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, 2006


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

     For the transition period from _________________ to __________________

                        Commission File Number 333-42036


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

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


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

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

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


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

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<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 a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

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

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


     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
30, 2007 was  $27,454,286,  based on the closing bid price of $0.56 per share on
March 30, 2007.

     As of March 31, 2007, there were 49,025,511 shares Outstanding.

     Documents Incorporated by Reference: None


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<PAGE>










                                SOYO GROUP, INC.
                                    FORM 10-K
                                      INDEX

                                                                           Page
                                                                         -------

                                     PART I


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

     1A. Risk Factors.........................................................15

     1B. Unresolved Staff Comments............................................17


Item 2. Properties............................................................17

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

Item 4. Submission of Matters to a Vote of Security Holders...................20

                                     PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
        Issuer Purchases of Equity Securities.................................20

Item 6. Selected Financial Data...............................................23

Item 7 Management's Discussion and Analysis of Financial Conditionand Results
       of Operations..........................................................24

Item 7A Quantitative and Qualitative Disclosures About Market Risk............44

Item 8. Financial Statements and Supplementary Data...........................44

Item 9. Changes in and Disagreements with Accountants on

        Accounting and Financial Disclosure...................................80

Item 9A. Controls and Procedures..............................................83

Item 9B. Other Information....................................................85


                                    PART III



Item 10. Directors, Executive Officers and Corporate Governance...............85





                                                                               3
<PAGE>


Item 11 Executive Compensation................................................88

Item 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters..........................................91

Item 13. Certain Relationships, Related Transactions and Director
         Independence.........................................................92

Item 14. Principal Accountant Fees and Services...............................93


                           PART IV


Item 15. Exhibits and Financial Statement Schedules ..........................94

Signatures....................................................................95





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<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,  namely,  Deborah Duffy,  Rachel
Braun and Peter C. Cullen, resigned and the following three persons were elected
to replace them:  Kevin Halter Jr.,  President  and  Director,  Kevin B. Halter,
Secretary, Treasurer and Director and Pam Halter, a Director.

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

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,



                                                                               5
<PAGE>

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.

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



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<PAGE>

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 the small office and home office (SOHO) market
segment.

In 2004, the Company  expanded its product  offerings into new and higher margin
segments.  The offerings were divided into three areas:  Computer Components and
Peripherals, Communications Equipment, and Consumer Electronics.

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

In 2006, SOYO embarked on many new marketing and product programs  including the
launch of its Specialty  Displays  Division to focus effort on display sales and
distribution  and  to  promote  the  newly  acquired   GoVideoTM  brand  license
integration  into the SOYO product  portfolio.  SOYO was also able to expand its
presence   through   distribution   in  the  retail   channels  of  Walmart.com,
Samsclub.com,  ShopNBC.com,  Target.com, eCOST.com, direct2own.com and BDILaguna
which now carry various SOYO product lines. In parallel with these efforts, SOYO
has continued development on its own direct to consumer eStores with the goal of
having all of SOYO's products available for direct purchase.

The company also had several new product introductions including dual screen 17"
and 19" monitors,  the  "FreeStyler"  Bluetooth Stereo Headphone and Transmitter
Combo and the U201 USB Phone.

PRODUCTS

SOYO Group,  Inc. is the exclusive  provider of SOYO branded  products in the US
and Latin  America and  actively  promotes the SOYO brand in these  regions.  In
addition,  SOYO distributes many other electronic  products and brands;  some of
these are  licensed  such as Go Video and others  created  by SOYO.  On April 5,
2006,  SOYO  announced  that it  entered  into a two year  agreement  with  Opta
Corporation for the use of the GoVideo(R) brand for distribution of SOYO LCD and
plasma TV, computer  monitors and rear and front screen projectors in the United
States and Canada.  SOYO is continually  exploring  branding  opportunities with
other potential  partners.  Some brands that SOYO currently  distributes include
the following:


SOYO                            Dragon
GoVideo(R)                      Bay One
Sage                            Atlas
Z-Connect                       Dymond
SlimEX
Cigar
FreeStyler

SOYO pays GoVideo a $75,000  royalty per quarter for use of the GoVideo name and
trademark.  There are no licensing fees  associated with any of the other brands
listed above.


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<PAGE>


All of the products  available to SOYO  customers  fall into three major product
groups: Consumer Electronics, Computer Peripherals and Communications.

Consumer Electronics Products

In 2005, SOYO Group,  Inc.  entered the consumer  electronics  market which then
accounted for over 30% of its sales.  In 2006, this product  category  accounted
for nearly 46% of sales.

