SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                    FORM 10-K


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

     For the fiscal year ended December 31, 2005


[ ]  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


                                                                               1
<PAGE>

     Indicate by check mark if the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

     Indicate by check mark if the  registrant  is not  required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

     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 [ ]

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-K  (ss.229.405 of this chapter) is not 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-K or any amendment to this Form 10-K. [X]

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

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a nn-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

     The aggregate market value of the voting and non-voting  common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity,  as of March
__, 2006 was $___________,  based on the closing bid price of $0.__ per share on
March __, 2006.

     As of March 31, 2006, there were 48,987,511 shares Outstanding.

     Documents Incorporated by Reference: None





                                                                               2
<PAGE>

                                SOYO GROUP, INC.
                                    FORM 10-K
                                      INDEX

                                                                            Page
                                                                            ----

                                     PART I

Item 1.  Business..............................................................5

Item 2.  Properties...........................................................16

Item 3.  Legal Proceedings....................................................17

Item 4.  Submission of Matters to a Vote of Security Holders..................18

                                     PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters
         and Issuer Purchases of Equity Securities............................18

Item 6.  Selected Financial Data..............................................21

Item 7   Management's Discussion and Analysis of Financial Condition
         and Results of Operations............................................22

Item 7A  Quantitative and Qualitative Disclosures About Market Risk...........37

Item 8.  Financial Statements and Supplementary Data..........................37

Item 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure..................................66

Item 9A. Controls and Procedures..............................................68

Item 9B. Other Information....................................................71

                                    PART III


Item 10. Directors and Executive Officers of the Registrant...................71

Item 11  Executive Compensation...............................................74


                                                                               3
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters......................................75

Item 13. Certain Relationships and Related Transactions.......................76

Item 14. Principal Accountant Fees and Services...............................77

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules .............................78

Signatures....................................................................79












                                                                               4
<PAGE>

PART I

ITEM 1. BUSINESS.

     When  used  in  this  Form  10-K,  the  words   "expects,"   "anticipates,"
"estimates"  and similar  expressions  are intended to identify  forward-looking
statements.  Such statements are subject to risks and  uncertainties,  including
those set forth below under "Risks and  Uncertainties,"  that could cause actual
results  to  differ  materially  from  those  projected.  These  forward-looking
statements  speak  only  as of  the  date  hereof.  We  expressly  disclaim  any
obligation or  undertaking  to release  publicly any updates or revisions to any
forward-looking  statements  contained  herein  to  reflect  any  change  in our
expectations  with  regard  thereto  or any  change  in  events,  conditions  or
circumstances  on which any statement is based.  This discussion  should be read
together with the financial statements and other financial  information included
in this Form 10-K.

Company History

SOYO  Group,  Inc.  formerly  Vermont  Witch  Hazel  Company,   Inc.,  a  Nevada
corporation (the "Company"),  was incorporated on August 3, 1994 in the State of
Vermont.  For seven years,  the Company  created and marketed  skin care and pet
care products.  The Company  manufactured  and distributed a line of witch hazel
based natural, hypoallergenic soaps, cleansers and other skin aids.

On December 3, 2001, the Company  transferred all its net assets and business to
its wholly  owned  subsidiary,  The Vermont  Witch Hazel Co.,  LLC, a California
limited  liability  company  which had been formed in October  2001.  Also,  the
Company's  board  of  directors  declared  a  dividend  of all of the  Company's
interest in the LLC to be distributed to the Company's shareholders of record on
December 10, 2001. Each shareholder received one member unit in the LLC for each
share of common stock held of record by the shareholder.

On December 27, 2001,  pursuant to a stock purchase agreement dated December 27,
2001, Kevin Halter Jr. purchased  6,027,000 shares of the Company's common stock
from Deborah Duffy  representing  approximately  51% of the Company's issued and
outstanding  shares of  common  stock.  Simultaneously  with the  purchase,  the
current  officers and directors of the Company  resigned and the following three
persons were elected to replace them: Kevin Halter Jr.,  President and Director,
Kevin B. Halter,  Secretary,  Treasurer & Director  and Pam Halter,  a Director.
Deborah  Duffy,  Rachel Braun and Peter C. Cullen,  the directors of the Company
resigned their respective positions and the following three persons were elected
to replace them: Kevin Halter Jr., Kevin B. Halter and Pam Halter.

On October 8, 2002,  the Company  changed its domicile from the State of Vermont
to the State of Nevada.


                                                                               5
<PAGE>

On  October  24,  2002,  pursuant  to the  terms of a  Reorganization  and Stock
Purchase  Agreement  ("Reorganization  Agreement") dated as of October 15, 2002,
the Company  acquired (the  "Acquisition")  all of the equity  interest of SOYO,
Inc., a Nevada corporation  ("SOYO Nevada" or "SOYO Group"),  which was a wholly
owned subsidiary of SOYO Computer,  Inc., a Taiwan company ("SOYO Taiwan").  The
Acquisition  involved  several  simultaneous  transactions  which  are set forth
below.

1.   Mr. Ming Tung Chok ("Ming") and Ms. Nancy Chu ("Nancy")  purchased  jointly
     6,026,798  shares of the  Company's  common stock for  $300,000  from Kevin
     Halter Jr., a controlling  shareholder of the Company,  thereby making Ming
     and Nancy the majority shareholders of the Company.

2.   The Company issued 1,000,000 shares of Class A Convertible Preferred Stock,
     par value $0.001,  with a $1.00 per share stated  liquidation value to SOYO
     Taiwan in  exchange  for all of the  outstanding  equity  interest  in SOYO
     Group, Inc.

3.   The Company issued  28,182,750 shares of common stock, par value $0.001, to
     Ming and Nancy as part of the acquisition.

4.   Kevin Halter Jr.  resigned  from his position as  President  and  Director,
     Kevin B Halter  resigned  from his  position as  Secretary,  Treasurer  and
     Director and Pam Halter  resigned from her position as Director.  Effective
     October 25, 2002,  Nancy,  Ming and Bruce Nien Fang Lin began serving their
     terms as directors  of the  Company.  These newly  elected  directors  then
     appointed the following persons as officers:


-------------------------------------------- -----------------------------------
Name                                         Title
-------------------------------------------- -----------------------------------
-------------------------------------------- -----------------------------------
Ming Tung Chok                               President, Chief Executive Officer
-------------------------------------------- -----------------------------------
-------------------------------------------- -----------------------------------
Nancy Chu                                    Chief Financial Officer
-------------------------------------------- -----------------------------------
-------------------------------------------- -----------------------------------
Nancy Chu                                    Secretary
-------------------------------------------- -----------------------------------


Bruce Nien Fang Lin resigned and left the Company in July 2003.

The  consideration  for the  Acquisition  was  determined  through  arms  length
negotiations  and a Form 8-K was filed on October 30, 2002, as amended by a Form
8-K/A filed on December 20, 2002. On November 15, 2002, the Company  changed its
name from Vermont Witch Hazel Company, Inc. to SOYO Group, Inc.

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


                                                                               6
<PAGE>

Through  October 24, 2002, the Company had only nominal  assets and  liabilities
and no current business operations. As a result of the Acquisition,  the Company
continued the business operations of SOYO Nevada, which are described here.

SOYO Inc. was  incorporated  in Nevada on October 22, 1998.  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.

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 and
Latin America.

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, these were
the areas that produced revenues for the Company.


PRODUCTS

     Computer Components and Peripherals

     Motherboards/Bare Bones Systems
     ------------

     The  motherboard  has been an integral part of most personal  computers for
more than twenty years.  Actually,  a carryover from architecture used for years
in mainframe computers,  a motherboard is the physical arrangement in a computer
that contains the computer's basic circuitry and components.  It is the data and
power infrastructure for the entire computer.

     SOYO Group Inc.'s Bare Bones System  product  solution is the basis for any
computer  system.  The All-in-One  (Audio,  Video and LAN onboard)  contains our
motherboard in AMD as well as Intel  platforms,  case,  power supply,  keyboard,
mouse and speakers. The 4-in-1 includes the Bare Bones case, power supply, mouse
and keyboard.  Consumer  demand for this product is very high since the majority
of components are integrated in the box.


                                                                               7
<PAGE>

     Portable Storage Devices

The CIGAR  20GB and 40GB USB 2.0 Hard  Drives are ideal for  desktop  and laptop
users who need high capacity in a an  ultra-small  package.  One of the smallest
hardrives available today, large graphics and audio files are quickly and easily
displayed,  copied or transported to any USB Ported  computer.  Incorporating  a
1.8-inch  hard disk from Toshiba,  the  SlimDrive  measures just 4.02" x 2.36" x
0.43"  (LWH) and weighs  only 3.5 oz. The  SlimDrive  fits easily into a pocket,
purse or briefcase  for  convenient  travel and leaves a small  footprint on the
desktop.   Compatible  with  both  PC  and  Macintosh  operating  systems,   the
SlimDrive's USB 2.0 cable delivers fast transfer rates of up to 480Mbps and does
not require any external power supplies or batteries. The magnesium alloy casing
provides  superior shock  resistance.  Additional  capacities are expected to be
available later this year.

     Flash memory is a specialized  type of memory  component used to store user
data and program code. It retains such  information  even when the power is off.
Although flash memory is currently used predominantly in mobile phones and PDAs,
it is also  found in common  consumer  products,  including  MP3 music  players,
handheld voice recorders and digital answering  machines,  as well as industrial
products.

     The BayOne(R)  Flash Media  Reader/Writer  is a unique 6-in-1  breakout box
that can be installed in a 3.5" or 5.25" drive bay for easy front panel  access,
featuring  combination  reader/writer  for 6 flash media  standards  and two (2)
front  USB  2.0  ports.   The  BayOne(R)   internal   multimedia   reader/writer
conveniently  fits into the front of the PC.  With the  BayOne(R),  SOYO  Group,
Inc.'s  customers  can now  connect  multiple  devices  to their  computers  and
download digital photos, video, MP3 music or hot sync their handheld devices all
at the same  time.  The  multiple  memory  reader/writer  slots also can be used
simultaneously,  enabling SOYO Group, Inc.'s customers to take full advantage of
this compact all-in-one  solution.  The BayOne(R) was designed to be universally
compatible with all systems and external devices,  making it easy to install and
also very user-friendly.

     The  Compact Hub  Reader/Writer  is a  combination  USB 2.0 Hub and 12-in-1
flash media card reader/writer  that expands the functionality of computers.  It
offers  three USB 2.0 hubs for  convenient  connection  between a  computer  and
digital camera, PDA, hand-held computer, USB phone, MP3 player,  keyboard, mouse
or  printer.  The flash  memory  card slots can all be used at the same time for
data  download,   exchange  and  storage.   The  Compact  Hub  Reader/Writer  is
hot-swappable,  which means that external  devices can be added or removed while
the computer is on, offers  automatic  plug-n-play  convenience  and is backward
compatible to USB 1.1.


                                                                               8
<PAGE>

Consumer Electronics Products
-----------------------------

     SOYO Group,  Inc.  entered the consumer  electronics  market in 2005 with a
strong line of entertainment  products that includes docking  stations,  LCD and
plasma TVs,  wireless  headphones and USB speakers.  Although this is the newest
group in the product line, it accounted for over 30% of sales in 2005.

SOYO  entered  the LCD market in the 2nd quarter of 2005.  The Company  began by
selling 17 and 19 inch LCD computer  monitors,  and 32" and 37" LCD televisions,
and will soon ship 42" sets.


MONITORS
--------

The Dymond series LCD monitor  incorporates TFT (Thin Film  Transistor)  display
technology  in a compact  design  that  frees up  valuable  desk  space,  with a
wide-angle  flat screen that  offers a view of the screen  from  various  angles
without  compromising image quality.  Featuring high brightness,  sharp contrast
and vivid colors, the Dymond's built-in speakers deliver  stereo-quality  sound.
Designed to provide a display solution for a wide variety of applications at the
office,  home or school,  the  Dymond's  SXGA (Super  Extended  Graphics  Array)
technology  delivers  text and  images to assist in  creating  spreadsheets  and
reports,  writing emails,  preparing  presentations,  watching  movies,  playing
games,  or surfing the  Internet.  The Dymond  series  monitors are available in
black or silver and are currently manufactured in the 17 inch and 19 inch sizes.


HOME ENTERTAINMENT FLAT SCREEN TELEVISIONS
------------------------------------------

SOYO's  Ultra Slim  flat-panel,  HD-Ready  32-inch  and 37 inch LCD TV  delivers
stunning picture quality to home entertainment.  The product offers a wide range
of multimedia  entertainment options,  including broadcast,  cable and satellite
television programming,  as well as DVD and VHS movies, video and online gaming,
and the  capability  of surfing the  Internet.  Incorporating  advanced  imaging
technology features such as 3:2 pull down,  progressive scan and digital 3D comb
filter that bring you larger,  clearer  pictures,  the Atlas LCD TV features two
powerful,  removable  10-watt speakers that deliver stereo surround sound.


                                                                               9
<PAGE>

Bluetooth Wireless Headphone
----------------------------

FreeStyler Bluetooth Headset
----------------------------
FreeStyler is a simple,  straightforward  Bluetooth headset with excellent sound
quality.  The headset can be connected to your mobile phone and PDA  wirelessly.
Supported  by  Bluetooth  1.1V with  2402~2480MHz  frequency  range,  FreeStyler
provides up to 10 meter  operation  range hands free,  and its auto  Pairing and
authentication  function allows users to connect to their cellular phone and PDA
wirelessly.  It  provide  4~6 Hrs.  talk time and 200 Hrs.  standby  time by the
rechargeable  battery at 120mA 3.7v.  with only 1.5~2.0 Hrs.  charging time. The
headset  is  now  available   through  SOYO's  exclusive  launch  partner  Fry's
Electronics,   and  will  also  be  sold  through  SOYO's  network  of  dealers,
distributors and online retailers.


Communications Equipment
------------------------

The  Telecommunications  Industry  Association  forecast  that  spending on VoIP
systems would rise to $3.5 billion in 2005. VOIP protocols have evolved to offer
a richer set of features,  scalability  and  standardization  than was available
only a few years ago, and In November  2004,  Soyo  introduced  our  "Z-Connect"
family of Voice over IP  products  and  services.  The  Z-Connect  product  line
includes  the  Z-Connect  phone,  Z-Connect  router,  and  two  versions  of the
Z-Connect  gateway,  delivering  VoIP  capabilities  with zero set-up fees, zero
monthly  fees,  zero  service  contracts,  zero  configuration  and zero  hidden
charges.  Users simply plug the Z-Connect phone into a broadband  connection for
instant  VoIP  service.  The  Z-Connect  router  combines a voice  gateway and a
broadband router,  enabling users to plug their traditional  telephones for VoIP
service,  and up to four  computers can also share  Internet  access.  Z-Connect
customers  immediately  begin saving money on  long-distance  and  international
calls,  using the free call time of up to 150 minutes included with the phone or
router. Additional call time can be purchased on our web site. SOYO Group's VoIP
service is based on a flexible pay-as-you go strategy,  enabling users to prepay
for minutes,  and make  international and  long-distance  calls at extremely low
rates.  "Peer-to-peer" calls between Z-Connect telephones and routers within the
Z-Connect Network are always free, anywhere in the world.


                                                                              10
<PAGE>

     The  Z-Connect  Single Mode Gateway is the ideal IP telephony  solution for
small businesses to save money on long-distance  and  international  phone calls
and  faxes.  Up to  four  analog  telephones  or a PBX can be  connected  to the
Single-Mode Gateway,  which provides the option for users to choose separate DID
(Direct  Inbound  Dial) number for each phone line for inbound  calls,  and also
determine the order in which inbound calls are received.

     The  Z-Connect  Dual Mode Gateway  supports any IP network and the PSTN. It
features an intelligent  switching  function that determines which network - the
IP or PSTN - to make for using  calls,  without  changing  the  user's  familiar
dialing  interaction  with the phone  system.  The Dual Mode Gateway  seamlessly
integrates  into the office  environment,  easily  connecting to the PBX, and is
compatible  with a variety of  networks,  broadband  access  devices  and system
configurations. All local calls, as well as emergency and toll-free numbers, are
routed through the PSTN, while  long-distance and international calls are routed
through the IP, for maximum cost savings.

     The  company is also  offering  DID  numbers  for the  Z-Connect  family of
products, allowing calls to be received from any other phone over any IP network
or through the PSTN,  and is also  entering the calling  card  market,  to offer
consumers cost savings on long-distance calls.


                                                                              11
<PAGE>

     In February  2005,  SOYO  announced a very  important  development  for the
Z-Connect  product  line in the  form of an  agreement  with  China  Unicom  USA
Corporation,  a division of China  Unicom Ltd.  (NYSE:  CHU),  to use its Public
Service  Telephone Network and Voice over Internet Protocol network (the largest
in the  world),  to give  users the  ability  to dial and  receive  local,  long
distance,   and  international  calls.  China  Unicom  is  one  of  the  largest
telecommunication  companies  in the  world and its  choice of SOYO  Group for a
partnership  agreement  is an  extremely  important  and  strategic  development
opportunity.


