however,  to a minimum conversion price of $0.25
per share. Beginning one year after issuance,  upon ten days written notice, the
Company or its designee will have the right to  repurchase  for cash any portion
or all of the  outstanding  shares  of  Class B  preferred  stock  at 80% of the
liquidation  value ($0.80 per share).  During such notice period,  the holder of
the preferred stock will have the continuing right to convert any such preferred
shares  pursuant to which  written  notice has been  received  into common stock


                                       13
<PAGE>

without regard to the  conversion  limitation.  The Class B preferred  stock has
unlimited piggy-back registration rights, and is non-transferrable.

The Company  recorded  the  issuance of the Class B preferred  stock at its fair
market  value on March  31,  2004 of  $1,304,000,  which  was  determined  by an
independent  investment  banking firm. The  $10,696,000  difference  between the
$12,000,000  long-term payable and the $1,304,000 fair market value of the Class
B preferred  stock was credited to additional  paid-in  capital.  The difference
between the fair market value and the liquidation value of the Class B preferred
stock is being  recognized  as an  additional  dividend to the Class B preferred
stockholder,  and as a reduction to earnings  available to common  stockholders,
and will be accreted from April 1, 2004 through December 31, 2008.


5. Significant Concentrations

a.   Customers

The Company sells to both  distributors  and  retailers.  Revenues  through such
distribution channels are summarized as follows:

                                       Three Months Ended March 31,
                                     --------------------------------
                                         2006                 2005
                                     -----------          -----------
Revenues
  Distributors                       $ 4,479,959   38.8%  $ 2,821,181   71.2%
  Retailers                            7,068,228   61.2%    1,141,339   28.8%
                                     -----------          -----------
                                     $11,548,187  100.0%  $ 3,962,520  100.0%
                                     ===========          ===========

During the three months ended March 31, 2006 and 2005, the Company offered price
protection to certain  customers  under  specific  programs  aggregating  $0 and
$99,272,  respectively,  which  reduced net  revenues  and  accounts  receivable
accordingly.

Information  with respect to  customers  that  accounted  for 10% or more of the
Company's revenues is presented below.

During the three  months  ended  March 31,  2006 and 2005,  the  Company had two
customers that accounted for revenues of $4,213,370 and  $1,673,160,  equivalent
to 36.5% and 42.2% of net revenues, respectively. The two customers were Shop at
Home Network, LLC and E23 Inc.

b.   Geographic Segments

Financial information by geographic segments is summarized as follows:

                                       Three Months Ended March 31,
                                     --------------------------------
                                         2006                 2005
                                     -----------          -----------
Revenues
  North America                      $ 9,114,585   78.9%  $ 1,560,833   39.4%
  Central and South America            2,205,222   19.1%      280,623    7.1%
  Hong Kong                                    0            1,945,308   49.1%
  Other locations                        228,380    2.0%      175,756    4.4%
                                     -----------          -----------
                                     $11,548,187  100.0%  $ 3,962,520  100.0%
                                     ===========          ===========


                                       14
<PAGE>

c.   Suppliers

Of the products the Company sold in 2005,  no more than 39% of the products were
produced by any one vendor. The Company is working to reduce that dependency and
expects that no more than 20% of any  products  sold in 2006 will be produced by
one vendor.

Through  October 24, 2002,  SOYO Nevada was a  wholly-owned  subsidiary  of SOYO
Taiwan (see Note 1).  Subsequent  to that date,  SOYO  Taiwan  agreed to provide
inventory to SOYO on an open account  basis through  December 31, 2005.  Despite
that  commitment,  SOYO Group  purchased no products from SOYO Taiwan in 2006 or
2005.



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

Cautionary   Statement  Pursuant  to  Safe  Harbor  Provisions  of  the  Private
Securities Litigation Reform Act of 1995:

This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005
contains  "forward-looking  statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended,  including statements that include the words
"believes",   "expects",    "anticipates",   or   similar   expressions.   These
forward-looking   statements  include,   but  are  not  limited  to,  statements
concerning   the   Company's   expectations   regarding   its  working   capital
requirements,  financing requirements,  business prospects, and other statements
of expectations,  beliefs,  future plans and strategies,  anticipated  events or
trends,  and similar  expressions  concerning  matters  that are not  historical
facts. The forward-looking  statements in this Quarterly Report on Form 10-Q for
the  quarterly  period  ended March 31, 2005  involve  known and unknown  risks,
uncertainties and other factors that could cause the actual results, performance
or achievements  of the Company to differ  materially from those expressed in or
implied by the forward-looking statements contained herein.

Background and Overview:

Historically,  the Company  has sold  computer  components  and  peripherals  to
distributors and retailers  primarily in North,  Central and South America.  The
Company  operated  in  one  business  segment.  A  substantial  majority  of the
Company's  products  were  purchased  from SOYO Taiwan  pursuant to an exclusive
distribution  agreement effective through December 31, 2005, and were sold under
the "SOYO" brand.