Home Entertainment Flat Screen Televisions

SOYO's  Ultra Slim  flat-panel,  HD-Ready LCD TV's range in size from 20-inch at
640 x 480 resolution to 47-inch at 1920 x 1080 resolution and are promoted under
the SOYO and GoVideo brand names.  The products offer 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  or  acting  as  a  display  for  a  PC.
Incorporating  advanced  imaging  technology  features  such as 3:2  pull  down,
progressive  scan and a digital 3D comb filter  that bring you  larger,  clearer
pictures,  the Atlas LCD TV features two removable 10-watt speakers that deliver
stereo  surround  sound.  SOYO offers  these  products  under the Dymond,  Onyx,
Crystal, and Atlas product lines.

Bluetooth Wireless Headphone

The FreeStyler  Bluetooth Headset product line is available in stereo and single
ear versions.  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.  With 4~6 hours talk time and 200 hours standby time,
the 120mA 3.7V rechargeable battery requires 1.5~2.0 hours charging time.

Furniture and Cabling

Most of SOYO's  large flat panel TV screens  will need to either be wall mounted
or stood on pedestal  furniture.  To that end, SOYO designed the Pro-Series line
of TV wall mounting hardware. Measuring 2-5/8" thick the UL listed mountings are
an ultra-slim,  commercial  grade system that can support screen sizes up to 60"
with a  15(degree)  tilt.  SOYO  also  offers a new line of  pedestal  furniture
offerings under the Le Vello series.

For  connectivity  to flat panel TV's,  SOYO offers cabling  solutions under the
Dragon branded product line featuring 24 Karat gold contacts.

Computer Components and Peripherals

Motherboards/Bare Bones Systems



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<PAGE>

The motherboard,  which is the physical  arrangement in a computer that contains
the computer's basic circuitry and components, has been an integral part of most
personal computers for more than twenty years.  SOYO's Bare Bones System product
solution  is the basis for any  computer  system and is offered in AMD and Intel
platform configurations. Of the more than 300 motherboard products that SOYO has
sold in the past there remain a few active  products in this category as well as
ongoing support for the install base. SOYO now focuses on specialty  markets for
its motherboard systems.

Portable Storage Devices and Connectivity

The SlimEx 20GB and 40GB USB 2.0 Hard Drives are designed for desktop and laptop
users who need high capacity portable storage in an ultra-small  package.  Large
graphics and audio files are quickly displayed, copied or transported to any USB
Ported  computer.  Incorporating  a 1.8-inch  hard disk from  Toshiba,  the Slim
Drives  measure  just 3.9" x 2.4" x 0.4"  (LWH) and weigh only 2.85 oz. The Slim
Drives fit easily into a pocket,  purse or briefcase for  convenient  travel and
leave a small  footprint on the desktop.  Compatible  with both PC and Macintosh
operating systems, the SlimEx's USB 2.0 cable delivers fast transfer rates of up
to 480Mbps and does not require any external power supplies or batteries.

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.  Portable  flash memory has assumed many various  forms over time.  To
address this growing product segment,  SOYO currently  offers a 12-in-1,  9-in-1
and 6-in-1  flash  media  reader / writer  system  under the SOYO and  BayOne(R)
product lines. With both internal and external system configurations  available,
these products allow for  connectivity of multiple  devices to computers and the
ability  to  download  digital  photos,  video,  MP3 music or  synchronize  with
handheld devices all at the same time. The multiple memory  reader/writer  slots
can  be  used  simultaneously.  The  systems  are  designed  to  be  universally
compatible with all CPU systems and external devices.

Other  connectivity  devices  contained in this product category include TechAID
hardware debug cards and PlayStation to PC joystick game pad converters.

LCD Monitors

Under the Dymond,  SOYO and GoVideo brand names,  SOYO offers a complete line of
LCD  monitors  for the PC market.  From dual screen 19" to single  screen  15.4"
systems, SOYO products incorporate TFT (Thin Film Transistor) display technology
in a compact  design  that frees up desk  space.  Designed  to provide a display
solution for a wide variety of applications at the office,  home or school,  the
SXGA (Super  Extended  Graphics  Array)  technology  delivers text and images to



                                                                               9
<PAGE>

assist  in  creating  spreadsheets  and  reports,   writing  emails,   preparing
presentations, watching movies, playing games, or surfing the Internet.

Communications Equipment

Launched in November 2004, the Soyo "Z-Connect" family of Voice over IP products
and services includes an IP phone, a USB Skype phone, routers,  adapters and two
versions of the gateway,  delivering  VoIP  capabilities  with zero set-up fees,
zero monthly fees, zero service  contracts,  zero  configuration and zero hidden
charges. All hardware is SOYO branded.

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 also offers the SOYO SAGE Smart Calling Card which offers
consumers cost savings on  long-distance  calls.  Through a strategic  agreement
with China Unicom USA Corporation,  a division of China Unicom Ltd. (NYSE: CHU),
SOYO uses its Public Service  Telephone Network and Voice over Internet Protocol
network to give users the ability to dial and receive local, long distance,  and
international calls.

Due to other opportunities in other key product sectors,  relative profitability
indicators and alternate strategic direction of the business in general, SOYO is
decreasing its focus on the communication equipment market.