     PRODUCTION

     SOYO  Group  does  not  produce  the   components   that  it   distributes.
Approximately  80% of SOYO Group,  Inc.'s  products  are  supplied by  companies
located in Taiwan and China.  As of December  31,  2005,  no single  supplier is
supplying more than 39% of the products  distributed and sold by the SOYO Group.
Aside from this one vendor,  no other company  supplies more than ten percent of
the products that the Company sells.


     TRANSPORTATION AND DISTRIBUTION

     SOYO Group, Inc. is the exclusive  provider for SOYO(R) branded products in
the United States and Latin America. SOYO Group, Inc. has facilities in the U.S.
and worldwide.  The logistics team members play a key role by providing  product
through this channel. Through their efforts, SOYO Group, Inc. is able to achieve
a high level of efficiency  and exceed  customer  expectations  by maintaining a
swift and reliable delivery system.


     MARKETING AND SALES

     SOYO Group,  Inc. has a network of sales offices to service its  customers'
needs,  from prompt order  processing to after-sales  customer care. SOYO Group,
Inc.'s primary markets are North and Latin America.  SOYO Group, Inc. also sells
products in other markets such as the United Kingdom,  Europe, Far East Asia and
South Africa, through local preferred distributors and resellers.

SOYO Group,  Inc.'s  principal  sales strategy  targets three main markets:  (1)
end-user consumers; (2) small business users; and (3) home/small office users or
SOHO's. To reach target customers, SOYO Group, Inc. sells its products through a
wide range of sales channels including national distributors, such as A.S.I. and
D&H Distributing,  along with regional distributors that specialize in promoting
our products to resellers, e-tailers, system builders and other small retailers.


                                                                              12
<PAGE>

To reach end-user  consumers and small business users, SOYO Group, Inc. partners
with major electronic chain retail stores and mail-order catalogs throughout the
continental  U.S.A.  and Canada  including Best Buy Co., Inc.,  CompUSA,  Office
Depot, Fry's Electronics, MicroCenter and TigerDirect (a subsidiary of Systemax,
Inc.).

     For the Latin American  market,  system builders and value-added  resellers
(VAR) are the primary targets.  To reach these customers,  SOYO Group, Inc. uses
an extensive network of international, national and regional distributors. There
are sales offices in Sao Paolo,  Brazil, which offer local technical support and
return  authorization to better service  customers in both Brazil and Argentina.
As of  December  31,  2005,  approximately  20% of the SOYO  Group's  sales  and
revenues were generated from the Latin American market.


     CUSTOMERS

     The primary customer base is in North America, where the products have long
been  recognized for premium quality and competitive  prices.  SOYO Group,  Inc.
also has a broad customer base in Latin America.

     SOYO Group,  Inc.  also has an  ancillary  base of  customers in the United
Kingdom,  Europe,  Asia and South Africa,  which are serviced through  preferred
relationships with independent distributors local to those markets.

During the year ended December 31, 2005, the Company had one customer (E23) that
accounted  for  revenues of  $13,552,325,  equivalent  to 35% of net  revenues.
During the year ended  December  31,  2004,  the Company had one  customer  (SYX
Distibution,  Inc., otherwise known as Tiger Direct) that accounted for revenues
of $8,591,711, equivalent to 26% of net revenues. During the year ended December
31, 2003, the same customer accounted for revenues of $9,943,855,  equivalent to
32% of net revenues.


     SUPPLIERS

     From the Company's  inception  through  December 31, 2003,  over 80% of the
products sold were produced by SOYO Taiwan.  In 2004, the Company went through a
partial  reorganization,  changing the sales mix. The decision was made to focus
more on peripherals,  VoIP, and other  products,  while  deemphasizing  sales of
hardware and motherboards,  which are much more mature markets. As a result, the
Company significantly reduced its reliance on SOYO Taiwan.

     As of December 31, 2005,  no more than 39% of the products  distributed  by
the SOYO Group are being  supplied by any one  supplier.  Other than that single
supplier,  no other  Vendor  supplied  more than ten  percent  of the  Company's
inventory   available  for  sale.   Notwithstanding   the  reduced  emphasis  on
distributing SOYO Taiwan products,  SOYO Group had a supply Commitment Agreement
with SOYO Taiwan which  provided that SOYO Taiwan would  continue to supply SOYO


                                                                              13
<PAGE>

Group at current  levels on an open account basis  through  2005.  The agreement
expired on December  31,  2005.  In 2005,  SOYO Group did not purchase any goods
from SOYO Taiwan.

SOYO Group,  Inc. is aggressively  establishing  new partnership  with other OEM
manufacturers  in the North America and Asia Pacific Regions in order to provide
innovative products for consumers.

     REGULATIONS

     SOYO Group, Inc. is subject,  to various laws and regulations  administered
by various state,  local and  international  government  bodies  relating to the
operation of its distribution  facilities.  SOYO Group, Inc. believes that it is
in compliance with all governmental laws and regulations related to its products
and facilities, and it does not expect to make any material expenditures in 2006
with respect to compliance with any such regulations.

     STRATEGY

     SOYO Group,  Inc.'s  strategy is to capitalize on its market  position as a
leading  provider  of  consumer  electronics,   communications,  and  networking
products by increasing its penetrations of existing markets through acquisitions
and expanding into new markets.

     COMPETITION

With the wide range of product offerings, SOYO Group, Inc. competes with a large
number of small and  well-established  companies  that  produce  and  distribute
products in all categories. The following is a list of competitors by category:

>>   Computer Components and Peripherals - Abit, Asus, Gigabyte,  MSI,ViewSonic,
     Daewoo, Dell, SanDisk, Lexar Media and SimpleTech
>>   Consumer Electronics - Panasonic, ViewSonic, Samsung
>>   Communications - Vonage, Packet8, Net2Phone


     EMPLOYEES

As of March  31,  2006,  the  Company  employed  thirty  six (36)  people at its
headquarters in Ontario, California.

ITEM 1A. RISK FACTORS

     In addition to the other  information set forth in this report,  you should
carefully  consider the  following  factors  which could  materially  affect our
business,  financial condition or future results.  The risks described below are


                                                                              14
<PAGE>

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.

Our inability to finance future growth could hurt our business

Our revenues and profit  margins are based on our ability to supply  substantial
amounts of inventory to our  customers at a very rapid pace. If we are unable to
obtain  sufficient  inventory  from  our  distributors,  our  customers  will be
affected,  which could harm our long term ability to sell products through those
sales channels.


Increased competition could hurt our business.

There are many  manufacturers  and distributors of many of the products we sell.
Since consumer electronics and communications  equipment have traditionally been
high volume/high profit areas,  increased competition could enter the market and
adversely affect our sales and profitability.


We rely on our distributors for a significant portion of our business. If we are
unable to maintain good relationships with our distributors,  our business could
suffer.

We were forced to sue a customer (Xtraplus,  d.b.a. ZipZoomFly last year for non
payment of invoices resulting from a dispute.  The customer felt that we did not
pay rebates to our end users buying our products  through this  distributor on a
timely  basis.  The  dispute  led to a  lawsuit  that is  currently  pending  in
California Superior Court. If that scenario is repeated,  or if we are unable to
maintain relationships with our distributors, the business could suffer.


We rely on a single supplier for a significant  portion of our business.  If the
supplier was unable to produce the necessary amount of merchandise, our business
could suffer.

Last year, 39% of the SOYO Group's net revenue resulted from products  purchased
from a  single  supplier.  If that  supplier  was  unable  to  produce  and sell
merchandise to us in the quantities ordered, our revenue would be effected while
we found other sources of merchandise. The Company is currently negotiating with
different suppliers to reduce our dependence on the one supplier.


                                                                              15
<PAGE>

Increases in the cost of energy could affect our profitability.

We were adversely affected in 2005 by the skyrocketing price of fuel, which led
to higher freight costs. If the price of shipping merchandise continues to
climb, it will affect our future profitability.


Litigation or legal proceedings  could expose us to significant  liabilities and
thus negatively affect our financial results.

     We are party to several different legal proceedings, which are described in
Item 2 of this report. We evaluate these litigation claims and legal proceedings
to assess the likelihood of unfavorable  outcomes and to estimate,  if possible,
the amount of potential  losses.  Based on these  assessments and estimates,  we
establish reserves as required. These assessments and estimates are based on the
information  available to management at the time and involve  management's  best
judgment.  It is possible that actual  outcomes or losses may differ  materially
from those envisioned by our current assessments and estimates. In addition, new
or adverse  developments  in  existing  litigation  claims or legal  proceedings
involving  our Company  could  require us to  establish  or increase  litigation
reserves or enter into unfavorable settlements or satisfy judgments for monetary
damages for amounts  significantly  in excess of current  reserves,  which could
adversely affect our financial results for future periods.


Changes in accounting standards and taxation requirements could affect our
financial results.

     New accounting  standards or  pronouncements  that may become applicable to
our  Company  from time to time,  or changes in the  interpretation  of existing
standards and  pronouncements,  could have a significant  effect on our reported
results for the affected periods.


If we are not able to  achieve  our  overall  long term  goals,  the value of an
investment in our Company could be negatively affected.

     We  have  established  and  publicly  announced  certain  long-term  growth
objectives.  These  objectives  were  based  on our  evaluation  of  our  growth
prospects,  which are  generally  based on volume  and sales  potential  of many
product  types,  some of  which  are  more  profitable  than  others,  and on an
assessment of potential level or mix of product sales. There can be no assurance
that we will  achieve the required  volume or revenue  growth or mix of products
necessary to achieve our growth objectives.


ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.


                                                                              16
<PAGE>

ITEM 2. PROPERTIES

     The  Company's  corporate  headquarter  is located at 1420 S.  Vintage Ave.
Ontario,  California,  91761.  The property is under a lease agreement  expiring
November 30, 2008 with terms and conditions as stipulated below:


-------------- ------------------------ -------------- --------------- ---------
Facility       Address                  Lease          Lease           Area
                                        Inception      Expiration
-------------- ------------------------ -------------- --------------- ---------
Office and     1420 S. Vintage Ave,     9/1/2003       11/30/2008      42,723
Warehouse      Ontario CA                                              sq. ft.
-------------- ------------------------ -------------- --------------- ---------

Rent Schedule:

-------------------------------- ------------------------------ ----------------
Start Date                       End Date                       Base Rent (NNN)
-------------------------------- ------------------------------ ----------------
October 1, 2004                  February 28, 2006              $16,869.84
-------------------------------- ------------------------------ ----------------
March 1, 2006                    November 30, 2008              $17,724.30
-------------------------------- ------------------------------ ----------------

     The Company owns an option to extend the term of the leased property for an
additional five ( 5) years that can be exercised by providing  written notice to
the lessor at least six (6) months but not more than 12 months prior to the date
that the option  period  would  commence.  The  Company  also  maintains a sales
representation  office in Brazil,  located at Rua Andre Ampere 153 andar 17 sala
171/172, Brooklin Novo, Sao Paulo, SP, Brazil.


ITEM 3. 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  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


                                                                              17
<PAGE>

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  is  vigorously  defending  the  lawsuit  and  believes  that it will be
resolved with no material adverse effect on the Company or Ms. Chu.

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

     During  the fiscal  year  ended  December  31,  2005,there  were no matters
submitted to the shareholders for approval.

On February  17, 2006,  the Company  held a special  meeting to vote on the 2005
Employee Stock Option  Compensation  Plan. The record date for the determination
of shareholders  entitled to vote was January 27, 2006. The plan was approved by
shareholder vote.

                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SEECURITIES.

(a)  Market Prices of Common Stock

     The Company's common stock is traded on the Over the Counter Bulletin Board
under the symbol  "SOYO."  The high and low bid  intra-day  prices of the common
stock were not reported on the OTCBB for the time periods indicated on the table
below. Accordingly, the Company has set forth the high and low closing prices of
our common stock as reported on the OTCBB over the last two years.  Further, the
sales prices listed below represent  prices between dealers without  adjustments
for retail markups,  breakdown or commissions and they may not represent  actual
transactions.


                                                                              18
<PAGE>

                                   Price Range
                                   -----------

                                                     High               Low
                                                     ----               ---


Fiscal Year Ended December 31, 2004:

     First Quarter                                  $ 0.19            $ 0.11
     Second Quarter                                   0.19              0.12
     Third Quarter                                    0.26              0.12
     Fourth Quarter                                   0.43              0.31

Fiscal Year Ended December 31, 2005:

     First Quarter                                  $  .98            $ 0.37
     Second Quarter                                   0.88              0.60
     Third Quarter                                    0.93              0.66
     Fourth Quarter                                   0.89              0.55


(b)  Shareholders

     The  Company's  common  shares are issued in  registered  form.  Securities
Transfer Corporation, Dallas, Texas, is the registrar and transfer agent for the
Company's common stock. As of December 31, 2005 there were 48,681,511  shares of
the Company's common stock  outstanding and the Company had over 85 shareholders
of record.

(c)  Dividends

     The Company has never  declared  or paid any cash  dividends  on our common
stock and it does not anticipate  paying any cash  dividends in the  foreseeable
future.  The Company  currently  intends to retain future  earnings,  if any, to
finance operations and the expansion of its business.  Any future  determination
to pay cash  dividends  will be at the  discretion of the board of directors and
will be based upon the Company's financial condition, operating results, capital
requirements,  plans  for  expansion,  restrictions  imposed  by  any  financing
arrangements and any other factors that the board of directors deems relevant.

     During  2005 we  declared  no  dividends  on either  the Class A or Class B
Preferred Stock  outstanding.  The dividends  recognized and booked in 2005 were
the accreted  dividends  resulting  from the valuation of the Series B Preferred
Stock at  issuance.  See "Recent  Sales of  Unregistered  Securities."  for more
information.

(d)  Penny Stock

     Until the Company's shares qualify for inclusion in the Nasdaq system,  the


                                                                              19
<PAGE>

public  trading,  if  any,  of the  Company's  common  stock  will be on the OTC
Bulletin  Board or the Pink  Sheets.  As a result,  an investor may find it more
difficult to dispose of, or to obtain  accurate  quotations  as to the price of,
the common stock offered. The Company's common stock is subject to provisions of
Section 15(g) and Rule 15g-9 of the Securities  Exchange Act of 1934, as amended
(the "Exchange  Act"),  commonly  referred to as the "penny stock rule." Section
15(g) sets forth certain requirements for transactions in penny stocks, and Rule
15g-9(d)  incorporates  the  definition  of "penny  stock" that is found in Rule
3a51-1 of the Exchange Act. The SEC generally  defines a "penny stock" to be any
equity  security  that has a market price less than $5.00 per share,  subject to
certain exceptions. If the Company's common stock is deemed to be a penny stock,
trading in the shares will be subject to additional sales practice  requirements
on  broker-dealers  who sell  penny  stock to  persons  other  than  established
customers and  accredited  investors.  "Accredited  investors"  are persons with
assets in excess of $1,000,000 or annual income  exceeding  $200,000 or $300,000
together  with  their  spouse.   For   transactions   covered  by  these  rules,
broker-dealers must make a special suitability determination for the purchase of
such security and must have the  purchaser's  written consent to the transaction
prior to the  purchase.  Additionally,  for any  transaction  involving  a penny
stock,  unless  exempt,  the  rules  require  the  delivery,  prior to the first
transaction, of a risk disclosure document, prepared by the SEC, relating to the
penny stock market. A broker-dealer  also must disclose the commissions  payable
to  both  the  broker-dealer  and the  registered  representative,  and  current
quotations  for  the  securities.  Finally,  monthly  statements  must  be  sent
disclosing  recent price information for the penny stocks held in an account and
information  on the limited  market in penny stocks.  Consequently,  these rules
restrict the ability of  broker-dealers to trade and/or maintain a market in the
Company's common stock and may affect the ability of the Company's  shareholders
to sell their shares.

(e)  Recent Sales of Unregistered Securities

During the  calendar  year 2005,  the Company  issued an  aggregate of 8,681,511
unregistered shares of its common stock to various entities for various reasons.

On March 28, 2005 the Company announced that an accredited investor,  Ever-Green
Technology (Hong Kong) Co., Ltd.,  purchased 500,000  unregistered shares of our
common  stock,  $0.001  par value per share  (the  "Shares")  and  common  stock
purchase  warrants to purchase 100,000 shares of our 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.

In March  2005,  the Company  issued  20,000  unregistered  shares to its public
relations company,  First Global Media, Inc. for services rendered.  At the same
time, the Company issued 5,000 unregistered shares to Barrow Street Research for
services,  and 5,000 unregistered shares to a business consultant as payment for
services.


                                                                              20
<PAGE>

In September  2005, the Company  issued  1,286,669  shares of restricted  common
stock to pay off a business loan of $913,750 plus accrued interest of $51,251 to
LGT Computer Inc.

In October 2005, the Company issued 1,219,512 shares of restricted  common stock
for the  conditional  redemtion  of the  1,000,000  shares of Series A Preferred
Stock that were  issued by the Company as part of the  original  purchase of the
Company from SOYO Taiwan in October 2002.

Throughout  the year,  5,645,330  unregistered  shares  were  issued to  various
corporations and individuals to buy back the Company's trade debt.