Effective  October  24,  2002,  Vermont  Witch  Hazel  Company,  Inc.,  a Nevada
corporation ("VWHC"), acquired SOYO, Inc., a Nevada corporation ("SOYO Nevada"),
from SOYO Computer,  Inc., a Taiwan corporation ("SOYO Taiwan),  in exchange for
the issuance of 1,000,000  shares of convertible  preferred stock and 28,182,750
shares of common stock, and changed its name to SOYO Group, Inc.  ("SOYO").  The
1,000,000  shares  of  preferred  stock  were  issued  to  SOYO  Taiwan  and the
28,182,750  shares of common stock were issued to certain members of SOYO Nevada


                                       15
<PAGE>

management.  During  October  2002,  certain  members of the  management of SOYO
Nevada also separately  purchased  6,026,798 shares of the 11,817,250  shares of
common stock of VWHC outstanding prior to VWHC's acquisition of SOYO Nevada, for
$300,000  in  personal  funds.  The  6,026,798  shares  represented  51%  of the
outstanding  shares of VWHC  common  stock.  Accordingly,  SOYO  Taiwan and SOYO
Nevada  management  currently own 34,209,548  shares of the 40,000,000 shares of
the Company's common stock outstanding.

Subsequent to this  transaction,  SOYO Taiwan  maintained an equity  interest in
SOYO, continued to be the primary supplier of inventory to SOYO, and was a major
creditor. In addition,  there was no change in the management of SOYO and no new
capital invested, and there was a continuing family relationship between certain
members of the  management of SOYO and SOYO Taiwan.  As a result,  for financial
reporting purposes,  this transaction was accounted for as a recapitalization of
SOYO Nevada,  pursuant to which the  accounting  basis of SOYO Nevada  continued
unchanged subsequent to the transaction date.  Accordingly,  the pre-transaction
financial  statements of SOYO Nevada are now the historical financial statements
of the Company.

Unless the context indicates  otherwise,  SOYO and its wholly-owned  subsidiary,
SOYO Nevada, are referred to herein as the "Company".

The  Company's  is  a  distributor  of  Computer   Peripherals,   Communications
Equipment, and Consumer Electronics. SOYO Group's products have always been sold
through an extensive  network of authorized  distributors  to resellers,  system
integrators,  and  value-added  resellers  (VARs).  These products are also sold
through  major  retailers,  mail-order  catalogs and  e-tailers to the consumers
throughout North America, Latin America and around the world.

Through 2004, the Company was a distributor of computer products,  a substantial
portion of which were  manufactured  in Taiwan and China.  Through SOYO Inc. the
Company offered a full line of designer motherboards and related peripherals for
intensive multimedia applications,  corporate alliances,  telecommunications and
specialty market  requirements.  The product line also included basic bare bones
PC  motherboard  systems,  flash  memory as well as small  hard disk  drives for
corporate  and mobile  users,  internal  multimedia  reader/writer  and wireless
networking solutions products for home and office (SOHO) users.

In 2004, the Company expanded its product offerings into new and higher margin
segments. The offerings were divided into three areas: Computer, Peripherals,
Communications Equipment, and Consumer Electronics. Throughout 2005 and the
first quarter of 2006, these were the areas that produced revenues for the
Company.


Financial Outlook:

As of March 31,  2006,  the  Company  is  reliant  upon the cash  flows from its
operations.  The Company does not have any external  sources of capital,  and no
established credit  facilities.  In the past two years, the Company has borrowed
funds from an officer, director, major shareholder and a private lender.

The Company is  currently  attempting  to improve its  financial  condition  and
liquidity by exploring the availability of outside debt and equity financing; to
the extent such  funding is available  under  reasonable  terms and  conditions.
Additionally,  the Company is attempting to secure credit  facilities  that will


                                       16
<PAGE>

reduce the cost of  purchasing  inventory,  provide  better and cheaper terms on
purchases and improve cash flow.

On March 28, 2005 the Company announced that an accredited investor,  Ever-Green
Technology (Hong Kong) Co., Ltd.,  purchased 500,000  unregistered shares of its
common  stock,  $0.001  par value per share  (the  "Shares")  and  common  stock
purchase  warrants to purchase 100,000 shares of its common stock exercisable at
$1.50 per share at any time until  March 22,  2008 (the  "Warrants").  The total
offering price was $500,000, which was paid in cash.

There can be no assurances  that these measures will result in an improvement in
the  Company's  operations  or  liquidity.  To the  extent  that  the  Company's
operations  and  liquidity do not  improve,  the Company may be forced to reduce
operations to a level consistent with its available  working capital  resources.
The  Company may also have to  consider a formal or  informal  restructuring  or
reorganization.


Critical Accounting Policies:

The  Company  prepared  its  condensed   consolidated  financial  statements  in
accordance with accounting principles generally accepted in the United States of
America.  The  preparation  of these  financial  statements  requires the use of
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements  and the reported  amount of revenues and expenses
during the reporting period. Management periodically evaluates the estimates and
judgments  made.  Management  bases its  estimates  and  judgments on historical
experience and on various  factors that are believed to be reasonable  under the
circumstances.  Actual  results may differ from these  estimates  as a result of
different assumptions or conditions.