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, 2006, no single  supplier is supplying  more than
44% of the products  distributed and sold by the SOYO Group. Aside from this one
vendor, no other company supplies more than 17% percent of the products that the
Company sells.

TRANSPORTATION AND DISTRIBUTION

SOYO is primarily an electronics  importer and  distributor.  As the majority of
SOYO  products  originate  in the Far East (Taiwan and China) SOYO adds value to
the product chain by connecting  these products with numerous  distributors  and
retailers across North America. Products are bulk shipped via sea cargo carriers
through  US  ports,  cleared  through  customs  and  are  freighted  in to  SOYO
distribution  centers to be ultimately  sent on to  distributors  and retailers.
This  process  usually  takes 6 to 8 weeks.  To this  end,  SOYO has  built up a
logistics  team  that is able to  provide  product  through  this  channel.  Any
deviation  from this planned  routine will  typically  increase  product  costs.
Deviations  from the  normal  course of  transit  such as dock  worker  strikes,
increases in fuel costs,  expedited  delivery times,  customs  delays,  shipment
damage,  lost  cargo and  other  unforeseen  issues  can  result in  unsatisfied
customers.



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<PAGE>


As all product transportation and movement activities are dependent on fuel this
commodity can  significantly  affect the costs of SOYO's goods from  origination
through to final  destination  and  continuing  with shipping on returned  goods
under the S.A.F.E.  program.  It is unlikely that any short run increase in fuel
prices  can be passed  along to  consumers.  Long term  increases  in fuel costs
eventually  will be passed along to  distributors  and  consumers in the form of
increased prices or transportation surcharges.

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) small office / home 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.  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.).  In 2006,  SOYO  substantially  increased  its
presence in Canada through the addition of Wal-Mart  Canada as a reseller of the
SOYO product line.

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,  2006,  approximately  18% of the SOYO  Group's  sales  and
revenues were generated from the Latin American market.

Within  the  three   segments  that  SOYO   distributes   product  in,   namely,
communications,   consumer  electronics  and  computer  peripherals,   both  B2B
(business to business) marketing tactics (such as computer motherboards) and B2C
(business to consumer) marketing tactics (such as LCD TV's) are required. In the
past,  product  promotion  was primarily  done at the retailer  level and not at
SOYO's level (the  distributor  level).  Typically,  big box retailers will hold
back some of the product  price to cover these  marketing  costs at their level.
This is commonly  referred to as Market  Development  Funding (MDF) or Marketing
Cooperation Fees (COOP).

Moving forward, SOYO is altering its marketing strategy for its brands to assume
a more direct  level in the  promotion  role.  Many of the  consumer  electronic
products  distributed  by SOYO  are  targeted  at the  young  male  demographic.
Specifically, the 18-34 year old males, who are early adopters of technology and



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<PAGE>

are  likely to convey  their  opinions  on  products  to  others  and  influence
subsequent  purchase  decisions in other parties.  In the past, common effective
roads to this demographic were in television  commercials and print advertising.
Recently,   technological   progressions   which  allow  for  the  avoidance  of
advertisements  and the internet has caused this demographic to become much more
challenging to reach.  Because of this,  embedded  marketing  techniques are now
being employed to reach this sought after demographic.  These techniques include
sports  sponsorships  whereby the message or brand is  advertised  in the action
such as wearing a brand name or product identifier on clothing. Other techniques
include placing  advertisements in video games,  placing product and brand names
in movies and programming, advertising on key web sites, etc.

In pursuit of this alternative  strategy with respect to brand  promotion,  SOYO
has recently begun to sponsor Mixed Martial Arts  Athletes.  On October 2, 2006,
SOYO sponsored Eric "Big E" Pele in his Bodog fight against Antonio Silva.  SOYO
has seen benefits from this activity in the form of increased traffic on its web
sites.  Mixed  Martial  Arts is unique in that it is now  starting  to move into
mainstream  sports in North and Latin  America  and is becoming as popular as or
more popular than boxing by some estimates. Due to its relative infancy however,
sponsorship  in the MMA arena is currently  very cost favorable to the sponsors.
The fan base falls well within one of SOYO's  target  demographics  and responds
positively  to  brand  promotions.  SOYO  has  chosen  a  variable  approach  to
sponsorship to mitigate the risks associated with sponsoring a single athlete.

These actions mark a substantial change in SOYO's role with respect to marketing
and brand  promotion yet is in line with a new  strategic  direction of building
stronger  brand  recognition  and  building  the  quality  of the  SOYO  product
portfolio.  SOYO intends to build on these early promotional  experiences in the
years to come and create a name and product line that can compete effectively at
a higher level in the competitive hierarchy.

Other advertising outlets that SOYO will engage in for the consumer side include
internet,  periodicals and other sports related advertising. On the resale side,
the internet,  trade  journals,  and trade show  attendance  will be utilized to
promote the brand and acquire key industry contacts.