(f)  Equity Compensation Plan Information

     Through December 31, 2004, the Company did not have any Equity Compensation
Plans. 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. The grants will expire if unused on July 22, 2010.


ITEM 6. SELECTED FINANCIAL DATA

     The  following  selected  consolidated  financial  data of the  Company  is
presented as of and for the years ended  December 31, 2005,  2004, and 2003. The
selected financial data should be read in conjunction with the Company's audited
consolidated   financial   statements  and  the  notes  thereto,  and  "Item  7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations".

Selected Consolidated Statements of Operations Data:

                             Year Ended December 31,
------------ ------------ ------------ ------------ ------------- ------------
             2005         2004         2003         2002          2001
------------ ------------ ------------ ------------ ------------- ------------
Net revenue  $38,263,032  $32,426,414  $31,034,239  $49,644,417   $63,091,190

------------ ------------ ------------ ------------ ------------- ------------
Income       52,686       (3,913,683)  (980,347)    (10,892,574)  (342,073)
(loss) from
operations
------------ ------------ ------------ ------------ ------------- ------------


                                                                              21
<PAGE>

------------ ------------ ------------ ------------ ------------- ------------
Net Income   $(633,443)   (4,143,978)  (984,588)    (10,733,458)  (390,404)
(Loss)
attributable
to common
shareholders
------------ ------------ ------------ ------------ ------------- ------------
Net income   (.01)        (0.10)       (0.02)       (0.35)        (0.01)
(loss) per
common
share
------------ ------------ ------------ ------------ ------------- ------------




Selected Consolidated Balance Sheet Data:

-------------- ------------ ------------ ------------- ------------- -----------
               2005         2004         2003          2002          2001
-------------- ------------ ------------ ------------- ------------- -----------
Total Assets   $16,907,390  $7,500,437   $12,729,453   $20,914,784   $26,309,797
-------------- ------------ ------------ ------------- ------------- -----------
Long Term      0            0            12,000,000    12,000,000    0
Payable to
Soyo Taiwan
-------------- ------------ ------------ ------------- ------------- -----------
Shareholders'  1,477,703    (4,057,028)  (12,136,783)  (11,152,195)  (418,737)
Equity
(Deficit)
-------------- ------------ ------------ ------------- ------------- -----------
Cash           N/A          N/A          N/A           N/A           N/A
dividends
declared per
common
share
-------------- ------------ ------------ ------------- ------------- -----------




ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


     The following  discussion  should be read in conjunction with the Company's
consolidated  financial  statements and the notes thereto appearing elsewhere in
this Annual Report on Form 10-K for the fiscal year ended December 31, 2005.


                                                                              22
<PAGE>

     This Annual Report on Form 10-K for the fiscal year ended December 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 may include, among others, statements concerning the
Company's expectations regarding its business, growth prospects, revenue trends,
operating  costs,  working  capital  requirements,   facility  expansion  plans,
competition,  results  of  operations  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  Annual  Report on Form 10-K for the fiscal
year ended December 31, 2005 involve known and unknown risks,  uncertainties and
other factors that could cause actual  results,  performance or  achievements of
the  Company  to differ  materially  from those  expressed  in or implied by the
forward-looking statements contained herein.

     Each forward-looking  statement should be read in context with, and with an
understanding  of,  the  various  disclosures  concerning  the  Company  and its
business  made  elsewhere in this Annual Report on Form 10-K for the fiscal year
ended  December 31, 2005, as well as other public  reports filed with the United
States Securities and Exchange  Commission.  You should not place undue reliance
on  any  forward-looking   statement  as  a  prediction  of  actual  results  or
developments.   The   Company   does  not   intend  to  update  or  revise   any
forward-looking  statement  contained in this Annual Report on Form 10-K for the
fiscal  year ended  December  31,  2005 to reflect  new events or  circumstances
except to the extent required by applicable law.

Background and Overview:

     Incorporated  in  Nevada  on  October  22,  1998,  SOYO  Group,  Inc.  is a
distributor  of consumer  electronics,  communications  and  computer  parts.  A
substantial  portion  of the  products  are  manufactured  in Taiwan  and China.
Through  SOYO Group,  Inc.  the  Company  offers a line of LCD  televisions  and
computer   monitors,   wireless  headset   devices,   motherboards  and  related
peripherals for intensive multimedia  applications  telecommunications  services
and equipment. The product line also includes Bare Bone 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 any home
and office (SOHO) users.

     SOYO Group's  products are sold through an extensive  network of authorized
distributors to resellers,  system  integrators,  value-added  resellers (VARs).
These products are also sold through major  retailers,  mail-order  catalogs and
e-tailers to the consumers throughout North America and Latin America.


                                                                              23
<PAGE>

     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 SOYO Nevada management.  During
October 2002, 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. When the
transaction  was  complete,  and control of the Company  was  transferred,  SOYO
Nevada management owned 34,209,548 shares of the 40,000,000  outstanding  shares
of  the  Company's  common  stock.  Subsequent  to the  transaction,  management
distributed  8,000,000  shares of common stock to various  brokers,  bankers and
other  individuals  that assisted  with the  transaction.  No one  individual or
corporation  other than those  named in Item 12 of this  report  ever owned more
than 5% of the common shares outstanding. As a result of this transaction,  SOYO
Group management  currently owns 26,209,548 of the 48,681,511 shares outstanding
as of December 31, 2005.

     Subsequent to this  transaction,  SOYO Taiwan maintained an equity interest
in SOYO, and continued to be the primary  supplier of inventory to SOYO, and was
the Company's major creditor. In addition, there was no change in the management
of SOYO and no new capital was invested.  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,  and pro  forma  information  has not been  presented,  as this
transaction is not a business combination.

     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. (see "Liquidity and Capital Resources - December 31, 2005).

     SOYO  Taiwan  also  agreed  to  continue  to  provide  computer  parts  and
components to SOYO on an open account basis at the quantities  required and on a
timely  basis to enable SOYO to continue to conduct its business  operations  at
budgeted levels, which were not less than a level consistent with the operations
of SOYO Nevada's business in 2001 and 2000. This supply commitment was effective
through December 31, 2005,  although SOYO Nevada did not purchase any goods from
SOYO Taiwan on 2005 .

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


                                                                              24
<PAGE>

     Ming Tung Chok,  the  Company's  President,  Chief  Executive  Officer  and
Director and Nancy Chu, the Company's  Chief  Financial  Officer,  Secretary and
Director,  are  husband  and wife,  and are the  primary  members of SOYO Nevada
management  referred to above.  Andy Chu, the President and major shareholder of
SOYO Taiwan, is the brother of Nancy Chu.

     The Company sells to both distributors and retailers. Revenues through such
distribution  channels for the years ended December 31, 2005,  2004 and 2003 are
summarized as follows:

                             Year Ended December 31,
-------------- ------------- -------- ------------- ------- ------------- ------
               2005          %        2004          %       2003          %
-------------- ------------- -------- ------------- ------- ------------- ------
Revenues
-------------- ------------- -------- ------------- ------- ------------- ------
Distributors   $22,312,488    58.3    $14,704,452    45.3   $13,055,046    42.1
-------------- ------------- -------- ------------- ------- ------------- ------
Retailers      $15,950,544    41.7    $17,721,962    54.7   $17,979,193    57.9
-------------- ------------- -------- ------------- ------- ------------- ------
Total          $38,263,032   100.0    $32,426,414   100.0   $31,034,239   100.0
-------------- ------------- -------- ------------- ------- ------------- ------

During the year ended December 31, 2005, the Company had one customer (E23) that
accounted for revenues of $13,552,324, equivalent to 35% of net revenues. During
the  year  ended   December  31,  2004,   the  Company  had  one  customer  (SYX
Distribution, Inc., otherwise known as Tiger Direct) that accounted for revenues
of $8,591,711, equivalent to 26% of net revenues. During the year ended December
31, 2003, the same customer accounted for revenues of $9,943,855,  equivalent to
32% of net revenues.


Revenues by geographic segment are summarized as follows:

                             Year Ended December 31,
---------------- ------------ ------ ------------ ------ ------------ ------
                 2005         %      2004         %      2003         %
---------------- ------------ ------ ------------ ------ ------------ ------
Revenues
---------------- ------------ ------ ------------ ------ ------------ ------
N. America       $21,670,550   56.7  $25,936,978  80.0   $23,043,136   74.3
---------------- ------------ ------ ------------ ------ ------------ ------
Central and      $2,993,532     7.8  $6,317,907   19.5   $7,391,804    23.8
South America
---------------- ------------ ------ ------------ ------ ------------ ------
Hong Kong        $13,552,325   35.4  $0                  $0
---------------- ------------ ------ ------------ ------ ------------ ------
Other locations  $46,625        0.1  $171,529      0.5   $599,299       1.9
---------------- ------------ ------ ------------ ------ ------------ ------
Total            $38,263,032  100.0  $32,426,414  100.0  $31,034,239  100.0
---------------- ------------ ------ ------------ ------ ------------ ------

During the first part of 2005,  the  Company  had made a  commitment  to its new
product lines,  but did not have much  inventory to sell.  While waiting for the
initial inventory shipments,  the Company entered into a short term agreement to
make sales of computer  components to a vendor in Hong Kong (E23). The sales had
relatively low margin, and not a business that the Company planned to be in long
term. Nevertheless, the sales of such products in 2005 represented a significant
portion of the Company's business.


                                                                              25
<PAGE>

Financial Outlook:

During early 2003, as a result of the Company  changing its product mix to focus
on the sales of higher margin  products and the decrease in market  pressures on
the  Company's  gross  margin  resulting  from the West  Coast  dock  strike  in
September and early October 2002, the Company's gross margin  improved  compared
to 2002. The Company incurred a net loss attributable to common stock in 2003 of
$984,588.

In 2004,  the Company  increased  sales by 4.5 % over 2003 despite a significant
change in the core offerings for sale. The emphasis  switched from  motherboards
and hardware to peripherals, leading to a more diverse product offering. Also in
2004, the Company introduced its VoIP products.  The Company incurred a net loss
in 2004 of $3,920,245.

In 2005,  the Company  completed  its  transition  and revamped its core product
offerings.  As a  result,  the  consumer  electronics  division,  featuring  LCD
televisions and monitors,  was responsible for over 30% of the Company's  sales.
Late in the year, the Company  publicized plans to introduce  several new models
in 2006,  including  LCD panels as large as 47". The Company is now working with
multiple manufacturers of these products.

The VoIP division  completed the development and testing cycle on products,  and
entered  into its first  large  contract  with  Arizona  State  University.  The
division  also made inroads  into the market in mainland  China,  and  purchased
fixed assets and equipment to support the product line in coming years. The VoIP
Division should add significantly to the Company's profitability in 2006.

On March 28, 2005 the Company announced that an accredited investor,  Ever-Green
Technology (Hong Kong) Co., Ltd.,  purchased 500,000  unregistered shares of our
common  stock,  $0.001  par value per share  (the  "Shares")  and  common  stock
purchase  warrants to purchase 100,000 shares of our 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.

As a general rule, the Company has been totally reliant upon the cash flows from
its operations to fund future growth. As noted above, the Company did complete a
small private placement in 2005, begin factoring invoices to improve cash flows,


                                                                              26
<PAGE>

and convert several million dollars of debt to equity, all of which improved the
Company's financial condition.  However,  throughout the year and as of the date
of this filing,  the Company did not have any established  credit  facilities in
place, and had no reliable  external  sources of liquidity in place,  other than
advances from officers, directors and shareholders.

     The Company has begun and  continues to implement  the  following  steps to
increase its financial position, liquidity, and long term financial health:

-    The Company has  completely  revised its product mix toward  higher  margin
     products

-    The  Company has  improved  the number and credit  quality of its  customer
     accounts.

-    The Company has arranged  additional supply sources and no longer purchases
     inventory from SOYO Taiwan.

-    The Company moved its office and warehouse  operations into a larger,  more
     efficient facility in September 2003.

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.


Critical Accounting Policies:

The Company  prepared its 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


                                                                              27
<PAGE>

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  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.  However,  in 2005,  the Company  booked over $1.3
million  received  from such  programs to prior years'  purchase  discounts  and
allowances settled in 2005.

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.

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.


                                                                              28
<PAGE>

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:

Years Ended December 31, 2005 and 2004-

Net Revenues.  Net revenues  increased by $5,836,618 or 18.0% to  $38,263,032 in
2005 as compared to  $32,426,414  in 2004.  The  increase  in net  revenues  was
primarily  attributable to the birth of the consumer  products  division,  which
changed the core  offerings for sale. The Company sold over $18.8 million in LCD
monitors and televisions in 2005.

During the years ended  December 31, 2005 and 2004,  the Company  offered  price
protection to certain customers under specific programs aggregating $140,828 and
$295,998  respectively,  which  reduced net  revenues  and  accounts  receivable
accordingly.  Price protection offered to customers was significantly  decreased
in 2005, as the new products did not require the same level of price  protection
since the sales cycle was much quicker for the Company's customers.

Gross  Margin.  Gross margin was  $4,692,970  or 12.3 % in 2005,  as compared to
$2,216,372 or 6.8 % in 2004. Gross margin increased in 2005 as compared to 2004,
both on an absolute and percentage of revenue basis,  as the Company changed its
core sales  offerings from  hardware,  motherboards  and barebones  systems to a
greater emphasis on computer peripherals and consumer electronics.  In addition,
prior years'  purchase  discounts  and  allowances  were settled in 2005,  which
decreased the cost of revenues,  thereby,  increasing the gross margin.  Margins
would have been even better; however, sales at lower margins were made to reduce
inventory levels,  especially of older inventory as the year came to a close. As
a result, the Company's inventory levels are the lowest they have ever been.

Sales and  Marketing  Expenses.  Selling and  marketing  expenses  decreased  by
$666,570 or 42.2 %, to $911,039 in 2005, as compared to $1,577,609 in 2004.  The


                                                                              29
<PAGE>

decrease was entirely due to an expensive Co-op  marketing  campaign run in 2004
that was not repeated in 2005.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased by $98,628 or 2.8 %, to  $3,659,338 in 2005, as compared to $3,560,710
in 2004.  There were  several  reasons for the  increase.  First,  the  problems
associated  with the 2003 audit resulted in a cost of over $400,000 in legal and
accounting  fees in 2004 that  were not  repeated.  Second,  the  Company  began
factoring  invoices  to improve  cash flow in 2005.  Although  that  resulted in
higher  expenses,  the Company  obtained the  services of experts in  evaluating
customer credit,  which led to a huge reduction in bad debt expense.

Provision  for  Doubtful  Accounts.  The  provision  for  doubtful  accounts was
decreased to $34,513 in 2005,  as compared to $956,738 in 2004.  The decrease is
due to the improved quality of the Company's credit accounts,  and the increased
use of experts in evaluating customer credit applications.

Depreciation  and  Amortization.  Depreciation  and amortization of property and
equipment was $35,394 in 2005 as compared to $34,998 in 2004.

Income (Loss) from  Operations.  The income from  operations was $52,686 for the
year  ended  December  31,  2005,  as  compared  to a loss  from  operations  of
$3,913,683 for the year ended  December 31, 2004. The income from  operations in
2005 was due to the Company's improved operations,  successful new product lines
and streamlined expenses.  In addition,  the Company booked over $1.3 million of
offsets to purchases from vendors for price  protection  and product  returns as
prior years' purchase discounts and allowances settled in 2005.

Interest Expense.  Interest expense increased substantially to $129,567 in 2005,
as  compared  to  $23,371  in 2004.  The  454%  increase  is due to the  Company
factoring  receivables in 2005 to improve cash flow.  There was no such activity
in 2004.

Interest  Income.  Interest  income  was $5,301 in 2005.  There was no  interest
income in 2004.

Other  Income.  Other  income/miscellaneous  revenue was  $612,690  in 2005,  as
compared to $17,609 in 2004. The miscellaneous  income was derived from reducing
the provision for doubtful accounts based on current estimates.  The Company did
a complete  analysis of its receivables and concluded that the provision for bad
debts was significantly over accrued.

Net  Income/Loss.  The net income was $540,310  for the year ended  December 31,
2005,  as compared to a net loss of $3,920,245  for the year ended  December 31,
2004.  The  reasons  for the  turnaround  are  discussed  in detail in the above
paragraphs.


                                                                              30
<PAGE>

Preferred Stock  Dividends.  Accreted and deemed  preferred stock dividends were
$1,173,753 in 2005,  as compared to accreted and declared  dividends of $223,733
in 2004. The accreted dividends were $174,753 during the year. Additionally, the
Company  made a  $999,000  adjustment  to the  carrying  value  of the  Class  A
preferred  stock  during the year.  From the  Company's  inception,  the Class A
preferred  stock was  carried  on the books at its basis of $1000.  Prior to the
conditional redemption of the Class A preferred stock to common stock on October
24, 2005, the carrying value was adjusted to the face value of $1,000,000.  This
resulted in an adjustment to the  preferred  stock account of $999,000,  and the
offsetting journal entry to preferred stock dividends raised the amount recorded
during the year to $1,173,753.