The Company  operates in a highly  competitive  industry  subject to  aggressive
pricing  practices,  pressures on gross margins,  frequent  introductions of new
products,  rapid  technological  advances,   continual  improvement  in  product
price/performance characteristics, and changing consumer demand.

As a result of the  dynamic  nature of the  business,  it is  possible  that the
Company's  estimates  with  respect  to the  realizability  of  inventories  and
accounts  receivable  may be materially  different  from actual  amounts.  These
differences  could  result in higher than  expected  allowance  for bad debts or
inventory  reserve  costs,  which could have a materially  adverse effect on the
Company's financial position and results of operations.

The following critical accounting policies affect the more significant judgments
and estimates used in the  preparation of the Company's  condensed  consolidated
financial statements.


Vendor Programs:

Funds received from vendors for price protection, product rebates, marketing and
training,  product  returns and  promotion  programs are  generally  recorded as
adjustments to product costs,  revenue or sales and marketing expenses according
to the nature of the  program.  The  Company  records  estimated  reductions  to
revenues for incentive offerings and promotions. Depending on market conditions,
the Company may  implement  actions to increase  customer  incentive  offerings,
which  may  result  in an  incremental  reduction  of  revenue  at the  time the
incentive is offered.


                                       17
<PAGE>

Accounts Receivable:

The Company  recognizes  revenue  when  persuasive  evidence  of an  arrangement
exists,  delivery has occurred,  the sales price is fixed or  determinable,  and
collectibility is probable.

The Company records estimated  reductions to revenue for incentive offerings and
promotions. Depending on market conditions, the Company may implement actions to
increase  customer  incentive  offerings,  which may  result  in an  incremental
reduction of revenue at the time the incentive is offered.

In order to  determine  the  value of the  Company's  accounts  receivable,  the
Company  records a provision  for  doubtful  accounts to cover  probable  credit
losses.  Management  reviews and adjusts this  allowance  periodically  based on
historical  experience and its evaluation of the  collectibility  of outstanding
accounts receivable.

Inventories:

Inventories  are stated at the lower of cost or market.  Cost is  determined  by
using the  average  cost  method.  The Company  maintains a perpetual  inventory
system which  provides for  continuous  updating of average  costs.  The Company
evaluates  the market value of its  inventory  components on a regular basis and
reduces the computed  average cost if it exceeds the  component's  market value.
Inventories  consist  primarily of computer parts and components  purchased from
SOYO Taiwan.

Income Taxes:

The Company  records a valuation  allowance to reduce its deferred tax assets to
the amount that is more likely than not to be realized. In the event the Company
was to determine that it would be able to realize its deferred tax assets in the
future in excess of its  recorded  amount,  an  adjustment  to the  deferred tax
assets  would be credited to  operations  in the period such  determination  was
made.  Likewise,  should  the  Company  determine  that it would  not be able to
realize all or part of its deferred tax assets in the future,  an  adjustment to
the  deferred  tax  assets  would be charged to  operations  in the period  such
determination was made.

Results of Operations:

Three Months Ended March 31, 2006 and 2005:

Net Revenues.  Net revenues  increased by $7,585,667 or 191%, to  $11,548,187 in
2006, as compared to $3,962,520 in 2005. The increase in net revenues in 2006 as
compared  to 2005 was simple.  During the first  quarter of 2005 the Company had
not yet begun selling the LCD  televisions  and monitors.  The products had been
ordered, but had not yet arrived. With very little inventory to sell, sales were
scarce.

Gross  Margin.  Gross  margin was  $1,651,088  or 14.3% in 2006,  as compared to
$1,611,207 or 40.7% in 2005.  Comparing the gross margin between the quarters is
impractical,  as the sales were generated from different products.  In 2005, the
Company was still selling  computer parts only, with a smattering of VOIP sales.
Additionally,  the gross margin in 2005 contains  $1,089,172  of income  derived
from "Prior Year's  Purchases  Discounts and  Allowances  settled in 2005".  The
gross margin in 2006  represents a mix of sales of all of the Company's  product
lines, which is relevant for future periods.

Sales and  Marketing  Expenses.  Selling and  marketing  expenses  decreased  by
$164,579 to $74,886 in 2006,  as compared to $239,465 in 2005.  The  decrease is


                                       18
<PAGE>

due to the large decrease in marketing  funds given to customers.  In 2005, with
the  only  sales  coming  from  the  highly  competitive   computer  peripherals
department,  many co-op programs were necessary to fuel sales. In 2006, with the
more diverse product lines,  the Company is not  participating in the same types
of programs.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased by $551,021 to  $1,484,994  in 2006,  as compared to $933,973 in 2005.
The increase is due to three factors: Increased attorney's fees dealing with the
two lawsuits the Company is involved in, the costs of purchasing and testing the
Company's new accounting  software,  and the SEC's  requirement that the Company
change to the fair value method of Accounting for Stock Based Compensation.