SOYO currently  also engages in some trade show  activity.  The largest of these
events  is the  Consumer  Electronics  Show . Some  others  include  the  Custom
Electronics Design and Installation Association  www.cedia.net and Retail Vision
www.retailvision.com.

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.



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<PAGE>


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.

SOYO is continually evolving to meet the needs of its customer base and to
resonate well with them. SOYO has recognized the 18-34 year old demographic as
one such key group that we are reaching out to.

The  following  table shows all  customers  that  accounted for more than 10% of
Company sales in a given year:

Year End   Key Customer               Revenues          % of Net Revenue

2006       N/A
2005       E23                      $13,552,324                35%
2004       SYX Distribution, Inc.    $8,591,711                26%
           aka Tiger Direct
2003       SYX Distribution, Inc.    $9,943,855                32%
           aka Tiger Direct

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, 2006,  no more than 44% 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 17%  percent  of the  Company's
inventory  available for sale. SOYO Group, Inc. is establishing new partnerships
with other OEM  manufacturers  in the North America and Asia Pacific  Regions in
order to provide innovative products for consumers.

In  continuing  efforts to work with and leverage its supply base,  SOYO entered
into an agreement  with GE Capital in 2006 whereby GE  guarantees  payment to GE
approved  vendors  thereby  facilitating  larger  orders,  decreasing  risk  and
allowing SOYO to seamlessly finance these transactions.

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



                                                                              13
<PAGE>

in compliance with all governmental laws and regulations related to its products
and facilities,  and it does not expect to make any material expenditure in 2007
with respect to compliance with any such regulations.

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.

SOYO  competes with many  companies  that import,  distribute  and act as OEM's.
However,  there are few companies that follow SOYO's business methods overall as
most of the companies  acting as OEM's spend  significantly  on R&D whereas SOYO
relies upon its suppliers for such services.

Among those that SOYO competes with directly in the  marketplace in the consumer
electronics industry include AU Optronics, LG.Philips LCD, Syntax Brillian, JVC,
LG Electronics, Panasonic, Philips, Samsung, Sharp, Sony, Thompson, and Toshiba.
The primary  product  offering common among this group is LCD TV's which account
for a substantial portion of SOYO sales. Most of the competition in this product
line  pivots  around  price  point and brand  identity  and to a lesser  extent,
features.  Because of this, industry gross margins experience downward pressure.
Secondary product offerings such as furniture are substantially less competitive
and offer the opportunity for product differentiation and better margins.

Some computer component competitors include Dell, Hewlett-Packard,  Gateway, and
ViewSonic,  which can  compete in  multiple  product  categories  including  the
motherboard and computer  monitors.  Unlike LCD TV's however,  computer monitors
offer more favorable margins.  Some other computer component competitors include
Abit, Asus,  Gigabyte,  MSI, Daewoo,  SanDisk,  Lexar Media and SimpleTech which
compete in the other product categories.

Some  communications  competitors  include  Vonage,  Packet8 and Net2Phone which
offer communications packages, services and equipment in the VoIP and or calling
card  arenas.  Competition  in this  sector  is also  very  robust as it is very
difficult to differentiate products or services.

EMPLOYEES

As of March  31,  2007,  the  Company  employed  thirty  six (36)  people at its
headquarters   in  Ontario,   California.   The  Company  also  employs  outside
consultants as needed to meet business objectives.

ITEM 1A. RISK FACTORS

                                                                              14
<PAGE>


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
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.

Segments of our business,  particularly the LCD television business, are subject
to rapidly  changing prices.  As a result,  we must often negotiate new pricing,
discounts and price  protection  issues with customers while inventory is either
in transit or just landed.  If our  distributors do not negotiate in good faith,
or there is any damage to the products we ship, it could damage our relationship
with our distributors  and customers,  which will adversely affect our sales and
profitability.

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

In 2006,  44% of the SOYO Group's net revenue  resulted from products  purchased
from a  single  supplier.  If that  supplier  is  unable  to  produce  and  sell
merchandise to us in the quantities ordered, our revenue would be affected while
we found other sources of merchandise. The Company is currently negotiating with
different suppliers to reduce our dependence on one supplier.

Increases in cost or disruption of supply could harm our business.

                                                                              15
<PAGE>


Our  business  and  profitability  is reliant on our ability to order and obtain
product  within  specified  timelines.  Any shortages of materials,  such as LCD
panels,  could affect our ability to obtain  merchandise  and harm our business.

Increases in the cost of energy could affect our profitability.

We were adversely affected in 2005 and 2006 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.




                                                                              16
<PAGE>


ITEM 1B. UNRESOLVED STAFF COMMENTS
None.



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.