Results of Operations:

Years Ended December 31, 2004 and 2003-

Net Revenues.  Net revenues  increased by $1,392,175 or 4.5% to  $32,426,414  in
2004 as compared to  $31,034,239  in 2003.  The  increase  in net  revenues  was
primarily  attributable  to increased  penetration in the Latin American  market
while undergoing a radical change in our core offerings for sale.

During the years ended  December 31, 2004 and 2003,  the Company  offered  price
protection to certain customers under specific programs aggregating $295,999 and
$766,904  respectively,  which  reduced net  revenues  and  accounts  receivable
accordingly.  Although price protection  offered to customers was  significantly
decreased in 2004,  it was  partially  offset by an increase in marketing  fees,
which increased G&A expenses.

Gross  Margin  (Deficit).  Gross  margin  was  $2,216,372  or 6.8 % in 2004,  as
compared to  $3,073,862  or 9.9 % in 2003.  Gross  margin  decreased  in 2004 as
compared to 2003,  both on an absolute and percentage of revenue  basis,  as the
Company  changed  its core  sales  offerings  from  hardware,  motherboards  and
barebones systems to a greater emphasis on computer  peripherals.  Consequently,
sales at lower margins were made to reduce inventory levels, especially of older
inventory.

Sales and  Marketing  Expenses.  Selling and  marketing  expenses  increased  by
$762,762 or 94 %, to $1,577,609  in 2004,  as compared to $814,847 in 2003.  The
increase was primarily due to marketing expenses on new product lines and higher
marketing  expenses in new  markets,  as  described  in the Sales and  Marketing
section of item 1 of this report..

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  by  $727,592  or  25.7 %, to  $3,560,710  in  2004,  as  compared  to
$2,833,118  in 2003.  There were several  reasons for the increase.  First,  the
Company had  accounting  and legal fees increase by over $400,000 as a result of
the  problems  with the 2003  audit.  The  Company  also paid over  $300,000  to


                                                                              31
<PAGE>

contractors  who were  hired to  assist  with the 2003  audit  and  resolve  the
internal control problems  highlighted in the audit. The Company does not expect
those costs to recur in 2005.

Provision for Doubtful  Accounts.  The provision for doubtful accounts increased
to $956,738 in 2004,  as compared to $390,555 in 2003,  primarily as a result of
several large charge offs,  including  Dinastia for approximately  $250,000 when
they declared bankruptcy.

Depreciation  and  Amortization.  Depreciation  and amortization of property and
equipment was $34,998 in 2004 as compared to $15,689 in 2003. The large increase
resulted from the large  increase in  depreciable  assets  following the move to
Ontario, California.

Loss from Operations. The loss from operations was $3,913,683 for the year ended
December 31,  2004,  as compared to a loss from  operations  of $980,347 for the
year ended December 31, 2003.

Interest Expense.  Interest expense decreased to $23,371 in 2004, as compared to
$26,248 in 2003.

Interest Income. Interest income was $0 in 2004, as compared to $26,252 in 2003.
Through the year, the Company had no balances in interest bearing accounts.

Other Income. Other income/expense was $(5,762) in 2004, as compared to $(3,441)
in 2003.

Provision  (Benefit)  for Income  Taxes.  Provision for income taxes of $800 was
booked for both 2004 and 2003..

Net Loss.  The net loss was  $3,920,245 for the year ended December 31, 2004, as
compared to a net loss of $984,588 for the year ended December 31, 2003.

Preferred Stock Dividends.  Preferred stock dividends were $223,733 in 2004, and
$0 in 2003. This was due to the preferred stock being issued in 2004.


Net Operating Loss Carryforwards:

As of December 31, 2005,  the Company had federal and state net  operating  loss
carryforwards of approximately $4,500,000 and $70,000 respectively,  expiring in
various years through 2024,  which can be used to offset future taxable  income,
if any. The Company's net operating  losses were reduced by $10,500,000  for the
forgiveness  of debt  for tax  purposes.  No  deferred  tax  benefit  for  these
operating  losses has been recognized in the consolidated  financial  statements
due to the uncertainty as to their realizability in future periods.


                                                                              32
<PAGE>

Net deferred tax assets of  $1,570,000 at December 31, 2004  resulting  from net
operating  losses and other  temporary  differences  have been  offset by a 100%
valuation  allowance since management cannot determine whether it is more likely
than not that such assets will be realized.


Liquidity and Capital Resources - December 31, 2005:

Transactions involving SOYO Taiwan.  Beginning with the formation of SOYO Nevada
in October 1998,  the Company  relied on the financial  support from SOYO Taiwan
for  inventory  and  capital  to  provide  the  resources  necessary  to conduct
operations.  Through October 24, 2002, SOYO Nevada was a wholly-owned subsidiary
of SOYO  Taiwan.  Subsequent  to that date,  SOYO  Taiwan  continued  to provide
inventory  to SOYO,  and agreed to continue to provide  inventory  to SOYO on an
open account basis through  December 31, 2005.  However,  with the change in the
Company's  direction in 2004, that agreement became moot. SOYO did not order nor
receive any inventory from SOYO Taiwan in 2005.

In  conjunction  with the October  2002  transaction,  SOYO  Nevada  transferred
$12,000,000  of accounts  payable to SOYO Taiwan to long-term  payable,  without
interest,  due December 31, 2005. SOYO Taiwan also agreed to continue to provide
computer parts and components to SOYO on an open account basis at the quantities
required  and on a timely  basis to  enable  SOYO to  continue  to  conduct  its
business  operations  at budgeted  2003 levels,  which was not less than a level
consistent with the operations of SOYO Nevada's  business in 2001 and 2000. This
supply commitment was effective through December 31, 2005.

During the years ended December 31, 2004,  2003 and 2002, the Company  purchased
inventory from SOYO Taiwan aggregating $14,004,259, $20,188,354, and $42,219,164
respectively. At December 31, 2004 and 2003, the Company had short-term accounts
payable  to  SOYO  Taiwan  of  $1,314,910  and  $6,557,253  respectively,  and a
long-term payable to SOYO Taiwan of $0 and $12,000,000  respectively.  As stated
earlier, the Company purchased no inventory from SOYO Taiwan in 2005, and had no
payables to SOYO Taiwan at December 31, 2005.

During the years ended  December 31, 2004 and 2003,  the Company  received price
protection  from SOYO Taiwan  aggregating  $0 and $651,215  respectively,  which
reduced inventories and accounts payable to SOYO Taiwan accordingly. The Company
received no price protection from SOYO Taiwan in 2005.

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. SOYO Taiwan forgave debt in an
amount equal the difference  between  $12,000,000 and the value of the preferred


                                                                              33
<PAGE>

stock.  This  forgiveness  was  treated as a capital  transaction.  Payment  was
received by SOYO Taiwan in February and March 2004.  An agreement was reached in
the first quarter of 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 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-transferrable.

Based on the terms of the agreement between SOYO Taiwan and the third party, and
specifically the limitation on the purchaser not collecting more than $1,630,000
of the  $12,000,000  from the Company  without the prior consent of SOYO Taiwan,
the Company has  determined  that this  transaction  was in  substance a capital
transaction. 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 an increase in the loss attributable to common stockholders,
and is being accreted from April 1, 2004 through December 31, 2008.

For the year ended December 31, 2005, the Company recorded  aggregate  dividends
of $1,173,753, based on the accretion of the discount on the Class B Convertible
Preferred  Stock of  $174,753,  and the  adjustment  of $999,000 to the carrying
value of the Class A preferred stock,  which is described above. The Company did
not declare or accrue any additional dividends on the Class B Preferred Stock.

For the year ended December 31, 2004, the Company recorded  aggregate  dividends
of $223,733,  consisting  of dividends  based on the stated value of the Class B
convertible  preferred  stock of  $114,195,  which were  declared  and  expensed
through the  issuance of an  additional  114,195  shares of Class B  Convertible
Preferred  Stock,  and  dividends  based on the accretion of the discount on the
Class B Convertible Preferred Stock of $109,538.


                                                                              34
<PAGE>

Through March 31, 2006,  none of the Class B preferred  stock had been converted
to common stock,  and the Company had not repurchased any of the shares of Class
B preferred stock.

Operating  Activities.  The Company  utilized  cash of $178,088  from  operating
activities during the year ended December 31, 2005, as opposed to utilizing cash
of $183,925 from operating  activities  during the year ended December 31, 2004,
and compared to providing  cash of $58,489 in  operating  activities  during the
year ended December 31, 2003.

The reasons for the usage of cash in 2005 were the Company's  large increases in
receivables.  The  primary  reasons  for the  usage  of cash  in 2004  were  the
Company's  large  operating  loss and the  paydown  of the  balance  due to SOYO
Taiwan.  The  reduction in  operating  cash flow in 2003 as compared to 2002 was
primarily a result of increased payments to SOYO Taiwan for inventory purchases.

At December 31, 2005 the Company's  cash and cash  equivalents  had decreased by
$460,057 to $828,294, as compared to $1,288,351 at December 31, 2004.

The Company had working capital of $689,140 at December 31, 2005, as compared to
a working  capital  deficit of  $4,256,905  at December 31,  2004,  resulting in
current  ratios  of  1.04  to 1  and  .63:1  at  December  31,  2005  and  2004,
respectively.

Accounts receivable increased to $7,278,520 at December 31, 2005, as compared to
$2,076,882 at December 31, 2004, an increase of  $5,201,638.  The large increase
was due to several  factors.  Most  importantly,  sales increased 18% during the
year,  and a large part of the increase was in December.  The Company pushed all
of its available  LCD and other  consumer  products to retailers for  Christmas,
resulting in large receivables over the year end period.

Inventories  increased  to  $7,991,030  at  December  31,  2005,  as compared to
$3,862,911  at December  31,  2004,  an increase of  $4,128,119  or 107%.  These
numbers are very  deceptive,  as  inventory  in transit at December 31, 2005 was
$2,686,298,  and  inventory  shipped  FOB  destination  but not yet  received by
customers on December 31, 2005 was approximately  $3.0 million.  That means that
inventory in the warehouse was only  $2,241,000.  The inventory was very low due
to high sales  volume,  and  correspondingly,  the inventory in transit was very
high as the Company  fills orders for  products  and attempts to stock  consumer
products for future sales.


                                                                              35
<PAGE>

Accounts payable  increased by $4,402,907 to $13,977,579 at December 31, 2005 as
compared to $9,574,672 at December 31, 2004.  The reason for the increase is the
increased  business volume.  The increase  partially offsets a large increase in
receivables for the same time period..

Accrued liabilities increased to $1,287,108 at December 31, 2005, as compared to
$829,043 at December 31,  2004,  an increase of $458,065 or 55%. The increase is
due to the Company  accruing  additional  expenses  over the year end period for
expenses  incurred in 2005 but paid in 2006.

Investing  Activities.  The Company expended $621,970,  $158,670,  and $4,589 in
2005,  2004 and 2003  respectively,  for the purchase of property and equipment.
The  large  expenditure  in 2005 is for the  purchase  of  telephone  lines  and
equipment in China to support the VoIP division, while the amount in 2004 is due
to the move to Ontario, California and the resulting leasehold improvements.

Financing  Activities.

During March 2003,  Nancy Chu, the Company's Chief Financial  Officer,  director
and major shareholder,  made short-term  advances to the Company of $360,000 for
working capital  purposes,  of which $120,000 was repaid during  September 2003.
The remaining $240,000 was paid during 2005.

In October 2005,  the Company  borrowed  $165,000 from an individual for working
capital purposes.


On March 29, 2004, LGT Computer, Inc. loaned the Company $213,750 pursuant to an
unsecured note payable due March 28, 2005, with interest at 4% per annum. On May
29, 2004, LGT Computer,  Inc. loaned the Company an additional $700,000 pursuant
to an unsecured note payable due May 29, 2005, with interest at 4% per annum. On
March 28, 2005, by mutual  agreement of the parties,  the due dates of the first
notes were  extended one year at the same  interest  rate. On September 2, 2005,
the two loans and accrued  interest of $51,251 were repaid  through the issuance
of 1,286,669  shares of our  restricted  common stock.  On that date, the market
price of the stock was $0.75.

On March 28, 2005 the Company announced that an accredited investor,  Ever-Green
Technology (Hong Kong) Co., Ltd.,  purchased 500,000  unregistered shares of our
common  stock,  $0.001  par value per share  (the  "Shares")  and  common  stock
purchase  warrants to purchase 100,000 shares of our 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.


                                                                              36
<PAGE>

Principal Commitments:

A summary of the Company's contractual cash obligations as of December 31, 2005,
is as follows:

-------------------------- ----------------- ---------- ----------- ------------
Contractual Cash           Less than 1 year  2-3 years  4-5 years   Over 5 years
Obligations
-------------------------- ----------------- ---------- ----------- ------------
Operating Leases           $210,983          $407,659   N/A         N/A
-------------------------- ----------------- ---------- ----------- ------------
Advances from Directors    N/A               N/A        N/A         N/A
-------------------------- ----------------- ---------- ----------- ------------
Notes Payable/ Short Term  $165,000          N/A        N/A         N/A
Loan
-------------------------- ----------------- ---------- ----------- ------------
Total                      $375,983          $407,659
-------------------------- ----------------- ---------- ----------- ------------

At December 31,  2005,  the Company did not have any  material  commitments  for
capital expenditures or have any transactions, obligations or relationships that
could be considered off-balance sheet arrangements.

ITEM 7A. 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 December 31, 2005 and 2004 are primarily
short-term  in nature and  non-interest  bearing,  the Company does not have any
risk from an 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a)  Financial Statements

The following financial statements are set forth at the end hereof.

     1.   Report of Independent Auditors

     2.   Consolidated Balance Sheet as of December 31, 2005 and 2004


                                                                              37
<PAGE>

     3.   Consolidated Statements of Operations for the years ended December 31,
          2005, 2004 and 2003

     4.   Consolidated  Statements of Shareholders'  Equity (Deficiency) for the
          years ended December 31, 2005, 2004 and 2003

     5.   Consolidated Statements of Cash Flows for the years ended December 31,
          2005, 2004 and 2003

     6.   Notes to Consolidated Financial Statements.



                         SOYO Group, Inc. and Subsidiary
                   Index to Consolidated Financial Statements




                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firms
  - Vasquez & Company LLP                                                    F-2
  - Grobstein, Horwath & Company LLP                                         F-3

Consolidated Balance Sheets - December 31, 2005 and 2004               F-4 - F-5

Consolidated Statements of Operations -
  Years Ended December 31, 2005, 2004 and 2003                               F-6

Consolidated Statements of Shareholders' Deficiency -
  Years Ended December 31, 2005, 2004 and 2003                               F-7

Consolidated Statements of Cash Flows -
  Years Ended December 31, 2005, 2004 and 2003                         F-8 - F-9

Notes to Consolidated Financial Statements -
  Years Ended December 31, 2005, 2004 and 2003                       F-10 - F-33





                                                                              38
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of
Soyo Group, Inc. and Subsidiary
Ontario, California

     We have audited the accompanying consolidated balance sheets of Soyo Group,
Inc. and  Subsidiary  (the  "Company") as of December 31, 2005 and 2004, and the
related consolidated statements of operations, shareholders' deficiency and cash
flows for each of the years in the  two-year  period  ended  December  31, 2005.
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 audits.

     We conducted our audits in accordance  with 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 financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. 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 audits provide 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
Soyo  Group,  Inc.  and  Subsidiary  as of December  31, 2005 and 2004,  and the
consolidated  results of their  operations  and their cash flows for each of the
years in the  two-year  period  ended  December 31,  2005,  in  conformity  with
accounting principles generally accepted in the United States of America.



Vasquez & Company LLP

Los Angeles, California
March 13, 2006


                                                                              39
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of
Soyo Group, Inc. and Subsidiary
Ontario, California

     We have audited the accompanying consolidated balance sheets of Soyo Group,
Inc. and  Subsidiary  (the  "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of operations, shareholders' deficiency and cash
flows for the years then ended. 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 audits.

     We  conducted  our audits 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. The Company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide 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
Soyo  Group,  Inc.  and  Subsidiary  as of December  31, 2003 and 2002,  and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated  financial statements,  the Company has suffered recurring
operating  losses,   has  limited  operating  cash  flows  and  working  capital
resources,  and has a shareholders'  deficiency,  which raise  substantial doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these  matters  are also  described  in Note 1.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

     As discussed in Note 5 to the consolidated financial statements,  effective
January 1, 2002,  the Company  adopted the  provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets".