Provision for Doubtful  Accounts.  The Company recorded a provision for doubtful
accounts  of $50,000 in the three  months  ended  March 31,  2006.  The  Company
recorded a provision  for  doubtful  accounts of $31,124 the three  months ended
March 31, 2005.  The larger  provision  is due to the  increased  sales  volume,
increased receivables, and slightly greater average age of the receivables.

Depreciation  and  Amortization.  Depreciation  and amortization of property and
equipment  was $25,815 in 2006,  as compared to $8,749 in 2005.  The increase is
due to the telephone lines purchased in China in 2005 now being depreciated.

Income from  Operations.  The income from  operations  was $15,393 for the three
months ended March 31, 2006,  as compared to income from  operations of $397,896
for the three months ended March 31, 2005.  The income from  operations  in 2006
equalled approximately two percent of gross sales, which the company believes is
in line with  expectations.  The 2005 results  included several hundred thousand
dollars of prior years  purchases and  discounts,  which  inflated the number as
compared  to  sales.  Additionally,   the  2006  number  contains  a  charge  of
approximately $135,000 to comply with the requirements of SFAS 123R, Share-Based
Payment,  that the Company  change to the fair value  method of  Accounting  for
Stock Based  Compensation.  Without this charge  against  earnings,  income from
operations would have been approximately $150,000.


Miscellaneous Income. Miscellaneous income was $4,531 for the three months ended
March 31,  2006.  There was no  miscellaneous  income in the three  months ended
March 31, 2005.

Interest Income. Interest income was $3,247 for the three months ended March 31,
2006. There was no interest income in 2005.

Interest Expense.  Interest expense was $72,387 for the three months ended March
31, 2006. Interest expense was $11,221 in 2005. The large increase is due to the
Company  beginning to factor  receivables  to improve cash flow in the middle of
2005, and the switch of financing institutions.  The Company paid $40,000 to the
old financier to pay off minimum  requirements,  and has now switched to another
financier with better coverage of the receivables.

Provision for Income  Taxes.  There was no provision for income taxes in 2006 or
in 2005.

Net Income  (loss).  Net loss was  $274,135 for the three months ended March 31,
2006, as compared to net income of $386,675 for the three months ended March 31,
2005.  The net loss  included  approximately  $360,000  of non cash  expenses to
comply with the requirements of SFAS 123R, Share-Based Payment, that the Company
change to the fair value method of Accounting for Stock Based  Compensation.  Of


                                       19
<PAGE>

this amount,  $224,919 represents  cumulative effect of the change in accounting
principle. Without this charge, net income would have been almost $90,000.


Financial Condition - March 31, 2006:

Liquidity and Capital Resources:


Effective  December 30,  2003,  SOYO Taiwan  entered  into an agreement  with an
unrelated  third party to sell the $12,000,000  long-term  payable due it by the
Company. As part of the agreement, SOYO Taiwan required that the purchaser would
be limited to  collecting a maximum of $1,630,000  of the  $12,000,000  from the
Company  without the prior  consent of SOYO Taiwan.  In  substance,  SOYO Taiwan
forgave debt in an amount equal to the difference  between the  $12,000,000  and
the  value of the  preferred  stock  issued in  settlement  of this  debt.  This
forgiveness of debt was treated as a capital transaction. Payment from the third
party was received by SOYO Taiwan in February and March 2004.  An agreement  was
reached during the three months ended March 31, 2004 whereby 2,500,000 shares of
Class B preferred  stock would be issued by the Company to the  unrelated  third
party in exchange for the long-term payable.

The Class B preferred  stock has a stated  liquidation  value of $1.00 per share
and a 6% dividend, payable quarterly in arrears, in the form of cash, additional
shares of preferred  stock, or common stock,  at the option of the Company.  The
Class B preferred  stock has no voting  rights.  The shares of Class B preferred
stock are  convertible,  in increments of 100,000 shares,  into shares of common
stock based on the $1.00 stated  value,  at any time through  December 31, 2008,
based on the fair  market  value of the common  stock,  subject,  however,  to a
minimum  conversion  price of $0.25 per share.  No more than  500,000  shares of
Class B preferred  stock may be converted  into common stock in any one year. On
December  31,  2008,  any   unconverted   shares  of  Class  B  preferred  stock
automatically convert into shares of common stock based on the fair market value
of the common stock,  subject,  however,  to a minimum conversion price of $0.25
per share. Beginning one year after issuance,  upon ten days written notice, the
Company or its designee will have the right to  repurchase  for cash any portion
or all of the  outstanding  shares  of  Class B  preferred  stock  at 80% of the
liquidation  value ($0.80 per share).  During such notice period,  the holder of
the preferred stock will have the continuing right to convert any such preferred
shares  pursuant to which  written  notice has been  received  into common stock
without regard to the  conversion  limitation.  The Class B preferred  stock has
unlimited piggy-back registration rights, and is non-transferable.