     Pourvajdi  v. Soyo Group,  Inc.,  et al. On April 14, 2005,  Afshin  "Andy"
Pourvajdi  filed a  civil  Complaint  in the  Superior  Court  of the  State  of
California for the County of San Bernardino  against the Company,  Nancy Chu and
DOES 1 through 50.  Pourvajdi  asserted four causes of action in his  Complaint:
(1)  Double   Damages   for   Violation   of  Labor  Code   Section   970;   (2)
Misrepresentation;  (3)  Intentional  Infliction  of Emotional  Distress and (4)
Breach of Contract. On each of the first two causes of action,  Pourvajdi prayed
for an award of damages of no less than $200,000, or according to proof, plus an
unspecified amount of punitive damages, his costs of suit and for such other and
further  relief as the  Court  deemed  just and  proper.  On the third  cause of
action, Pourvajdi sought general



                                                                              17
<PAGE>

damages,  medical and related  expenses,  lost earnings  (both past and future),
punitive  damages,  costs of suit and for such other and  further  relief as the
Court deemed just and proper.  No damage  amount was  identified  for any of the
damage elements  associated with the third cause of action.  On his fourth cause
of action,  Pourvajdi sought an unspecified  amount he claimed was due under the
alleged  contract with Soyo, plus  unspecified  amounts of attorneys fees, costs
and such other and further  relief as the Court  deemed  just and  proper.  This
action was settled,  and the entire action was dismissed  with  prejudice in the
last quarter of 2006.

     Soyo Inc. v. XtraPlus,  etc, et al. On or about  September 27, 2004,  Soyo,
Inc.   ("Soyo")  sold  computer   components   to  XtraPlus   Corporation,   dba
ZipZoomFly.com  ("XtraPlus"),  a computer  retailer.  Soyo invoiced XtraPlus for
$183,600,  but XtraPlus  failed to pay the invoice  and, on March 4, 2005,  Soyo
filed a civil complaint  against  XtraPlus in the Superior Court of the State of
California for the County of San Bernardino ("Court"). XtraPlus thereafter filed
a  Cross-Complaint  against Soyo on May 11, 2005 in which it alleged claims for:
(1) Breach of  Contract;  (2)  Breach of  Warranty;  (3)  Breach of the  Implied
Covenant  of Good  Faith and Fair  Dealing;  and (4)  Violation  of  Business  &
Professions  Code ss.  17200.  In its  prayer in the  Cross-Complaint,  XtraPlus
sought special and general  damages in excess of $100,000,  attorneys'  fees and
costs, and such other relief as the Court might determine to be just and proper.
After it filed its Complaint,  Soyo also sought an attachment of $183,600,  plus
interest and costs. Ultimately, XtraPlus paid Soyo $40,000 of the amount sought,
and  deposited  into the  registry  of the Court the sum of  $140,000  until the
action was concluded.

     On January 12, 2007, the Court ordered that summary adjudication be granted
in favor of Soyo on two of the four claims in Soyo's Complaint  against XtraPlus
(Soyo  voluntarily  dismissed  the other two claims),  and that Soyo recover the
remaining balance due on its claim. The Court also ordered that summary judgment
be granted in favor of Soyo and against  XtraPlus  on all of the claims  against
Soyo that were contained in the XtraPlus  Cross-Complaint.  The formal order and
the proposed  judgment  reflecting this disposition were entered on February 14,
2007. XtraPlus has the right to appeal this judgment;  however, it must do so by
approximately  May 1, 2007. We cannot predict the outcome,  nor whether XtraPlus
will file an appeal or otherwise challenge the Court's decision.

     Normandin v. Soyo Group,  Inc. et al. On August 2, 2004,  Gerry  Normandin,
individually and on behalf of a proposed nationwide class of consumers,  filed a
Complaint in the Superior Court of the State of California for the County of San
Bernardino  against the Company and DOES 1 through 100. Normandin asserted three
causes of action in his Complaint:  (1) Violation of the Consumer Legal Remedies
Act, Civil Code Section 1750 et seq.; (2) Violation of Business and  Professions
Code Section 17200 et seq.; and (3) Violation of Business and  Professions  Code
Section 17500 et seq.  Normandin  prayed for an order  certifying  the case as a
class action,  an award of actual damages suffered by plaintiff and the class in
an  amount  not less than  $1,000  per  person,  an order  for  restitution  and




                                                                              18
<PAGE>

disgorgement of monies  wrongfully  acquired by defendants  through the sales of
motherboards  having defective  capacitors,  an order enjoining the Company from
further sales of motherboards  with defective  capacitors,  an award of punitive
damages,  attorneys' fees and costs, pre-judgment interest and such other relief
as the Court may deem just and proper.

     The parties have reached a tentative settlement in principle of the action.
However,  the  tentative  agreement  must be  reduced  into a formal  settlement
agreement,  and must also be approved by the Court. Notice must also be given to
members  of the class  whom  Normandin  represents,  and any  objections  to the
settlement  considered and addressed by the Court. We cannot predict the outcome
of these pending matters,  nor whether the settlement  agreement will ultimately
be approved and the case dismissed.