/s/ Grobstein, Horwath & Company LLP

Sherman Oaks, California
May 12, 2004


                                                                              40
<PAGE>

                         SOYO Group, Inc. and Subsidiary
                           Consolidated Balance Sheets


                                                       December 31,
                                                   2005            2004
                                               ------------    ------------
ASSETS
CURRENT
Cash and cash equivalents                      $    828,294    $  1,288,351
Accounts receivable, net of allowance for         7,278,520       2,076,882
  doubtful accounts of $589,224 and
  $1,074,550 at December 31, 2005 and 2004
  respectively

Inventories, including $0 and $1,893,442          7,991,030       3,862,911
  purchased from SOYO Computer, Inc. in
  2005 and 2004 respectively
Prepaid Expenses                                     20,984          25,416
Income tax refund receivable                              0          47,000

Total Current Assets                             16,118,828       7,300,560


Property and Equipment                              867,122         245,153
  Less:  accumulated depreciation and              (115,480)        (80,087)
  amortization
                                                    751,642         165,066

Deposits                                             36,920          34,811

Total Assets                                     16,907,390       7,500,437
                                               ============    ============

                                                       December 31,
                                                   2005            2004
                                               ------------    ------------
LIABILITIES
CURRENT
  Accounts payable - SOYO Computer, Inc        $          0    $  1,314,910
Accounts payable - Other                         13,977,579       8,259,762
Total Accounts Payable                           13,977,579       9,574,672

Accrued liabilities                               1,287,108         829,043
Advances from officers, directors and major               0         240,000
  shareholder
Business Loan                                             0         913,750
Short Term Loan                                     165,000               0

Current Liabilities                              15,429,687      11,557,465

Total Liabilities                                15,429,687      11,557,465

EQUITY
Class A Preferred stock, $0.001 par value                 0           1,000
Class B Preferred stock, $0.001 par value         1,702,486       1,527,733
Preferred Stock Backup Withholding                  (84,999)              0
Common stock, $0.001 par value  Authorized           48,682          40,000
  - 75,000,000shares
Additional paid-in capital                       17,225,738      11,155,000
Accumulated deficit                             (17,414,204)    (16,780,761)
  Total Shareholder's Equity (Deficiency)         1,477,703      (4,057,028)

Total Liabilities plus Shareholders' Deficit   $ 16,907,390    $  7,500,437
                                               ============    ============


                                                                              41
<PAGE>
<TABLE>
<CAPTION>

 SOYO Group, Inc. and Subsidiary
     Consolidated Statements of Operations



                                                      Year Ended December 31,
                                               2005            2004            2003
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Net revenues                               $ 38,263,032    $ 32,426,414    $ 31,034,239
Cost of revenues, including  inventory       34,905,874      30,210,042      27,960,377
purchased from SOYO Computer, Inc. of
$0, $14,004,259 and $20,188,354 in
2005, 2004 and 2003 respectively

Prior years' purchase discounts and
allowances settled in 2005                   (1,335,812)           --              --
Gross margin                                  4,692,970       2,216,372       3,073,862
Costs and expenses:
Sales and marketing                             911,039       1,577,609         814,847
General and administrative                    3,659,338       3,560,710       2,833,118
Provision for doubtful accounts                  34,513         956,738         390,555
Depreciation and amortization:
   Property and equipment                        35,394          34,998          15,689
   Impairment of Goodwill                       389,307
Total costs and expenses                      4,640,284       6,130,055       4,054,209
Income (Loss) from operations                    52,686      (3,913,683)       (980,347)
Other income (expense):
   Interest income                                5,301               0          26,252
   Interest expense                            (129,567)        (23,371)        (26,248)
   Other income (expense)                       612,690          17,609          (3,445)
   Other income (expense), net                  488,424          (5,762)         (3,441)
Income (Loss) before provision (benefit)        541,110      (3,919,445)       (983,788)
for income taxes
Provision (benefit) for income taxes                800             800             800
Net Income (loss)                               540,310      (3,920,245)       (984,588)
Less: Dividends on Class B Convertible       (1,173,753)       (223,733)           --
Preferred Stock
Net loss attributable to common                (633,443)     (4,143,978)   $   (984,588)
shareholders
Net loss per common share -  Basic                 (.01)          (0.10)          (0.02)
and diluted
Weighted average number of shares of         48,511,681      40,000,000      40,000,000
common stock outstanding - Basic and         52,546,119            --              --
diluted
</TABLE>


                                                                              42
<PAGE>
<TABLE>
<CAPTION>

                         SOYO Group, Inc. and Subsidiary
          Consolidated Statements of Shareholders' Equity (Deficiency)
                  Years Ended December 31, 2005, 2004 and 2003


                                                                                                      Additional       Total
                                        Common Stock             Preferred  Stock        Paid In     Accumulated   Shareholders
                                    Shares      Par Value     Shares       Par Value     Capital       Deficit      Deficiency
Balance, December 31, 2001         28,182,750       28,183    1,000,000         1,000       470,817      (918,737)     (418,737)
                                 ------------ ------------ ------------  ------------  ------------  ------------  ------------
<S>                              <C>          <C>          <C>           <C>           <C>           <C>           <C>
Shares of common stock
  retained by
  shareholders
  in October 2002
  transaction                      11,817,250       11,817         --            --         (11,817)         --            --
Net loss for the year
  ended December 31, 2002                --           --           --            --            --    ( 10,733,458) ( 10,733,458)
                                 ------------ ------------ ------------  ------------  ------------  ------------  ------------
Balance, December 31, 2002         40,000,000       40,000    1,000,000         1,000       459,000  ( 11,652,195) ( 11,152,195)
                                 ------------ ------------ ------------  ------------  ------------  ------------  ------------
Net loss for the year
  ended December 31, 2003                --           --           --            --            --        (984,588)     (984,588)
                                 ------------ ------------ ------------  ------------  ------------  ------------  ------------
Balance, December 31, 2003         40,000,000       40,000    1,000,000         1,000       459,000  ( 12,636,783) ( 12,136,783)
                                 ------------ ------------ ------------  ------------  ------------  ------------  ------------
Issuance of Preferred
Stock for Long Term Debt                 --           --      2,500,000     1,304,000    10,696,000          --      12,000,000
Dividends                                --           --        114,195       114,195          --            --         114,195
Accretion of Discount                    --           --           --         109,538          --            --         109,538
Net loss for the year
  ended December 31, 2004                --           --           --            --            --      (4,143,978)   (4,143,978)
                                 ------------ ------------ ------------  ------------  ------------  ------------  ------------
Balance, December 31, 2004         40,000,000       40,000    3,614,195     1,528,733    11,155,000  ( 16,780,761)   (4,057,028)
                                 ------------ ------------ ------------  ------------  ------------  ------------  ------------
Issuance of Common
Stock for Private Placement           500,000          500         --            --         499,500          --         500,000
Issuance of Common
Stock for Services                     30,000           30         --            --            --            --              30
Issuance of Common
Stock for Long Term Debt            5,645,330        5,645         --            --       3,608,744          --       3,614,389
Issuance of Common
Stock for Payment of Loan           1,286,669        1,287         --            --         963,714          --         965,001
Issuance of Common
  Stock for Coversion of
  Preferred Stock                   1,219,512        1,220   (1,000,000)       (1,000)      998,780          --         999,000
Accretion of Discount                    --           --           --         174,753          --            --         174,753
Preferred Stock Backup
  Withholding                            --           --           --         (84,999)         --            --         (84,999)
Net Income                               --           --           --            --            --         540,310       540,310
Preferred Stock Dividends                --           --           --            --            --      (1,173,753)   (1,173,753)
                                 ------------ ------------ ------------  ------------  ------------  ------------  ------------
                                   48,681,511       48,682    2,614,195     1,617,487    17,225,738  ( 17,414,204)    1,477,703
                                 ============ ============ ============  ============  ============  ============  ============
</TABLE>



                                                                              43
<PAGE>
<TABLE>
<CAPTION>

                        SOYO Group, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows

                                                        Years Ended December 31,
                                                   2005           2004           2003
                                               -----------    -----------    -----------
<S>                                            <C>            <C>            <C>
OPERATING ACTIVITIES
Net Income (loss)                              $   540,310    $(3,920,245)   $  (984,588)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation                                        35,394         34,998         15,689
Provision for doubtful accounts                     34,513        956,738        390,555
Loss on disposition of fixed assets                   --             --            7,600
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable                             (5,236,151)     3,785,110       (483,860)
Inventories                                     (4,128,119)     1,173,214      7,322,130
Prepaid expenses                                    51,432         18,557          6,741
Deposits                                            (2,109)        (9,776)        24,965
Increase (decrease) in:
Accounts payable - SOYO Computer, Inc           (1,314,910)    (5,242,343)    (6,246,682)
Accounts payable - other                         9,332,236      2,783,763        921,179
Accrued liabilities                                509,316        236,059       (915,240)
Net cash provided by (used in) operating          (178,088)      (183,925)        58,489
activities


INVESTING ACTIVITIES
Purchase of property and equipment                (621,970)      (158,670)        (4,589)
Net cash used in investing activities             (621,970)      (158,670)        (4,589)


FINANCING ACTIVITIES
Net increase (decrease) in revolving note             --             --       (1,200,000)
payable
(Increase) decrease in restricted cash                --             --        1,000,000
Advances from officer, director and major          165,000           --          360,000
shareholder
Business                                              --          913,750           --
Loan
Repayment of advances to officer, director        (240,000)          --         (120,000)
and major shareholder
Proceeds from issuance of common stock             500,000           --             --


                                                                              44
<PAGE>

Payment of backup withholding taxes on             (84,999)          --             --
accreted dividends on preferred stock
Net cash provided (used) by financing              340,001        913,750         40,000
activities


CASH AND CASH EQUIVALENTS:
Net increase (decrease)                           (460,057)       571,155         93,900
At beginning of year                             1,288,351        717,196        623,296
At end of year                                     828,294      1,288,351        717,196


SUPPLEMENTAL DISCLOSURE OF
  CASH FLOW INFORMATION:
Cash paid for interest                              97,783         23,371         26,248
Cash paid for income taxes                             800            800          1,000


NON-CASH INVESTING AND
  FINANCING ACTIVITIES
Settlement of business loan of $913,750
and accrued interest of $51,251
through issuance of common stock                   965,001           --             --
Settlement of accounts payable
through issuance of common stock                 3,614,419           --             --
Conversion of Class A preferred
stock to common stock                                1,000           --             --
Accretion of discount on preferred stock           174,753           --             --
Deemed dividend on Class A
preferred stock dividends                          999,000           --             --
Noncash dividends on Class B
preferred stock                                                   114,195
</TABLE>



                                                                              45
<PAGE>

                         SOYO Group, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 2005, 2004 and 2003


1.   Organization and Business

     a.   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 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
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, and pro forma
information  has not  been  presented,  as this  transaction  is not a  business
combination.

     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. SOYO Taiwan forgave debt in an
amount equal the difference  between  $12,000,000 and the value of the preferred
stock.  This  forgiveness  was  treated as a capital  transaction.  Payment  was
received by SOYO Taiwan in February and March 2004.  An agreement was reached in
the first quarter of 2004 whereby  2,500,000  shares of Class B preferred  stock
were to be issued by the Company to the  unrelated  third party in exchange  for
the long-term payable.


                                                                              46
<PAGE>

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 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-transferrable.

Based on the terms of the agreement between SOYO Taiwan and the third party, and
specifically the limitation on the purchaser  collecting more than $1,630,000 of
the $12,000,000  from the Company without the prior consent of SOYO Taiwan,  the
Company  has  determined  that  this  transaction  was in  substance  a  capital
transaction. 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 an increase in the loss attributable to common stockholders,
and is being accreted from April 1, 2004 through December 31, 2008.

     At the time of the  transaction,  SOYO  Taiwan  also  agreed to continue to
provide  computer  parts and  components to SOYO on an open account basis at the
quantities  required and on a timely basis to enable SOYO to continue to conduct
its business operations at budgeted 2003 levels,  which is not less than a level
consistent  with the operations of SOYO Nevada's  business in 2001 and 2000.This
supply commitment was effective through December 31, 2005.

     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.


                                                                              47
<PAGE>

     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,  Secretary and Director.
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".

     b.   Business and Outlook

SOYO  Group,  Inc. is a  distributor  of  consumer  electronics,  communications
services and computer products. The Company radically changed its core offerings
for sale in 2004. Through the consumer electronics division,  SOYO offers a full
line of LCD display  televisions  and  monitors,  as well as Bluetooth  wireless
devices.  Through the  communications  division,  SOYO offers discount telephone
service through VoIP protocol.  The services can be purchased  through different
types of plans and rates,  making the service very  flexible  for the user.  The
hardware to create and run VoIP services is also available for sale. Lastly, the
Company offers a full line of designer  motherboards and related peripherals for
intensive multimedia applications,  corporate alliances,  telecommunications and
specialty  market  requirements.  The breadth of the product line also  includes
Bare Bone 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 any home and office (SOHO) users.

     SOYO Group's  products are sold through an extensive  network of authorized
distributors to resellers,  system  integrators,  value-added  resellers (VARs).
These products are also sold through major  retailers,  mail-order  catalogs and
e-tailers to consumers throughout North America and Latin America.

     During the years that the Company  operated  through October 24, 2002, SOYO
Nevada was a wholly-owned subsidiary of SOYO Taiwan.

Gross sales in 2003 were  $31,034,239,  and the gross  margin was 10%.  The 2003
sales were impacted by the west coast dock strike in the 4th quarter of 2002. In
2003,  the Company was selling only  computer  equipment,  although the plans to
expand the product lines were being developed.

     In 2004, the Company increased sales by 4.5% over 2003 due to a significant
change in the core offerings for sale. The emphasis  switched from  motherboards
and hardware to  peripherals,  leading to a more diverse and profitable  product
offering. Also in 2004, the Company introduced its VoIP products, which was part
of the reason for the improved performance in 2005.


                                                                              48
<PAGE>

Net revenues increased by 18.9% in 2005 as compared to 2004. The increase in net
revenues  was  primarily  attributable  to the  birth of the  consumer  products
division, which changed the core offerings for sale. The Company sold over $18.8
million in LCD monitors and televisions in 2005.

Gross  margin  increased  in 2005 as compared to 2004,  both on an absolute  and
percentage of revenue  basis,  as the Company  changed its core sales  offerings
from  hardware,  motherboards  and  barebones  systems to a greater  emphasis on
computer  peripherals  and  consumer  electronics.  In  addition,  prior  years'
purchase discounts and allowances were settled in 2005, which decreased the cost
of revenues, thereby, increasing the gross margin.

     Through  December 31, 2004,  the Company has been totally  reliant upon the
cash flows from its  operations.  Through  2004,  the  Company  did not have any
external  sources of liquidity,  other than advances from an officer,  director,
major shareholder, and LGT Computers, Inc.

On March 28, 2005 the Company announced that an accredited investor,  Ever-Green
Technology (Hong Kong) Co., Ltd.,  purchased 500,000  unregistered shares of our
common  stock,  $0.001  par value per share  (the  "Shares")  and  common  stock
purchase  warrants to purchase 100,000 shares of our 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.

As a general rule, the Company has been totally reliant upon the cash flows from
its operations to fund future growth. As noted above, the Company did complete a
small private placement in 2005, begin factoring invoices to improve cash flows,
and convert several million dollars of debt to equity, all of which improved the
Company's financial condition.  However,  throughout the year and as of the date
of this filing,  the Company did not have any established  credit  facilities in
place, and had no reliable  external  sources of liquidity in place,  other than
advances from officers, directors and shareholders.

     The Company has begun and  continues to implement  the  following  steps to
increase its financial position, liquidity, and long term financial health:

-    The Company has  completely  revised its product mix toward  higher  margin
     products

-    The  Company has  improved  the number and credit  quality of its  customer
     accounts.

-    The Company has arranged  additional supply sources and no longer purchases
     inventory from SOYO Taiwan.

-    The Company moved its office and warehouse  operations into a larger,  more
     efficient facility in September 2003.

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


                                                                              49
<PAGE>

operations  and  liquidity do not  improve,  the Company may be forced to reduce
operations to a level consistent with its available working capital resources.


2.   Basis of Presentation and Summary of Significant Accounting Policies

     a.   Presentation

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

     b.   Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  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.

     c.   Cash and Cash Equivalents

     Cash and cash  equivalents  include all  highly-liquid  investments with an
original  maturity of three months or less at the date of purchase.  The Company
minimizes its credit risk by investing its cash and cash  equivalents with major
banks and financial institutions located primarily in the United States.

     d.   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
will  reduce the  computed  average  cost if it exceeds the  component's  market
value.

     During the years  ended  December  31,  2005,  2004 and 2003,  the  Company
wrote-down the value of its inventory by $0, $47,084 and $429,230 respectively.


                                                                              50
<PAGE>

     e.   Property and Equipment

     Property and equipment are stated at cost.  Major renewals and improvements
are capitalized;  minor  replacements and maintenance and repairs are charged to
operations.  Depreciation  is  provided  on the  straight-line  method  over the
estimated  useful  lives  of the  respective  assets  (three  to  seven  years).
Leasehold  improvements are amortized over the shorter of the useful life of the
improvement or the life of the related lease.

     f.   Impairment or Disposal of Long-Lived Assets

     Effective  January 1, 2002, the Company adopted the provisions of Statement
of Financial  Accounting  Standards No. 144,  "Accounting  for the Impairment or
Disposal of Long-Lived  Assets".  The Company assesses potential  impairments to
its long-lived assets when events or changes in circumstances  indicate that the
carrying  amount  of an asset  may not be fully  recoverable.  If  required,  an
impairment  loss is recognized as the difference  between the carrying value and
the fair value of the assets. No impairment losses associated with the Company's
long-lived  assets were recognized  during the years ended December 31, 2005 and
2004.

     g.   Revenue Recognition

     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  recognizes  product sales generally at the time the product is
shipped,  although under certain  circumstances the Company  recognizes  product
sales at the time the  product  reaches  its  destination.  Concurrent  with the
recognition of revenue,  the Company  provides for the estimated cost of product
warranties and reduces revenue for estimated  product returns.  Sales incentives
are  generally  classified  as a reduction of revenue and are  recognized at the
later of when revenue is recognized or when the incentive is offered. When other
significant  obligations  remain  after  products  are  delivered,   revenue  is
recognized  only after such  obligations  are  fulfilled.  Shipping and handling
costs are included in cost of goods sold.

     h.   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.