The Company  recorded  the  issuance of the Class B preferred  stock at its fair
market  value on March  31,  2005 of  $1,304,000,  which  was  determined  by an
independent  investment  banking firm. The  $10,696,000  difference  between the
$12,000,000  long-term payable and the $1,304,000 fair market value of the Class
B preferred  stock was credited to additional  paid-in  capital.  The difference
between the fair market value and the liquidation value of the Class B preferred
stock is being  recognized  as an  additional  dividend to the Class B preferred
stockholder,  and as a reduction to earnings  available to common  stockholders,
and will be accreted from April 1, 2004 through December 31, 2008.

Operating  Activities.  The  Company  utilized  cash of  $643,744  in  operating
activities  during  the three  months  ended  March 31,  2006,  as  compared  to
$1,271,674 in operating activities during the three months ended March 31, 2005.


                                       20
<PAGE>
<TABLE>
<CAPTION>

At March 31,  2006,  the  Company  had cash and cash  equivalents  of $54,411 as
compared  to $828,294 at  December  31,  2005.  During the final few days of the
quarter, the Company was informed that two big shipments totaling  approximately
$4,000,000 that were to be sent to customers were delayed.  The customers needed
to delay the receipt of the goods for business reasons. As a result, the Company
was unable to sell the  products  before the end of the  quarter,  and unable to
factor the invoices. This resulted in a severe cash shortage at quarter end.

The Company had working  capital of $754,598 at March 31,  2006,  as compared to
working capital of $689,141 at December 31, 2005, resulting in current ratios of
1.04:1 and 1.04:1 at March 31, 2006 and December 31, 2005, respectively.

Accounts  receivable  decreased to  $6,821,483 at March 31, 2006, as compared to
$7,278,520  at December 31, 2005, a decrease of $457,037 or 6.3%.  The Company's
provision for doubtful  accounts  stood at $639,224 and $589,224 as of March 31,
2006 and December 31, 2005 respectively.

Inventories  increased  to  $11,255,016  at  March  31,  2005,  as  compared  to
$7,991,030 at December 31, 2005, an increase of $3,263,986 or 40.8%.  During the
final few days of the quarter,  the Company was informed  that two big shipments
totaling  approximately  $4,000,000  that  were  to be sent  to  customers  were
delayed.  The  customers  needed to delay the receipt of the goods for  business
reasons.  As a result, the Company was unable to sell the product before the end
of the quarter. The products were sold to customers during the second quarter.

Accounts  payable  increased to  $16,930,908  at March 31, 2006,  as compared to
$13,977,579  at December  31, 2005,  an increase of  $2,953,329  or 21.1%,  as a
result of large inventory purchases during the quarter.

Accrued  liabilities  decreased  to $347,509 at March 31,  2006,  as compared to
$1,287,108 at December 31, 2005, a decrease of $939,599.  The large  decrease is
due to  reductions in accruals for  marketing  expenses,  RMA expenses and other
accrued  liabilities.  The Company had large  accruals over the year end, as the
Company had very little experience  selling the new products,  and was unsure of
the  return or RMA  rates.  With the  additional  time that has  passed  and the
additional  experience,  the Company is satisfied that the current  accruals are
sufficient.

Financing  Activities.  In October 2005, the Company  borrowed  $165,000 from an
individual for working capital purposes.  As of March 31, 2006, $100,000 is owed
to that individual.


Principal Commitments:

A summary of the Company's  contractual cash obligations as of March 31, 2006 is
as follows:

                                            Payments Due By Period
                                            ----------------------

Contractual                           Less than     Between      Between     After
Cash Obligations            Total       1 year     1-2 years    3-5 years   5 years
----------------------   ----------   ----------   ----------   ---------   --------
<S>                      <C>          <C>          <C>          <C>         <C>
Operating leases         $  567,178   $  212,692   $  354,486   $    --     $   --



Short Term Loan             100,000      100,000         --          --         --
                         ----------   ----------   ----------   ---------   --------
Total contractual cash
  obligations            $  667,178   $  312,692   $  354,486   $    --     $   --
                         ==========   ==========   ==========   =========   ========
</TABLE>


                                       21
<PAGE>

Off-Balance Sheet Arrangements:

At March 31, 2006,  the Company did not have any  transactions,  obligations  or
relationships that could be considered off-balance sheet arrangements.

Commitments and Contingencies:

At March 31, 2006, the Company did not have any material commitments for capital
expenditures.

Recent Accounting Pronouncements:

In May 2005, FASB issued SFAS No. 154, Accounting Changes and Error Corrections,
a replacement  of APB Opinion No. 20 and FASB  Statement No. 3. SFAS 154 applies
to all voluntary  accounting principle changes as well as the accounting for and
reporting of such  changes.  SFAS 154 is effective  for  accounting  changes and
corrections of errors made in fiscal years beginning after December 15, 2005.

     SFAS  154   requires   voluntary   changes  in   accounting   principle  be
retrospectively  applied to financial  statements  from previous  periods unless
such application is  impracticable.  Changes in depreciation,  amortization,  or
depletion for long-lived,  non-financial assets are accounted for as a change in
accounting estimate that is affected by a change in accounting principle,  under
the newly issued standard.