     Soyo v. Hartford:  Soyo tendered a claim to Hartford  Insurance  Company of
the Midwest  ("Hartford")  under which it sought a defense and indemnity for the
claims asserted in the Normandin  action.  Hartford  rejected that claim, and on
May 1, 2006,  Soyo Group Inc. filed an action for: (1) Declaratory  Relief;  (2)
Breach  of  Contract;  and  (3) Bad  Faith  against  Hartford.  Soyo,  Inc.  was
subsequently  added as a Plaintiff in a First Amended Complaint ("FAC") that was
filed in the action. In the Prayer in the FAC, Soyo sought general,  special and
punitive damages in amounts that were unspecified, as well as interest costs and
attorneys fees.

     The dispute was  mediated,  and an agreement in principle to resolve it was
reached on December 21, 2006. The formal settlement  agreement is being prepared
and has not yet been executed by any of the parties. We cannot predict whether a
formal agreement will be executed, or the outcome of this action if it is not.

On June 30,  2006,  a lawsuit  was filed in the United  States  District  Court,
Central District of California,  Eastern Division, entitled Robert Lewis, Jr. v.
Soyo Group,  Inc., et al., Case No. EDCV 06-699 VAP (JWJx). The case seeks class
action  status and alleges  failures to timely pay rebates to purchasers of Soyo
products  allegedly in  violation of unfair  competition  laws,  the  California
Consumer Legal Remedies Act and contracts with  purchasers.  The plaintiff seeks
disgorgement  of all amounts  obtained by the Company as a result of the alleged
misconduct, plus actual damages, punitive damages and attorneys' fees and costs.
The Company has  vigorously  defended  the  lawsuit,  is  currently  involved in
settlement  discussions,  and  believes  that the case will be resolved  with no
material adverse effect on the Company.

On May 22, 2005, the Company received notice of an investigation by the Attorney
General of the State of California  (the "AG")  regarding the Company's  alleged
failures to timely pay rebates to purchasers of Soyo  products.  The Company has
cooperated with the  investigation  and has agreed to the terms of a stipulation
for entry of final judgment and permanent  injunction (the  "Injunction")  to be
filed by the AG relating to the Company's  administration of rebate claims.  The
Company  believes that  compliance with the terms of the Injunction will have no
material adverse effect on the Company.



                                       19
<PAGE>

On February 15, 2006, the Company received notice of an investigation by counsel
for the Federal Trade  Commission  (the "FTC")  regarding the Company's  alleged
failures to timely pay rebates to purchasers of Soyo  products.  The Company has
cooperated  with the  investigation  and has agreed to the terms of an agreement
containing a consent order (the "Consent Order") to be filed by the FTC relating
to the Company's  administration of rebate claims, which is currently before the
FTC for approval.  The Company  believes that  compliance  with the terms of the
Consent Order will have no material adverse effect on the Company.

On January 26, 2007, the Company filed a lawsuit against Astar  Electronics USA,
Inc., KXD  Technology,  Inc. and Does 1 - 25 in the Superior Court of California
for the County of Los Angeles, Central District (Case No. BC365349). The Company
alleges claims for Breach of Contract,  Fraud,  and Tortious  Interference  with
Economic  Relations  and seeks  compensatory  and punitive  damages.  Both named
defendants  were served on January  26,  2007.  No trial date has been set.  The
Company  is  vigorously   asserting  its  claims  against  the  defendants.   No
counterclaims have been asserted against the Company in the action to date.

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 fourth quarter of the fiscal year ended December 31, 2006, there were
no matters submitted to the shareholders for approval.


                                     PART II


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

(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



                                                                              20
<PAGE>

for retail markups,  breakdown or commissions and they may not represent  actual
transactions.


                                                          Price Range
                                                          -----------
                                                      High               Low
                                                      ----               ----


     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

Fiscal Year Ended December 31, 2006:

     First Quarter                               $    .74          $     0.50
     Second Quarter                                  0.62                0.31
     Third Quarter                                   0.40                0.28
     Fourth Quarter                                  0.40                0.27

(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, 2006 there were 49,025,511  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  2006 we  declared  no  dividends  on the  Class B  Preferred  Stock
outstanding.  The  dividends  recognized  and  booked in 2006 were the  accreted



                                                                              21
<PAGE>

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
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 2006,  the  Company  issued an  aggregate  of 344,000
unregistered shares of its common stock to various entities for various reasons.

Through  the  year,  57,000  unregistered  shares  were  issued  to  one  of our
directors, Paul Risberg, for services performed on the Company's behalf.



                                                                              22
<PAGE>
<TABLE>
<CAPTION>


Through  the year,  an  additional  287,000  unregistered  shares were issued to
various  consultants,  contractors  and vendors for  services  performed  on the
Company's behalf.  No single Company or individual  received more than 75,000 of
the unregistered shares.