                                       51
<PAGE>

     i.   Warranties

     The Company's suppliers  generally warrant the products  distributed by the
Company and allow returns of defective products,  including those that have been
returned to the Company by its  customers.  The Company  does not  independently
warrant the products that it distributes,  but it does provide warranty services
on behalf of the supplier.

     j.   Concentration of Cash and Credit Risk

     The Company maintains its cash in bank accounts which, at times, may exceed
federally  insured  limits.  The Company has not  experienced any losses in such
accounts  to date.  Management  believes  that the Company is not exposed to any
significant risk on the Company's cash balances.

     Financial  instruments that potentially  subject the Company to significant
concentrations  of credit risk consist  primarily of trade accounts  receivable.
The Company  performs  ongoing credit  evaluations with respect to the financial
condition of its debtors, but does not require collateral. The Company maintains
credit insurance for a portion of this credit risk.

     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.

     k.   Advertising

     Advertising  costs are charged to expense as incurred.  The Company has not
incurred  direct  advertising  costs.  However,  the Company may  participate in
cooperative  advertising  programs  with  certain of its  customers  by paying a
stipulated percentage of the sales invoice price.  Cooperative advertising costs
paid for the years  ended  December  31,  2005,  2004,  and 2003 were  $849,897,
$1,481,441,  and  $728,488  respectively,  and are  presented  under  sales  and
marketing costs in the accompanying consolidated statements of operations.

     l.   Income Taxes

     The Company  accounts for income taxes using the asset and liability method
whereby  deferred  income  taxes  are  recognized  for the tax  consequences  of
temporary differences by applying statutory tax rates applicable to future years
to  differences  between the financial  statement  carrying  amounts and the tax


                                                                              52
<PAGE>

bases of certain  assets and  liabilities.  Changes in  deferred  tax assets and
liabilities  include the impact of any tax rate changes enacted during the year.
A valuation  allowance  is provided  for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.

     m.   Income (Loss) Per Common 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 (loss) per share is computed by
dividing  net income  (loss)  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.  These  potentially  dilutive  securities  were not
included in the  calculation  of loss per share for the years ended December 31,
2004 and 2003 because the Company  incurred a loss during such periods and their
effect would have been  anti-dilutive.  Accordingly,  basic and diluted loss per
share is the same for the years ended December 31, 2004 and 2003.

     As of December  31,  2005,  potentially  dilutive  securities  consisted of
2,797,738  shares  of  Class  B  convertible   preferred  stock  with  a  stated
liquidation value of $1.00 per share. At December 31, 2005,  4,054,693 shares of
common stock were issuable upon conversion of the Class B convertible  preferred
stock, based on the trading price of the common stock.

     n.   Comprehensive Income

     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 or loss for the years ended  December  31, 2005,
2004 and 2003.

     o.   Fair Value of Financial Instruments

     The  Company  believes  that  the  carrying  value  of its  cash  and  cash
equivalents, accounts receivable, accounts payable and accrued liabilities as of
December 31, 2005 approximate their respective fair values due to the short-term
nature of those instruments.

     p.   Stock-Based Compensation

     The Company has adopted  Statement of Financial  Accounting  Standards  No.
123,   "Accounting  for  Stock-Based   Compensation"  ("SFAS  No.  123"),  which


                                                                              53
<PAGE>

establishes  a fair value  method of  accounting  for  stock-based  compensation
plans,  as amended by  Statement  of  Financial  Accounting  Standard  No. 123R,
"Accounting for Share-Based Payment."

     The  provisions  of SFAS No.  123 allow  companies  to either  expense  the
estimated  fair value of stock  options or to continue  to follow the  intrinsic
value  method  set  forth  in  Accounting   Principles  Board  Opinion  No.  25,
"Accounting for Stock Issued to Employees", but to disclose the pro forma effect
on net loss and net loss per share had the fair value of the stock  options been
exercised.  The Company  has  elected to  continue  to account  for  stock-based
compensation   plans   utilizing  the  intrinsic   value  method.   Accordingly,
compensation  cost for stock options will be measured as the excess,  if any, of
the fair market price of the  Company's  common stock at the date of grant above
the amount an employee must pay to acquire the common stock.

     In accordance  with SFAS No. 123, as amended by SFAS No. 123R,  the Company
will provide prominent footnote disclosure with respect to stock-based  employee
compensation,  and the effect of the method used on reported results.  The value
of a stock-based award will be determined using the Black-Scholes option-pricing
model, whereby compensation cost is the fair value of the award as determined by
the pricing  model at the grant date or other  measurement  date.  The resulting
amount will be charged to expense on the straight-line  basis over the period in
which the Company  expects to receive  benefit,  which is generally  the vesting
period. Stock options issued to non-employee directors at fair market value will
be accounted for under the intrinsic value method.

As of December 31, 2005,  the Company's  stock-based  compensation  plan had not
been approved by shareholders.

     q.   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.


                                                                              54
<PAGE>

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

     On December 16, 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"


                                                                              55
<PAGE>

("SFAS 123R") which is a revision of SFAS No. 123,  "Accounting  for Stock-Based
Compensation"  ("SFAS  123").  Statement  123R  supersedes  APB  Opinion No. 25,
"Accounting for Stock Issued to Employees,"  and amends SFAS No. 95,  "Statement
of Cash Flows." Generally,  the approach in SFAS 123R is similar to the approach
described in SFAS 123. SFAS 123R requires all share-based  payments to employees
to be recognized in the income  statement  based on their grant date fair values
over the  corresponding  service  period  and also  requires  an  estimation  of
forfeitures when calculating  compensation  expense. The Company must adopt SFAS
123R no later than January 1, 2006. SFAS 123R permits public  companies to adopt
its requirements using one of three methods: the "modified  prospective" method,
the  "modified  retrospective"  method to  January  1,  2005,  or the  "modified
retrospective"  method to all prior years for which SFAS 123 was effective.  The
Company  has not yet  determined  which  adoption  method it will  utilize.

     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.


3.   Accounts Receivable


The Company's  accounts  receivable at December 31, 2005 and 2004 are summarized
as follows:


                                                                              56
<PAGE>

                                  December 31,
------------------------------------------- ---------------- ----------------
                                            2005             2004
------------------------------------------- ---------------- ----------------
Accounts receivable                         $7,867,744       $3,151,432
------------------------------------------- ---------------- ----------------
Less:  allowance for doubtful accounts        (589,224)      (1,074,550)
------------------------------------------- ---------------- ----------------
                                            $7,278,520       $2,076,882
------------------------------------------- ---------------- ----------------

     Changes in the allowance for doubtful accounts for the years ended December
31, 2005 and 2004 are summarized as follows:

----------------------------------------------------- -------------- -----------
                                                      2005           2004
----------------------------------------------------- -------------- -----------
Balance, beginning of year                            $1,074,550     $  856,386
----------------------------------------------------- -------------- -----------
Add:  Amounts provided during the year                    34,513        956,738
----------------------------------------------------- -------------- -----------
Less:  Amounts written off during the year               (57,605)      (738,574)
----------------------------------------------------- -------------- -----------
Less:  Adjustment based on current estimate             (462,234)
----------------------------------------------------- -------------- -----------
Balance, end of year                                  $  589,224     $1,074,550
----------------------------------------------------- -------------- -----------


The Company's management believes that the balance of the allowance for doubtful
accounts at  December  31, 2005 was  sufficient  to cover any past due  accounts
whose collection was considered doubtful.

During 2005, the Company began factoring its invoices to improve cash flow. As a
result of this activity,  the Company obtained the services of credit experts to
evaluate its new and existing  customer base.  Based on the expert  evaluations,
and  several  deals  struck  with  creditors  to  pay  off  debt  in  manageable
installments, the Company believes that its 2005 provision for doubtful accounts
is adequate, as was the provision for 2004.

As mentioned  above, the Company began factoring its invoices in 2005 to improve
cash flow. At December 31, 2005, $580,363 of the Company's  receivables had been
factored and were owned by Wells Fargo.

4.   Property and Equipment

     At December  31, 2005 and 2004,  property  and  equipment  consisted of the
following:


                                  December 31,
---------------------------------------- ----------------------- ---------------
                                         2005                    2004
---------------------------------------- ----------------------- ---------------
Computer and Equipment                   $744,176                $ 62,255
---------------------------------------- ----------------------- ---------------
Furniture and Fixtures                     27,943                  24,333
---------------------------------------- ----------------------- ---------------
1Leasehold Improvements                    83,928                 149,890
---------------------------------------- ----------------------- ---------------
Automobiles                                11,075                   8,675
---------------------------------------- ----------------------- ---------------
Less: Accumulated Depreciation           (115,480)                (80,087)
---------------------------------------- ----------------------- ---------------
           Total                         $751,642                $165,066
---------------------------------------- ----------------------- ---------------


                                                                              57
<PAGE>

     For the years ended  December 31,  2005,  2004 and 2003,  depreciation  and
amortization expense related to property and equipment was $35,394,  $34,998 and
$15,689 respectively.


5.   Goodwill

     Goodwill represents the excess of the purchase price over the fair value of
the  identifiable  net assets acquired in an acquisition in 1999,  accounted for
using the purchase  method.  Goodwill was being  amortized on the  straight-line
basis over a three year period.

     Effective  January 1, 2002, the Company adopted the provisions of Statement
of  Financial  Accounting  Standards  No. 142,  "Goodwill  and Other  Intangible
Assets",  which  eliminated  the  amortization  of goodwill.  No impairment  was
recorded  upon the  adoption of this  accounting  standard.  At January 1, 2002,
goodwill was $1,251,325,  less accumulated amortization of $862,018. At December
31, 2002,  goodwill was reviewed for  impairment  and the  remaining  balance of
$389,307 was charged to operations.

6.   Advances from Officer, Director and Major Shareholder

     During  March 2003,  Nancy Chu,  the  Company's  Chief  Financial  Officer,
director  and major  shareholder,  made  short-term  advances  to the Company of
$360,000 for working  capital  purposes,  of which  $120,000  was repaid  during
September 2003. The remaining $240,000 was paid during 2005.

In October 2005,  the Company  borrowed  $165,000 from an individual for working
capital purposes.

7.   Business Loan

     On March 29, 2004, LGT Computer,  Inc. loaned the Company $213,750 pursuant
to an unsecured note payable due March 28, 2005,  with interest at 4% per annum.
On May 28, 2004, LGT Computer,  Inc.  loaned the Company an additional  $700,000
pursuant to an unsecured note payable due May 27, 2005,  with interest at 4% per
annum. On March 28, 2005, by mutual  agreement of the parties,  the due dates of
the notes were extended one year at the same interest  rate. The new due date of
the first loan is September  28, 2005.  On September 2, 2005,  the two loans and
accrued interest of $51,251 were repaid through the issuance of 1,286,669 shares
of our restricted  common stock. On that date, the market price of the stock was
$0.75.


8.   Commitments and Contingencies


                                                                              58
<PAGE>

     a.   Operating Lease

     The  Company  leases its office and  warehouse  premises  under a five-year
non-cancelable  operating  lease that expires on November 30, 2008,  with a five
year renewal option. The lease provides for monthly payments of base rent and an
unallocated  portion of  building  operating  costs.  The minimum  future  lease
payments are as follows:

     Years Ending December 31,
     -------------------------

     2006              210,983
     2007              212,692
     2008              194,967

     Rent  expense  for the years ended  December  31,  2005,  2004 and 2003 was
$238,836, $229,718 and $276,044 respectively.

     b.   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  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  is  vigorously  defending  the  lawsuit  and  believes  that it will be
resolved with no material adverse effect on the Company or Ms. Chu.

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


                                                                              59
<PAGE>

     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.


9.   Income Taxes

     For the year ended December 31, 2005, the Company  believes that all income
taxes due are offset by federal and state net operating loss carryforwards.  For
the years ended December 31, 2004 and 2003, the Company  incurred net losses and
accordingly, had no tax liability, other than minimum state franchise taxes.

     As of December  31, 2005,  the Company had federal and state net  operating
loss carryforwards of $4,500,000, and $70,000 respectively,  expiring in various
years through 2024,  which can be used to offset future taxable income,  if any.
The  Company's  net  operating  losses  were  reduced  by  $10,500,000  for  the
forgiveness  of debt  for tax  purposes.  No  deferred  tax  benefit  for  these
operating  losses has been recognized in the consolidated  financial  statements
due to the uncertainty as to their realizability in future periods.


10.  Significant Concentrations

     a.   Customers

     The Company sells to both distributors and retailers. Revenues through such
distribution  channels for the years ended December 31, 2005,  2004 and 2003 are
summarized as follows:

                             Year Ended December 31,
-------------- ------------- ------- ------------- ------- ------------- -------
               2005          %       2004          %       2003          %
-------------- ------------- ------- ------------- ------- ------------- -------
Revenues
-------------- ------------- ------- ------------- ------- ------------- -------
Distributors   $22,312,488   58.3    $14,704,452   45.3    $13,055,046   42.1
-------------- ------------- ------- ------------- ------- ------------- -------
Retailers      $15,950,544   41.7    $17,721,962   54.7    $17,979,193   57.9
-------------- ------------- ------- ------------- ------- ------------- -------
Total          $38,263,032   100.0   $32,426,414   100.0   $31,034,239   100.0
-------------- ------------- ------- ------------- ------- ------------- -------

During the year ended December 31, 2005, the Company had one customer (E23) that
accounted for revenues of $13,552,324, equivalent to 35% of net revenues. During
the year ended December 31, 2004, the Company had one customer (SYX Distibution,
Inc.,   otherwise  known  as  Tiger  Direct)  that  accounted  for  revenues  of
$8,591,711,  equivalent to 26% of net revenues.  During the year ended  December
31, 2003, the same customer accounted for revenues of $9,943,855,  equivalent to
32% of net revenues.


                                                                              60
<PAGE>

     b.   Geographic Segments

Revenues by geographic segment are summarized as follows:

                             Year Ended December 31,
---------------- ------------ ------ ------------ ------ ------------ ------
                 2005         %      2004         %      2003         %
---------------- ------------ ------ ------------ ------ ------------ ------
Revenues
---------------- ------------ ------ ------------ ------ ------------ ------
N. America       $21,670,550   56.7  $25,936,978  80.0   $23,043,136   74.3
---------------- ------------ ------ ------------ ------ ------------ ------
Central and      $2,993,532     7.8  $6,317,907   19.5   $7,391,804    23.8
South America
---------------- ------------ ------ ------------ ------ ------------ ------
Hong Kong        $13,552,325   35.4  $0                  $0
---------------- ------------ ------ ------------ ------ ------------ ------
Other locations  $46,625        0.1  $171,529      0.5   $599,299       1.9
---------------- ------------ ------ ------------ ------ ------------ ------
Total            $38,263,032  100.0  $32,426,414  100.0  $31,034,239  100.0
---------------- ------------ ------ ------------ ------ ------------ ------


During the first part of 2005,  the  Company  had made a  commitment  to its new
product lines,  but did not have much  inventory to sell.  While waiting for the
initial inventory shipments,  the Company entered into a short term agreement to
make  sales of  computer  components  to a vendor  in Hong  Kong.  The sales had
relatively low margin, and not a business that the Company planned to be in long
term.

     c.   Suppliers

     From the Company's  inception  through  December 31, 2003,  over 80% of the
products sold were produced by SOYO Taiwan.  In 2004, the Company went through a
partial  reorganization,  changing the sales mix. The decision was made to focus
more on peripherals,  VoIP, and other  products,  while  deemphasizing  sales of
hardware and motherboards,  which are much more mature markets. As a result, the
Company significantly reduced its reliance on SOYO Taiwan.

     During the year ended  December 31, 2005,  the Company did not purchase any
products  from SOYO Taiwan.  As of December  31,  2005,  no more than 39% of the
products  distributed  by the SOYO Group are  supplied by any one  supplier.  As
started in 2004, SOYO Group, Inc. is aggressively  establishing new partnerships
with other OEM  manufacturers  in the North America and Asia Pacific  Regions in
order to provide innovative products for consumers.