     SFAS 154 replaces  APB Opinion No. 20 and SFAS 3. SFAS 154 carries  forward
many  provisions  of  Opinion  20 and  SFAS 3  without  change  including  those
provisions  related to reporting a change in  accounting  estimate,  a change in
reporting  entity,  correction of an error and reporting  accounting  changes in
interim financial statements.  The FASB decided to completely replace Opinion 20
and SFAS 3 rather than amending them in keeping to the goal of simplifying  U.S.
GAAP. The provisions of SFAS No. 154 are not expected to have a material  effect
on the Company's consolidated financial position or results of operation.

In  December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Nonmonetary
Assets,  an amendment of APB Opinion No. 29". SFAS 153 addresses the measurement
of exchanges of nonmonetary  assets. It eliminates the exception from fair value
measurement for nonmonetary  exchanges of similar productive assets in paragraph
21(b)  of APB  Opinion  No.  29,  Accounting  forNonmonetary  Transactions,  and
replaces  it  with an  exception  for  exchanges  that  do not  have  commercial
substance.  SFAS  153  specifies  that a  nonmonetary  exchange  has  commercial
substance  if the  future  cash  flows of the  entity  are  expected  to  change
significantly as a result of the exchange.

The exception under APB 29 required that some  nonmonetary  exchanges,  although
commercially substantive,  be recorded on a carryover basis. SFAS 153 eliminates
the  exception  to fair value for  exchanges  of similar  productive  assets and
replaces it with a general exception for exchange  transactions that do not have
commercial  substance--that  is, transactions that are not expected to result in
significant changes in the cash flows of the reporting entity.

SFAS 153 is  effective  on  January  1, 2006.  The  adoption  of SFAS 153 is not


                                       22
<PAGE>

expected to have an impact on the Company's consolidated financial statements or
disclosures.

In December 2004, the FASB issued  Statement of Financial  Accounting  Standards
No. 123 (revised 2004),  Share-Based  Payment ("SFAS No. 123(R)") which replaces
SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees.  SFAS No. 123(R) requires that
companies recognize all share-based  payments to employees,  including grants of
employee stock options, in the financial  statements.  The cost will be based on
the fair value of the equity or liability instruments issued and recognized over
the respective  vesting period of the stock option. Pro forma disclosure of this
cost will no longer be an  alternative  under SFAS No.  123(R).  SFAS  123(R) is
effective  for public  companies at the  beginning of the first fiscal year that
begins after June 15, 2005.

Transition  methods  available to public  companies  include either the modified
prospective  or  modified  retrospective   adoption.  The  modified  prospective
transition method requires that compensation cost be recognized beginning on the
effective  date, or date of adoption if earlier,  for all  share-based  payments
granted after the date of adoption and for all unvested  awards  existing on the
date of adoption. The modified  retrospective  transition method, which includes
the requirements of the modified  prospective  transition  method,  additionally
requires the restatement of prior period financial  information based on amounts
previously recognized under SFAS No. 123 for purposes of pro-forma  disclosures.
The Company  adopted  SFAS No.  123(R)  effective  January 1,  2006.The  Company
adopted the modified  prospective  method. As a result, the Company recognized a
charge  against  earnings of $134,952 for the three months ended March 31, 2006,
and the cumulative effect on prior years of changing to the fair value method of
$224,919.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB No. 43,  Chapter 4." SFAS 151 amends the guidance in ARB No. 43,  Chapter
4, "Inventory  Pricing," to clarify the accounting for abnormal  amounts of idle
facility  expense,  freight,  handling costs,  and wasted  material  (spoilage).
Paragraph  5 of ARB 43,  Chapter  4,  previously  stated  that ". . . under some
circumstances,  items such as idle facility expense,  excessive spoilage, double
freight,  and  rehandling  costs may be so abnormal as to require  treatment  as
current period charges.  . . ." SFAS 151 requires that those items be recognized
as current-period  charges  regardless of whether they meet the criterion of "so
abnormal." In addition,  SFAS 151 requires that  allocation of fixed  production
overheads  to the costs of  conversion  be based on the normal  capacity  of the
production facilities.

SFAS 151 is effective on January 1, 2006.  Earlier  application is permitted for
inventory costs incurred  beginning  January 1, 2005. The provisions of SFAS 151
shall be applied prospectively. The adoption of SFAS 151 is not expected to have
an impact on the Company's consolidated financial statements or disclosures.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  Company  does not have any  market  risk with  respect  to such  factors as
commodity  prices,  equity  prices,  and other market changes that affect market
risk sensitive investments.

As the Company's debt obligations at March 31, 2006 are primarily  short-term in
nature and  non-interest  bearing,  the  Company  does not have any risk from an


                                       23
<PAGE>

increase in interest rates. However, to the extent that the Company arranges new
interest-bearing borrowings in the future, an increase in current interest rates
would cause a  commensurate  increase in the  interest  expense  related to such
borrowings.