(f) Equity Compensation Plan Information

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 $0.75. 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.

The Company did not grant any stock options to employees,  officers or directors
in 2006. As of December 31, 2006, 13 individuals had left the Company, resulting
in the forfeiture of 510,000 options. As of December 31, 2006,  2,379,000 of the
2,889,000 options granted were still outstanding,  and 793,000 had vested. As of
December 31, 2006, none of the options outstanding had been exercised.


ITEM 6. SELECTED FINANCIAL DATA

The following selected  consolidated  financial data of the Company is presented
as of and for each of the five years ended December 31, 2006,  2005,  2004, 2003
and 2002. 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,
------------------- ------------------ ----------------- ----------------- ------------------ -------------------
                          2006               2005              2004              2003                2002
------------------- ------------------ ----------------- ----------------- ------------------ -------------------
<S>                 <C>                <C>               <C>               <C>                <C>

Net revenue             $56,758,688       $38,263,032       $32,426,414       $31,034,239      $ 49,644,417
------------------- ------------------ ----------------- ----------------- ------------------ -------------------
Income (loss) from
operations                1,519,271            52,686        (3,913,683)         (980,347)      (10,892,574)
------------------- ------------------ ----------------- ----------------- ------------------ -------------------
Net Income (Loss)         $462,049          $(633,443)       (4,143,978)         (984,588)      (10,733,458)
attributable to
common shareholders
------------------- ------------------ ----------------- ----------------- ------------------ -------------------
Net income  (loss)            0.01             (0.01)           (0.10)            (0.02)            (0.35)
per
common share
------------------- ------------------ ----------------- ----------------- ------------------ -------------------
</TABLE>

                                                                              23
<PAGE>
<TABLE>
<CAPTION>


Selected Consolidated Balance Sheet Data:



-----------------------------------------------------------------------------------------------------------------
                           2006              2005              2004              2003                2002
-------------------- ----------------- ----------------- ----------------- ------------------ -------------------
<S>                  <C>               <C>               <C>               <C>                <C>
Total Assets              $23,181,013       $16,907,390        $7,500,437        $12,729,453        $ 20,914,784
-------------------- ----------------- ----------------- ----------------- ------------------ -------------------
Long Term Payable                   0                 0                 0         12,000,000          12,000,000
to Soyo Taiwan
-------------------- ----------------- ----------------- ----------------- ------------------ -------------------
Shareholders'              $2,732,431         1,477,703       (4,057,028)       (12,136,783)        (11,152,195)
Equity (Deficit)
-------------------- ----------------- ----------------- ----------------- ------------------ -------------------
Cash dividends             N/A               N/A               N/A                N/A                N/A
declared per
 common share
-----------------------------------------------------------------------------------------------------------------
</TABLE>



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, 2006.

     This Annual Report on Form 10-K for the fiscal year ended December 31, 2006

                                                                              24
<PAGE>

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, 2006 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, 2006, 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,  2006 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, distributors and e-tailers
to the consumers throughout North America and Latin America.




                                                                              25
<PAGE>



                                       26
<PAGE>
<TABLE>
<CAPTION>



The Company sells to distributors, retailers and directly to consumers. Revenues
through such  distribution  channels for each of the three years ended  December
31, 2006, 2005 and 2004 are summarized as follows:

                                              Year Ended December 31,
-------------------------------------------------------------------------------------------------------------
                         2006            %             2005             %              2004            %
------------------ ----------------- ----------- ----------------- ------------ ------------------- ---------
<S>                <C>               <C>         <C>               <C>          <C>                 <C>
Revenues
------------------ ----------------- ----------- ----------------- ------------ ------------------- ---------
Distributors       $35,510,804         62.6      $22,312,488         58.3       $14,704,452           45.3
------------------ ----------------- ----------- ----------------- ------------ ------------------- ---------
Retailers          $15,187,152         26.8      $15,742,332         41.2       $17,721,962           54.7
------------------ ----------------- ----------- ----------------- ------------ ------------------- ---------
Others             $ 6,060,732         10.6          208,212           .5              N/A
------------------ ----------------- ----------- ----------------- ------------ ------------------- ---------
Total              $56,758,688        100.0      $38,263,032        100.0        $32,426,414         100.0
-------------------------------------------------------------------------------------------------------------
</TABLE>

During the year ended December 31, 2006, no customer  accounted for more than 8%
of sales.

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.