     The following is a summary of the Company's  transactions and balances with
SOYO Taiwan as of and for the years ended December 31, 2005, 2004 and 2003:


                                  December 31,
------------------------------------- ---------- --------------- ---------------
                                      2005       2004            2003
------------------------------------- ---------- --------------- ---------------
Accounts payable to SOYO Taiwan       $0         $1,314,910      $ 6,557,253
------------------------------------- ---------- --------------- ---------------
Long-term payable to SOYO Taiwan      $0         $0              $12,000,000
------------------------------------- ---------- --------------- ---------------


                                                                              61
<PAGE>

                            Years Ended December 31,
------------------------------- -------------- ----------------- ---------------
                                2005           2004              2003
------------------------------- -------------- ----------------- ---------------
Purchases from SOYO Taiwan      $0             $14,004,259       $20,188,354
------------------------------- -------------- ----------------- ---------------
Payments to SOYO Taiwan         $873,050       $19,154,603       $18,842,244
------------------------------- -------------- ----------------- ---------------


     During the years  ended  December  31,  2005,  2004 and 2003,  the  Company
received   price   protection   from  SOYO  Taiwan  of  $0,  $0,  and  $651,215,
respectively, which reduced inventory and accounts payable accordingly.


11.  Shareholders' Equity

     a.   Common Stock

     As of December 31, 2002,  the Company had authorized  75,000,000  shares of
common stock with a par value of $0.001 per share.

     Effective  October 24, 2002, the Company issued 28,182,750 shares of common
stock to Ming Tung Chok and Nancy Chu, who are members of SOYO Nevada management
(see Note 1). The shares of common  stock  were  valued at par value,  since the
transaction was deemed to be a recapitalization  of SOYO Nevada.  During October
2002, 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 common stock. When the transaction
was complete, and control of the Company was transferred, SOYO Nevada management
owned 34,209,548  shares of the 40,000,000  outstanding  shares of the Company's
common stock.  Subsequent to the transaction,  management  distributed 8,000,000
shares of common stock to various  brokers,  bankers and other  individuals that
assisted with the transaction. No one individual or corporation other than those
named in Item 12 of this  report  ever owned  more than 5% of the common  shares
outstanding.  As a result of this transaction,  SOYO Group management  currently
owns 26,209,548 of the 48,681,511 shares outstanding as of December 31, 2005.

     b.   Preferred Stock

     As of December 31, 2005,  the Company had authorized  10,000,000  shares of
preferred stock with a par value $0.001 per share.


                                                                              62
<PAGE>

     The  Board  of  Directors  is  vested  with the  authority  to  divide  the
authorized  shares of preferred  stock into series and to determine the relative
rights and preferences at the time of issuance of the series.

     Effective  October 24, 2002, the Company issued 1,000,000 shares of Class A
convertible  preferred  stock  to  SOYO  Taiwan  (see  Note  1)  with  a  stated
liquidation value of $1.00 per share. The shares of Class A preferred stock were
valued at par value,  since the transaction was deemed to be a  recapitalization
of SOYO  Nevada.  Each share of Class A preferred  stock has one vote per share.
The Class A preferred  stock has no stated  dividend rate. The shares of Class A
preferred stock are  convertible,  in whole or in part, into common stock at any
time during the three-year  period  subsequent to their  issuance,  based on the
average closing bid price of the common stock for a period of five business days
prior to  conversion.  On October 24, 2005,  the one million shares of preferred
stock were  converted  to  1,219,512  shares of common  stock.  The price of our
common stock on that day was $0.82.

     During the first  quarter of 2004,  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.  SOYO
Taiwan forgave debt in an amount equal the difference  between  $12,000,000  and
the value of the preferred stock.  This forgiveness will be treated as a capital
transaction.  Payment was received by SOYO Taiwan in February and March 2004. An
agreement was reached 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 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


                                                                              63
<PAGE>
<TABLE>
<CAPTION>

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-transferrable.

     Based on the  terms of the  agreement  between  SOYO  Taiwan  and the third
party,  and  specifically  the limitation on the purchaser  collecting more than
$1,630,000 of the $12,000,000 from the Company without the prior consent of SOYO
Taiwan,  the Company has  determined  that this  transaction  is in  substance a
capital transaction. Accordingly, the Company recorded the issuance of the Class
B preferred stock at its fair market value in 2004, with the difference  between
the  $12,000,000  long-term  payable  and the fair  market  value of the Class B
preferred stock credited to additional  paid-in capital.  The difference between
the fair market value and the  liquidation  value of the Class B preferred stock
will  be  recognized  as  an  additional  dividend  to  the  Class  B  preferred
stockholder, and will be accreted through December 31, 2008.

For the year ended December 31, 2005, the Company recorded  aggregate  dividends
of $1,173,753, based on the accretion of the discount on the Class B Convertible
Preferred  Stock,  and the  adjustment  to the  carrying  value  of the  Class A
preferred stock, which is described above. The Company did not declare or accrue
any additional dividends on the Class B Preferred Stock.

     c.   Stock Options and Warrants

     As of December 31, 2005, the only warrants outstanding were those issued to
Evergreen  Technology as part of the private placement  completed in March 2005,
and  described  above.  The Company has created a stock option  plan,  but as of
December 31, 2005, the plan had not yet been approved by the  shareholders,  and
no options granted under the plan had vested.


12.  Quarterly Results (Unaudited)

     Presented below is a summary of the quarterly results of operations for the
years ended December 31, 2005 and 2004.


                               Three months ended:
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
<S>                      <C>               <C>              <C>             <C>              <C>
                         March 31,         June 30,         Sept 30,        Dec 31,          Total
                         2005              2005             2005            2005
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Net revenues             $3,962,520        $8,494,311       $9,233,430      $16,572,771      $38,263,032

------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Gross margin             $1,522,035        $1,054,872       $206,771        $1,909,292       $46,992,970

------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Income (loss)            $308,724         ($36,760)         ($944,641)      $651,843         $52,686
from
Operations
------------------------ ----------------- ---------------- --------------- ---------------- ----------------


                                                                              64
<PAGE>

------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Other Income             $77,951           $65,359          $582,449       ($237,335)       $488,424
(Expense)
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Income (loss)            $386,675          $102,119         ($362,192)      $414,508         $541,110
before taxes
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Income taxes                                                                $800             $800

------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Net Income               $386,675          $102,119         ($362,192)      $413,708         $540,310
(loss)
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Dividends                $39,213           $42,458          $42,935         $1,049,147       $1,173,753
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Net                      $347,462          $59,661          ($405,127)      ($635,439)       ($633,433)
Income (loss)
Attributable to
Common
Shareholders
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Net income
  (loss) per
  common share
-
Basic                    .01               -----            (.01)           (.01)            (.01)
Diluted                  .01               -----            (.01)           (.01)            (.01)

------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Weighted
  average
  number of
  common
  shares
  outstanding -
Basic                    48,681,511        48,681,511       48,681,511      48,681,511       48,681,511
Diluted                  52,736,204        52,736,204       52,736,204      52,736,204       52,736,204
------------------------ ----------------- ---------------- --------------- ---------------- ----------------


------------------------ ----------------- ---------------- --------------- ---------------- ----------------
                         March 31,         June 30,         Sept 30,        Dec 31,          Total
                         2004               2004            2004            2004
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Net revenues             $  8,594,302      $ 10,194,388     $9,347,427      $4,290,297       $32,426,414

------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Gross margin             1,113,168         398,972          307,513         396,719          2,216,372
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Income (loss)            94,705            (924,036)        (809,416)       (2,274,936)      (3,913,683)
from Operations
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Other Income                               (4,745)          (4,745)         3,728            5,762
(Expense)
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Income (loss)            94,705            (928,781)        (814,161)       (2,271,208)      (3,919,445)
before taxes
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Income taxes
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Net Income               94,705            (928,781)        (814,161)       (2,271,208)      (3,919,445)
(loss)
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Net income
  (loss) per
  common share -
Basic                    $---              ($.02)           ($.02)          ($.06)           ($.10)
Diluted                  $---              ($.02)           ($.02)          ($.06)           ($.10)
------------------------ ----------------- ---------------- --------------- ---------------- ----------------


65 <PAGE>

------------------------ ----------------- ---------------- --------------- ---------------- ----------------
Weighted
  average
  number of
  common
  shares
  outstanding -
Basic                    40,000,000        40,000,000       40,000,000      40,000,000
Diluted                  40,000,000        40,000,000       40,000,000      40,000,000
------------------------ ----------------- ---------------- --------------- ---------------- ----------------
</TABLE>

During  the year,  the  Company  booked  approximately  $1,000,000  in the first
quarter and $300,000 in the second quarter to miscellaneous  income.  During the
fourth quarter,  the Company  determined that the correct  classification of the
amounts was as a reduction to cost of sales,  and not to  miscellaneous  income.
The amounts are placed  above as they  should have been  booked,  which will not
agree with the 10Q  reports  issued as of March 31, June 30, and  September  30,
2005.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

     Effective July 23, 2004, the Company dismissed Grobstein, Horwath & Company
LLP  ("Grobstein"),  as the Company's  independent  registered public accounting
firm.  Effective  July 26,  2004,  the  Company  engaged  Vasquez & Company  LLP
("Vasquez") as the Company's new independent  registered public accounting firm.
The  dismissal of Grobstein  and the  engagement of Vasquez were approved by the
Company's Board of Directors.

     During the year ended December 31, 2003, and the subsequent  interim period
from January 1, 2004 through July 26, 2004,  neither the Company,  nor anyone on
its behalf,  consulted  with Vasquez  regarding;  (i) either the  application of
accounting principles to a specified transaction,  either completed or proposed;
or the type of audit opinion that might be rendered on the  Company's  financial
statements  and no written  report or oral  advice  was  provided  that  Vasquez
concluded  was an  important  factor  considered  by the  Company in  reaching a
decision as to the accounting,  auditing or financial  reporting  issue; or (ii)
any  matter  that was either the  subject of a  disagreement  as defined at Item
304(a)(1)(iv)  or a  reportable  event  as  defined  at Item 304  (a)(1)(iv)  of
Regulation S-K.

     Grobstein audited the Company's  financial  statements for the fiscal years
ended December 31, 2002 and 2003.  Grobstein's reports for these periods did not
contain an adverse  opinion or a disclaimer of opinion,  nor were they qualified
or modified as to audit scope or accounting principles, except that such reports
contained  a  modification  paragraph  that  indicated  that as a result  of the
Company's losses from operations there was substantial doubt about the Company's
ability to continue as a going concern.

     During the fiscal years ended  December 31, 2002 and 2003,  and the interim


                                                                              66
<PAGE>

period from January 1, 2004 through July 23, 2004,  there were no  disagreements
with  Grobstein on any matter of accounting  principles or practices,  financial
statement disclosure,  or auditing scope or procedure,  which disagreements,  if
not resolved to the  satisfaction  of Grobstein,  would have caused such firm to
make reference to the subject matter of the disagreements in connection with its
reports on the Company's financial statements.  In addition,  there were no such
events as described under Item  304(a)(1)(v) of Regulation S-K during the fiscal
years ended  December  31, 2002 and 2003 and the interim  period from January 1,
2004 through July 23, 2004, except that (a) as described in the Company's Annual
Report on Form 10-K for the fiscal year ended  December  31,  2003(Item  9A) and
Quarterly Report on Form 10-Q for the quarterly period ended March31, 2004 (Item
4), the Company's  disclosure controls and procedures were not adequate,  (b) by
letter dated July 15, 2004,  Grobstein stated that it noted certain deficiencies
involving  internal  controls  that  Grobstein   considered  to  be  significant
deficiencies  that,  in the  aggregate,  constitute  material  weaknesses  under
standards established by the American Institute of Certified Public Accountants.
Grobstein  discussed the significant  deficiencies  and material  weaknesses set
forth in the above mentioned letter with the Company's Board of Directors.

     Effective  February 10, 2003, the Company,  dismissed  Gerald R. Perlstein,
CPA ("Perlstein"),  as the Company's independent accountant.  Effective February
10, 2003, the Company engaged Grobstein, Horwath & Company LLP, ("Grobstein") as
the Company's new  independent  accountants.  Perlstein had been retained by the
Company as its  independent  accountant  on January 31, 2000.  The  dismissal of
Perlstein and the engagement of Grobstein  were approved by the Company's  Board
of Directors.

     Prior to Grobstein  becoming the  independent  accountants for the Company,
neither  the  Company,  nor  anyone  on its  behalf,  consulted  with  Grobstein
regarding  either  the  application  of  accounting  principles  to  a  specific
completed or proposed  transaction,  or the type of audit  opinion that might be
rendered  on the  Company's  financial  statements;  or any matter  that was the
subject  of a  disagreement  or event as  defined  at Item  304 (a)  (1)(iv)  of
Regulation S-K.

     Perlstein audited the Company's  financial  statements for the fiscal years
ended July 31, 2001 and 2002.  During his  engagement,  Perlstein's  reports for
these periods did not contain an adverse opinion or a disclaimer of opinion, nor
were  they  qualified  as to audit  scope  or  accounting  principles,  however,
Perlstein's  report for these fiscal  years was modified to reflect  uncertainty
with respect to the Company's ability to continue as a going concern.

     During the fiscal years ended July 31, 2001 and 2002 and the interim period
from August 1, 2002 through February 10, 2003, there were no disagreements  with
Perlstein  on any  matter  of  accounting  principles  or  practices,  financial
statement disclosure,  or auditing scope or procedure,  which disagreements,  if


                                       67
<PAGE>

not resolved to the  satisfaction  of Perlstein,  would have caused such firm to
make reference to the subject matter of the disagreements in connection with its
report on the Company's financial  statements.  In addition,  there were no such
events as described  under Item  304(a)(1)(iv)(B)  of Regulation  S-K during the
fiscal years ended July 31, 2001 and 2002 and the interim  period from August 1,
2002 through February 10, 2003.

     Effective  February 13, 2003, the Company,  dismissed  Malone & Bailey PLLC
("M & B"), as the independent  accountants of its wholly-owned  subsdiary,  SOYO
Nevada,  Inc.  The  dismissal  of M & B and the  engagement  of  Grobstein  were
approved by the Company's Board of Directors.

     Prior to Grobstein  becoming the  independent  accountants for the Company,
neither  the  Company,  nor  anyone  on its  behalf,  consulted  with  Grobstein
regarding  either the  application  of  accounting  principles  to a specific or
contemplated transaction, or the type of audit opinion that might be rendered on
the  Company's  financial  statements;  or any matter  that was the subject of a
disagreement or event as defined at Item 304 (a)(1)(iv) of Regulation S-K.

     M & B audited the Company's financial statements for the fiscal years ended
December 31, 2000 and 2001. M & B's reports for these periods did not contain an
adverse opinion or a disclaimer of opinion,  nor were they qualified as to audit
scope or accounting principles.

     During the fiscal  years ended  December  31, 2000 and 2001 and the interim
period  from  January  1,  2001  through   February  13,  2003,  there  were  no
disagreements  with M & B on any matter of  accounting  principles or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements,  if not resolved to the  satisfaction of M & B, would have caused
such  firm to make  reference  to the  subject  matter of the  disagreements  in
connection with its report on the Company's financial  statements.  In addition,
there were no such events as described under Item 304(a)(1)(IV)(B) of regulation
S-K during the fiscal  years  ended  December  31, 2000 and 2001 and the interim
period from January 1, 2001 through February 13, 2003.


ITEM 9A.  CONTROLS AND PROCEDURES

     (a)  Evaluation of Disclosure Controls and Procedures:

     In conjunction with the audit of the Company's financial statements for the
year ended  December 31, 2003,  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


                                                                              68
<PAGE>

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  date,  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 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.

     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


                                                                              69
<PAGE>

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 is operating without an Accounting Manager or Controller. While the
     Company  is  searching  for a  replacement,  the  Company  has  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.  The Company needs
     and is seeking to  immediately  hire an Accounting  Manager and  additional
     personnel to focus on financial accounting and reporting issues.

>>   Each month, the Company's  Accounting Manager supervises the reconciliation
     of the accounts  payable  subsidiary  ledgers with the general ledger,  and
     approves  adjustments to inventory based on  reconciliation  of the general
     ledger to physical inventory counts.  Each quarter,  the Accounting Manager
     records inventory  adjustments to the lower of cost or market.  These tasks
     will be  supervised by the financial  consultant  until the new  Accounting
     Manager is hired.

>>   Every  month,  the  Accounting  Manager  reconciles  the bank  accounts and
     compares the bank  reconciliation  with the balance per general  ledger and
     the daily cash report, reviews the recording of accounts payable to vendors
     for  purchases of  inventory,  and  prepares  financial  statements  with a
     complete  set  of  adjustments.  These  tasks  will  be  supervised  by the
     financial consultant until the new Accounting Manager is hired.

>>   During the quarter  ended  September  30, 2004,  the Company  implemented a
     cycle count of its inventory,  with the fifty fastest-moving items of "Type
     A"  inventory  physically  counted and  reconciled  every  morning with the
     recorded  quantities  and amounts.  All "Type A"  inventory  is  physically
     counted and reconciled every Monday.

>>   A complete  inventory is  physically  counted and  reconciled at the end of
     every month.


     (b)  Changes in internal control over financial reporting:

In light of the  foregoing,  in 2005  management  took the following  actions to
rectify the deficiencies as described above.