The  Company  does not have any  foreign  currency  risk,  as its  revenues  and
expenses, as well as its debt obligations, are denominated and settled in United
States dollars.

ITEM 4.   CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures:

     In conjunction with the audit of the Company's financial statements for the
years ended December 31, 2003 and 2004, the Company's  Chief  Executive  Officer
and its Chief Financial  Officer reviewed and evaluated the effectiveness of the
Company's  disclosure  controls and  procedures (as defined in Exchange Act Rule
13a-15(e) and 15d-15(e)), which are designed to ensure that material information
the Company must disclose in its reports filed or submitted under the Securities
Exchange Act of 1934, as amended (the "Exchange  Act"), is recorded,  processed,
summarized  and reported on a timely basis,  and have  concluded,  based on that
evaluation,  that  as of such  dates,  the  Company's  disclosure  controls  and
procedures were not adequate.  In addition,  the Company's  automated  financial
reporting  systems are overly  complex,  poorly  integrated  and  inconsistently
implemented.

     The Company's Chief Executive  Officer and Chief Financial  Officer arrived
at this  conclusion  based on a number of factors,  including that the Company's
system of internal  control  during 2003 and 2004 did not: (1)  properly  record
accounts  payable to vendors for  purchases of  inventory,  (2) did not properly
record  adjustments  to inventory per the general  ledger to physical  inventory
balances, (3) did not properly record inventory adjustments to the lower of cost
or market using the average inventory method, (4) did not periodically reconcile
the Company's  main bank account  between August 2003 and December 2003, (5) did
not have adequate controls over interim physical inventory  procedures,  and (6)
did not generate  timely and  accurate  financial  information  to allow for the
preparation  of timely and complete  financial  statements.  The Company did not
have an  adequate  financial  reporting  process  because of the  aforementioned
material weaknesses,  including the difficulty in identifying and assembling all
relevant  contemporaneous  documentation for ongoing business transactions,  and
significant  turnover  in the  Company's  financial  staff.  In  addition to the
foregoing,  a former employee  withheld  information from the auditor during the
2003  audit.  Accordingly,  the  Company's  Chief  Executive  Officer  and Chief
Financial Officer concluded that there were significant deficiencies,  including
material  weaknesses,  in the  Company's  internal  controls  over its financial
reporting at the end of the fiscal period ended December 31, 2003.

     In view of the fact that the  financial  information  presented in the 2003
annual  report was prepared in the absence of adequate  internal  controls  over
financial  reporting,  the  Company  devoted  a  significant  amount of time and
resources  to  the  analysis  of the  financial  information  and  documentation
underlying the financial statements  contained in this annual report,  including
the related  interim  financial  statements,  resulting  in the  restatement  of
certain interim financial  statements.  In particular,  the Company reviewed all
significant   account  balances  and   transactions   underlying  the  financial
statements to verify the accuracy of the financial  statements  contained in the
2003 annual report.


                                       24
<PAGE>

     When the Company's senior  management  realized that there were significant
deficiencies,  including material weaknesses,  in our 2003 internal control over
financial  reporting,  we  retained  outside  advisors  to assist the  Company's
financial staff in preparing the Company's financial  statements,  including the
restated interim periods


To address these weaknesses, the Company took the following corrective actions:

>> The Company hired a new  Accounting  Manager,  then  replaced the  Accounting
Manager with a more qualified candidate. That employee recently left the Company
to return overseas for a family emergency. The employee will not be returning to
the Company,  which means that as of March 31, 2006,  the Company was  operating
without an Accounting  Manager or Controller.  While the Company  searched for a
replacement,  the  Company  retained a  financial  consultant  and former CPA to
oversee the day to day management of the accounting department.  The Company has
recently added additional personnel to complete the day to day accounting tasks.

In light of the foregoing,  management took the following actions to rectify the
deficiencies as described above.

>> Management hired experts to assist with the financial reporting required, and
to train Company employees to perform such tasks in the future.

>> Management  hired experts to assist in the evaluation and  implementation  of
new accounting software. The evaluation was completed, and the software has been
paid for.  The software is  currently  being  tested and will be  installed  and
operational during the second quarter of fiscal year 2006.


In conjunction with the audit of the Company's financial statements for the year
ended December 31, 2005,  the Company's  Chief  Executive  Officer and its Chief
Financial  Officer  reviewed and evaluated the corrective  actions listed above.
The officers believed that such corrective actions minimize the risk of material
misstatement,   but  the  corrective   actions  continued  to  have  significant
deficiencies.

As of May 15, 2006,  the Company has hired an Accounting  Manager and additional
finance  personnel.  The Chief Executive Officer and the Chief Financial Officer
are satisfied that with the personnel in place, and with the additional  efforts
of the  Financial  Consultant/  CPA,  that  the  books  and  records  portray  a
completely  accurate  picture of the Company's  financial  position and that all
transactions  are being captured and reported as required.  The Company believes
that once the new software is installed and operational,  and the new Accounting
Manager is trained,  all significant  deficiencies  will have been addressed and
corrected.