                                                                              70
<PAGE>

>>   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  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 March 31,  2006,  the  Company  is working  quickly to hire 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 hired, all significant  deficiencies will have
been addressed and corrected.

ITEM 9B. OTHER INFORMATION- NONE


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  following  table  and text  sets  forth  the names and ages of all the
Company's  directors and executive officers and the key management  personnel as
of March 31,  2006.  The  Company's  Board of Directors is comprised of only one
class.  All of the directors serve until the next annual meeting of stockholders
and until their  successors  are elected and  qualified,  or until their earlier
death,  retirement,  resignation  or removal.  Executive  officers  serve at the
discretion of the Board of Directors, and are appointed to serve until the first
Board of Directors  meeting  following the annual meeting of stockholders.  Also
provided is a brief description of the business  experience of each director and
executive  officer and the key management  personnel  during the past five years
and an indication  of  directorships  held by each  director in other  companies
subject to the reporting requirements under the Federal securities laws.


                                                                              71
<PAGE>

-------------------------- -------- --------------------------------------------
Name                       Age      Position Held
-------------------------- -------- --------------------------------------------
Ming Tung Chok             45       Chief Executive Officer and Director
-------------------------- -------- --------------------------------------------
Nancy Chu                  49       Chief Financial Officer, Secretary and
                                    Director
-------------------------- -------- --------------------------------------------
Paul F. Risberg            44       Director
-------------------------- -------- --------------------------------------------
Chung Chin Keung           39       Director
-------------------------- -------- --------------------------------------------
Zhi Yang Wu                35       Director
-------------------------- -------- --------------------------------------------


Ming Tung Chok has served as the President, Chief Executive Officer and Director
of the Company since October 25, 2002.  Prior to serving in this  capacity,  Mr.
Chok was the Vice President of Engineering of SOYO Group, Inc. for the past five
years. Mr. Chok received his Bachelor Degree in Electrical  Enginnering from the
California  State  University,  Long Beach. Mr. Chok is married to Ms. Nancy Chu
who is a Director, the Chief Financial Officer and the Secretary of the Company.

Nancy Chu has served as the Chief Financial Officer,  the Secretary and Director
of the Company since October 25, 2002.  Prior to serving in this  capacity,  Ms.
Chu was the Vice  President  of  Operations  of SOYO Group,  Inc. for the past 5
years.  Ms. Chu holds a Bachelor  Degree in Accounting & Statistics from the Sji
Jiang  College,  Taiwan  R.O.C.  Ms.  Chu  is  married  to Mr.  Chok  who is the
President, Chief Executive Officer and a Director of the Company.

Chung Chin Keung was appointed in October 2005 as an  independent  non-executive
director and audit committee member. Mr. Chung has more than 14 years commercial
experience,  including more than 10 years in accounting and finance for publicly
listed companies in various countries.  Mr. Chung is currently the chief finance
officer of KPI Co. Ltd. (0605,  Hong Kong Stock  Exchange),  a listed company in
Hong  Kong.  Mr.  Chung  holds a  Master  of  Business  Administration  from the
University of Manchester, England.

Paul F. Risberg was  appointed in October 2005 as an  independent  non-executive
director  and audit  committee  member.  Mr.  Risberg  has more than 13 years of
investment  banking  and  securities  market  expertise.  He  is  currently  the
president of Altenergy Inc., an alternative  energy service company that retails
and installs  energy  Equipment.  From 1998 until 2002,  Mr.  Risberg  served as
divisional  vice  president of Fahnestock & Co. Inc. (now known as Oppenheimer &
Co.), one of the oldest New York Stock Exchange firms.

Zhi  Yang Wu was  appointed  in  October  2005 as an  independent  non-executive
director and compensation  committee member. Mr. Wu is the vice chairman of Qiao
Xing  Universal   Telephone  Inc.   (Nasdaq:   XING),  one  of  China's  largest
manufacturers and distributors of telecommunication  products.  Mr. Wu currently
also serves as chairman & CEO of CEC  Telecom,  one of the largest  mobile phone
manufacturers in China and a subsidiary of Qiao Xing. Mr. Wu currently  oversees
CEC  Telecom  with  annual  sales in excess of $200  million.  Mr. Wu received a


                                                                              72
<PAGE>

Diploma  in  Business  Management  from  Huizhou  University  of China,  and has
completed graduate studies in business management at Beijing University.

Daniel  Hou  was  appointed  in  October  2005 as an  independent  non-executive
director and audit  compensation  member. Mr. Hou has served as the president of
Reyes Electronics Inc., a computer  peripheral  supplier he founded in 1986. Mr.
Hou received a B.A.  degree in chemistry from National  Chung-Hsing  University,
Taiwan, in 1973 and a master's degree in material science from the University of
Utah in 1978.  Mr. Hou resigned from the Board of Directors  effective  December
31, 2005 for medical reasons.

Each Director received 10,000  unregistered shares of the Company's common stock
in 2005. The Directors receive no other compensation for serving on the Board of
Directors,  but  are  reimbursed  for any  out-of-pocket  expenses  incurred  in
attending  board  meetings,  and may be  compensated  for other work done on the
Company's behalf.


     Family Relationships.

     Ming Tung Chok,  President and CEO, and Nancy Chu, CFO and  Secretary,  are
husband and wife.  Andy Chu,  the  President  and majority  shareholder  of SOYO
Taiwan, is the brother of Nancy Chu.


     Involvement in Legal Proceedings.

     To the best of the Company's knowledge, during the past five years, none of
the following occurred with respect to a present or former director or executive
officer of the  Company:  (1) any  bankruptcy  petition  filed by or against any
business of which such person was a general partner or executive  officer either
at the time of the  bankruptcy  or within two years prior to that time;  (2) any
conviction  in a criminal  proceeding  or being  subject  to a pending  criminal
proceeding  (excluding traffic  violations and other minor offenses);  (3) being
subject to any order, judgment or decree, not subsequently  reversed,  suspended
or vacated, of any court of competent  jurisdiction,  permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; and (4) being found by a court of
competent  jurisdiction (in a civil action),  the SEC or the Commodities Futures
Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended or vacated.

     Section 16(a) Beneficial Ownership Compliance.

     The Company  does not have any shares  registered  under  Section 12 of the
Securities Act and therefore the owners of the Company's  equity  securities are
not required to report their  beneficial  ownership  under  Section 16(a) of the
Exchange Act.


                                                                              73
<PAGE>

     Audit Committee

The Audit  Committee of the Board of  Directors is comprised of Mr.  Risberg and
Mr. Keung.  The first Audit Committee  meeting is scheduled to coincide with the
Company's 2006 Annual meeting, the date of which has not yet been set.

     Communications with the Board

     Any shareholder may communicate  directly with the Board of Directors.  The
Board of Directors has  established the following  system to receive,  track and
respond to communications from shareholders  addressed to the Company's Board of
Directors and its committees and members. Any shareholder may address his or her
communication to the Board of Directors,  or an individual Board member and send
the communication  addressed to the recipient group or individual,  care of SOYO
Group, Inc.,  Corporate  Secretary,  1420 South Vintage Ave., Ontario, CA 91761.
The  Corporate   Secretary  will  review  all  communications  and  deliver  the
communications to the appropriate party in the Corporate Secretary's discretion.
The Corporate  Secretary may take additional action or respond to communications
in accordance with instructions from the recipient of the communication.

     Code of Ethics

     We believe that good corporate  governance practices promote the principles
of fairness,  transparency,  accountability  and  responsibility and will ensure
that our  Company  is managed  for the  long-term  benefit of its  shareholders.
During the past year,  we have  continued  to review  our  corporate  governance
policies  and  practices  and to  compare  them to those  suggested  by  various
authorities in corporate governance and the practices of other public companies.
Accordingly,  in March 2004, the Board adopted a Code of Ethics and Conduct. You
may  obtain a copy of the Code of  Ethics  and  Conduct  and  other  information
regarding  our  corporate  governance  practices  by  writing  to the  Corporate
Secretary, 1420 South Vintage Ave., Ontario, CA 91761.

ITEM 11. EXECUTIVE COMPENSATION

     The  following  table sets forth the  compensation  paid during fiscal year
ended December 31, 2005, 2004 and 2003 to the Company's Chief Executive  Officer
and Chief Financial Officer.


                                                                              74
<PAGE>

                           SUMMARY COMPENSATION TABLE

------------------------   ----   --------   -----   ------------------
Name                       Year   Salary     Bonus   Other Compensation
------------------------   ----   --------   -----   ------------------
Ming Tung Chok             2005   $144,000    N/A           N/A
President and CEO          2004   $144,000
                           2003   $144,000
------------------------   ----   --------   -----   ------------------
Nancy Chu                  2005   $120,000
Chief Financial            2004   $120,000
 Officer                   2003   $120,000
------------------------   ----   --------   -----   ------------------


     Through  December  31,  2004,  the Company did not  maintain  any  employee
benefit  plans.  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.

On February  17, 2006,  the Company  held a special  meeting to vote on the 2005
Employee Stock Option  Compensation  Plan. The record date for the determination
of shareholders  entitled to vote was January 27, 2006. The plan was approved by
shareholder vote.


ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     The  following  table  sets  forth the  number  of  shares of common  stock
beneficially  owned as of March 31, 2006 by (i) those persons or groups known to
the Company who  beneficially  own more than 5% of the  Company's  common stock;
(ii) each  director and director  nominee;  (iii) each  executive  officer whose
compensation  exceeded $100,000 in the fiscal year ended December 31, 2005; and,
(iv) all  directors  and  executive  officers  as a group.  The  information  is
determined in accordance  with Rule 13(d)-3  promulgated  under the Exchange Act
based upon information  furnished by persons listed or contained in filings made
by them with the Securities and Exchange  Commission by information  provided by
such  persons   directly  to  the  Company.   Except  as  indicated  below,  the
stockholders  listed  possess sole voting and  investment  power with respect to
their shares.

---------------------------- ------------------------ --------------------------
Name/Title/Address(1)        Total Number of Shares   Percentage Ownership(2)
---------------------------- ------------------------ --------------------------
Ming Tung Chok               12,000,000               24.50%
---------------------------- ------------------------ --------------------------
Nancy Chu                    14,209,548               29.00%
---------------------------- ------------------------ --------------------------
Paul F. Risberg                  19,000                 .04%
---------------------------- ------------------------ --------------------------
Chung Chin Keung                 10,000                 .02%
---------------------------- ------------------------ --------------------------
Zhi Yang Wu                      10,000                 .02%
---------------------------- ------------------------ --------------------------


                                                                              75
<PAGE>

---------------------------- ------------------------ --------------------------
All officers and directors   26,248,548               53.58%
as a group (3)
---------------------------- ------------------------ --------------------------
Urmston Capital (4)           4,054,693                8.28%
---------------------------- ------------------------ --------------------------


     (1) Unless  otherwise  provided,  the addresses of these holders is 1420 S.
Vintage Ave. Ontario California 91761.

     (2) The percentage ownership is based upon 48,987,511 shares outstanding on
March 30, 2006.

     (3) Since  Ming Tung Chok and  Nancy  Chu are  husband  and wife,  they are
considered beneficial owners of each others common stock. Collectively, they own
26,209,548  shares  and are each  considered  beneficial  owners  of  26,209,548
shares.

     (4) The address for Urmston  Capital is 148 Xinglung Road,  Sec. 3, WenShan
District, Taipei, Taiwan R.O.C.

     As the result of an agreement  between  SOYO Taiwan and an unrelated  third
party in 2004  2,500,000  shares of Class B  preferred  stock were issued by the
Company to the  unrelated  third  party in  exchange  for the  forgiveness  of a
$12,000,000 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 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.  If the Class B Preferred  Stock were  converted at the closing
bid price of $0.69  per share on  December  31,  2005,  the  holder  would  have
4,054,693 shares of the Company's common stock.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Ming Tung Chok, the President and Chief  Executive  Officer of the Company,
is married to Nancy Chu, the Chief Financial  Officer of the Company.  Andy Chu,
the President and majority  shareholder of SOYO Taiwan,  is the brother of Nancy
Chu.

     The following is a summary of the Company's  transactions and balances with
SOYO Taiwan as of and for the years ended December 31, 2005, 2004 and 2003:


                                                                              76
<PAGE>

December 31,
-----------------------------------------------   -----------   -----------
                                                  2005          2004
-----------------------------------------------   -----------   -----------
Accounts payable to SOYO Taiwan                   $0            $1,314,910
-----------------------------------------------   -----------   -----------
Long-term payable to SOYO Taiwan                  $0            $0
-----------------------------------------------   -----------   -----------


Years Ended December 31,
---------------------------------   -----------   -----------   -----------
                                    2004          2003          2002
---------------------------------   -----------   -----------   -----------
Purchases from SOYO Taiwan          $0            $14,004,259   $20,188,354
---------------------------------   -----------   -----------   -----------
Payments to SOYO Taiwan             $873,050      $19,154,603   $18,842,244
---------------------------------   -----------   -----------   -----------


     During the years  ended  December  31,  2005,  2004 and 2003,  the  Company
received price protection from SOYO Taiwan of $0, $0 and $651,215  respectively,
which reduced inventory and accounts payable accordingly.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES


     Independent Accountant Fees

     The following  table sets forth the fees for  professional  audit  services
rendered  by  Vasquez  &  Company  LLP for the  audit  of the  Company's  annual
financial statements for the fiscal years 2005 and 2004.

-------------------------------------   ---------   ---------
                                        2005        2004
-------------------------------------   ---------   ---------
Audit Fees (1)                          $ 107,000   $ 143,510
-------------------------------------   ---------   ---------
Tax Fees                                   13,000      15,640
-------------------------------------   ---------   ---------
All Other Fees
-------------------------------------   ---------   ---------
Total Fees                              $ 120,000   $ 159,150

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

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


                                                                              77
<PAGE>

(1)  Includes  annual  audit fees and fees for  preissuance  review of quarterly
     filings.

Grobstein,  Horwath & Company, the Company's predessor auditors,  charged $6,000
each year for a review and reissuance of the Company's 2003 audit report.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  Exhibits.

     The following is a list of exhibits  filed as part of this Annual Report on
Form 10-K. Where so indicated by footnote,  exhibits which were previously filed
are incorporated by reference.

Exhibit                              Description
Number

3.1       Articles of  Incorporation,  Incorporated  herein by  reference to the
          Definitive  Schedule 14A File No.  333-42036,  filed on September  27,
          2002.

3.2       Bylaws,  Incorporated  herein by reference to the Definitive  Schedule
          14A File No. 333-42036, filed on September 27, 2002.

4.1      Agreement and Plan of Reorganization, Incorporated herein by reference
          to the Form 8-K, File No. 333-42036, filed on October 30, 2002.

10.1     Commitment  Supply  Agreement  dated October 15, 2002, ,  Incorporated
          herein by reference  to the Form 10-K,  File No.  333-42036,  filed on
          April 15, 2003

10.2      Accounts   Payable   Deferral   Agreement   dated   October   24,2002,
          Incorporated herein by reference to the Form 10-K, File No. 333-42036,
          filed on April 15, 2003

10.3      Exclusive Distribution Agreement dated October 24, 2002,  Incorporated
          herein by reference  to the Form 10-K,  File No.  333-42036,  filed on
          April 15, 2003


                                                                              78
<PAGE>

10.4      SOYO Group Agreement with China Unicom dated February 1, 2004

10.5      Office Lease at 140 S. Vintage Ave., Ontario, CA dated August 21, 2003

21.1     Subsidiaries of the Company,  Incorporated  herein by reference to the
          Form 10-K, File No. 333-42036, filed on April 15, 2003

31.1      CERTIHFICATION  REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(d) AND UNDER
          SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002*

31.2      CERTIFICATION  REQUIRED BY RULE  13a-14(a) OR RULE 15d-14(d) AND UNDER
          SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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

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

99.1      Sarbanes-Oxley Act Section 906 Certification

*Filed herein


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                   SOYO GROUP, INC.


Dated:  March 31, 2006           By /s/ Ming Tung Chok
                                   ---------------------------------------------
                                   Name:  Ming Tung Chok
                                   Title: President and Chief Executive Officer

     In accordance  with the  Securities  Exchange Act of 1934,  this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the dates indicated.

Dated:  March 31, 2006           By /s/ Ming Tung Chok
                                   ---------------------------------------------
                                   Name:  Ming Tung Chok
                                   Title: President, Chief Executive Officer and
                                          Director


Dated:  March 31, 2006           By /s/ Nancy Chu
                                   ---------------------------------------------
                                   Name: Nancy Chu
                                   Title: Chief Financial Officer, Secretary and

Dated:  March 31, 2006           By /s/ Paul F. Risberg
                                   ---------------------------------------------
                                   Name: Paul F. Risberg
                                   Title: Director

Dated:  March 31, 2006           By /s/ Chung Chin Keung
                                   ---------------------------------------------
                                   Name: Chung Chin Keung
                                   Title: Director

Dated:  March 31, 2006           By /s/ Zhi Yang Wu
                                   ---------------------------------------------
                                   Name: Zhi Yang Wu
                                   Title: Director


                                                                              79