                           PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

On August 2, 2004, a lawsuit was filed in  California  Superior  Court  entitled
Gerry Normandan.  et al, v. SOYO Inc. Case No. RCV 082128.  The case seeks class
action status and alleges defects in motherboards  which Soyo  distributes,  and
that the  Company  misrepresented  and omitted  material  facts  concerning  the
motherboards.  The plaintiff seeks  restitution and  disgorgement of all amounts


                                       25
<PAGE>

obtained by defendant as a result of alleged misconduct,  plus interest,  actual
damages,  punitive  damages  and  attorneys'  fees.  The  Company is  vigorously
defending  the lawsuit and  believes  that it will be resolved  with no material
adverse effect on the Company.

On April  14,  2005 a  lawsuit  was  filed  in  Superior  Court of the  State of
California,  County of San Bernardino,  entitled Afshin Pourvajdi v. SOYO Group,
Inc.,  Nancy Chu and various Doe  defendants.  Case RCV  086992.  The  complaint
alleges  causes of action for: 1) Double  damages  for  violation  of labor code
Section  970; 2)  Misrepresentation;  3)  Intentional  Infliction  of  Emotional
Distress;  4) Breach of Contract.  The prayer for relief in the Complaint  seeks
damages of no less than $200,000 on the first and second causes of action,  plus
an unspecified  amount of punitive damages and an unspecified  amount of general
and punitive  damages on the third cause of action and an unspecified  amount of
general and punitive damages on the fourth cause of action. Plaintiff also seeks
to recover all costs and attorney  fees.  The case arises from a consultant  who
worked briefly for the Company in 2004 and whose  contract was not renewed.  The
Company  expects the case to be settled  during the second  quarter of 2006. The
Company  will  update  shareholders  as to the  status  of the case as soon as a
definitive outcome is reached.

There are no other legal proceedings that have been filed against the Company.

     None of the Company's directors, officers or affiliates, or owner of record
of more than five percent (5%) of its  securities,  or any associate of any such
director, officer or security holder, is a party adverse to the Company or has a
material interest adverse to the Company in reference to pending litigation.

ITEM 1A:  RISK FACTORS

     In addition to the other  information set forth in this report,  you should
carefully  consider the factors  discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2005, which could
materially affect our business, financial condition or future results. The risks
described  in our Annual  Report on Form 10-K are not the only risks  facing our
Company. Additional risks and uncertainties not currently known to us or that we
currently  deem to be  immaterial  also  may  materially  adversely  affect  our
business, financial condition and/or operating results.


ITEM 2.   CHANGES IN SECURITIES,  USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
          SECURITIES

None

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None

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

On March 7, 2005,  the Company  registered its 2005 Stock  Compensation  Plan on
Form S-8 with the Securities and Exchange  Commission,  registering on behalf of
our employees,  officers,  directors and advisors up to 5,000,000  shares of our
common stock  purchasable by them pursuant to common stock options granted under


                                       26
<PAGE>

our 2005 Stock  Compensation  Plan.  The plan was approved by  shareholder  vote
during a special meeting of shareholders on February 17, 2006.


ITEM 5.   OTHER INFORMATION

None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

A list of  exhibits  required to be filed as part of this report is set forth in
the  Index  to  Exhibits,  which  immediately  precedes  such  exhibits,  and is
incorporated herein by reference.

(b)  Reports on Form 8-K

Three Months Ended March 31, 2006:

None















                                       27
<PAGE>

                                   SIGNATURES


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




                                                           SOYO GROUP, INC.
                                                         --------------------
                                                             (Registrant)




DATE:  May 15, 2006                                   By: /s/ Ming Tung Chok
                                                         -----------------------
                                                         Ming Tung Chok
                                                         President and Chief
                                                         Executive Officer



DATE:  May 15, 2006                                   By: /s/ Nancy Chu
                                                         -----------------------
                                                         Nancy Chu
                                                         Chief Financial Officer



DATE:  May 15, 2006                                   By /s/ Paul F. Risberg
                                                      --------------------------
                                                      Name: Paul F. Risberg
                                                      Title: Director

DATE:  May 15, 2006                                   By /s/ Chung Chin Keung
                                                      --------------------------
                                                      Name: Chung Chin Keung
                                                      Title: Director

DATE:  May 15, 2006                                   By /s/ Zhi Yang Wu
                                                      --------------------------
                                                      Name: Zhi Yang Wu
                                                      Title: Director





                                       28
<PAGE>

                                INDEX TO EXHIBITS



Exhibit
Number         Description of Document
------         -----------------------


31.1           Certification  pursuant to Section 302 of the  Sarbanes-Oxley Act
               of 2002 - Ming Tung Chok

31.2           Certification  pursuant to Section 302 of the  Sarbanes-Oxley Act
               of 2002 - Nancy Chu

32             Certification  pursuant to Section 906 of the  Sarbanes-Oxley Act
               of 2002 - Ming Tung Chok and Nancy Chu















                                       29