Revenues by geographic segment are summarized as follows:
<TABLE>
<CAPTION>

                                    Year Ended December 31,
-------------------------------------------------------------------------------------------------------------
                             2006           %            2005            %              2004            %
----------------------- ---------------- --------- ----------------- ----------- ------------------- --------
<S>                     <C>              <C>       <C>               <C>         <C>                 <C>
Revenues
----------------------- ---------------- --------- ----------------- ----------- ------------------- --------
United States               $42,628,547      75.2       $20,686,944        54.1         $25,936,978     80.0
----------------------- ---------------- --------- ----------------- ----------- ------------------- --------
Other N. America             $2,472,209       4.4           983,606         2.6                 N/A
----------------------- ---------------- --------- ----------------- ----------- ------------------- --------
Central and South           $10,253,665      18.0        $2,993,532         7.8          $6,317,907     19.5
America
----------------------- ---------------- --------- ----------------- ----------- ------------------- --------
Hong Kong                 $     139,490       0.2       $13,598,950        35.4            $171,529      0.5
----------------------- ---------------- --------- ----------------- ----------- ------------------- --------
Other locations              $1,264,777       2.2
----------------------- ---------------- --------- ----------------- ----------- ------------------- --------
Total                       $56,758,688     100.0       $38,263,032       100.0         $32,426,414    100.0
-------------------------------------------------------------------------------------------------------------
</TABLE>

During the year 2004 segment data on the "Other N. America Business" segment was
not  kept as it was very  small in  relation  to the size of the  United  States
business at that time,  no  compilations  of the data were made as there were no
internal  decision process that would have been governed by such information and
the compilation of this  information  would have been impractical and offered no
value to the organization.

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



                                                                              27
<PAGE>
<TABLE>
<CAPTION>

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.


Revenues by product line are summarized as follows:



-------------------------------------------------------------------------------------------------------------
                                      2006          %         2005              %        2004             %
-------------------------------- ---------------- -------- ----------------- -------- ---------------- ------
<S>                              <C>              <C>      <C>               <C>      <C>              <C>
Consumer Electronics               27,543,873     48.5     $18,739,719         49.0       N/A
-------------------------------- ---------------- -------- ----------------- -------- ---------------- ------
Computer parts and peripherals     29,204,792     51.5      18,906,367         49.4       N/A
-------------------------------- ---------------- -------- ----------------- -------- ---------------- ------
Voice and  communication              10,023            N/A          616,946         1.6      N/A
-------------------------------- ---------------- -------- ----------------- -------- ---------------- ------
Total                            $56,758,688     100.0     $38,263,032        100.0      $32,426,414
-------------------------------------------------------------------------------------------------------------
</TABLE>

The  breakdowns  to segregate  sales by product line is not  available for years
prior to 2005.  During  the years  prior to 2005,  the  Company  sold  primarily
computer  parts and  peripherals.  The dollar  volume of sales of both  consumer
electronics and voice and communication  products were very small and immaterial
in the scope of the Company's  business.  As sales of consumer  electronics  and
voice and communication products prior to 2005 have grown, the Company has begun
recognizing the sales in each category, and will continue to segregate the sales
for reporting purposes in the future.



Financial Outlook:


In 2006,  the Company  earned  $678,537,or  $0.01 per share before  dividends on
preferred  stock,  The  large  increases  in  sales of LCD  televisions  and LCD
monitors were primarily responsible for the large increase in net revenues.

In 2005, the Company earned $540,310 or $0.01 cents per share,  before preferred
dividends,  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,  a number that was expected to grow in the
coming years.

In  2004,  the  Company  incurred  a net  loss  before  preferred  dividends  of
($3,920,245).

As a general rule, the Company has been totally reliant upon the cash flows from
its  operations to fund future  growth.  In the last few years,  the Company has
begun and continues to implement  the following  steps to increase its financial
position, liquidity, and long term financial health:



                                                                              28
<PAGE>


In 2005,  The  Company  completed a small  private  placement,  began  factoring
invoices to improve cash flows, and converted several million dollars of debt to
equity, all of which improved the Company's financial condition.

In 2006,  the Company  changed  factors to a more  beneficial  arrangement,  and
entered  into a Trade  Finance  Flow  facility  with GE Capital  to fund  "Star"
transactions. The agreement provided for GE Capital to guarantee payment, on the
Company's behalf, for merchandise ordered from GE Capital approved manufacturers
in Asia. GE Capital  guarantees the payment subject to a purchase order from one
of our customers.  The Company accepts delivery of the goods in the US, and then
has the  option to either  pay for the  goods or sell the  receivable  (from the
customer) to our factor, who pays GE Capital.

In March 2007,  the Company  announced  that it had secured a $12 MM Asset Based
Credit Facility from a California bank to provide funding for future growth.

There can be no assurances  that these measures will result in an improvement in
the  Company's  profitability  or  liquidity.  To the extent that the  Company's
profitability 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
accounts  receivable  may be materially  different  from actual  amounts.  These



                                                                              29
<PAGE>

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.  In 2006,  the Company  booked  price  protection,
co-op marketing fees and sales  incentives as expenses under these programs.  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.

Prior Year's Purchases and Discounts:

There were no amounts related to prior years booked in 2006.  However,  in early
2005 the company  negotiated  with its suppliers  for  discounts and  allowances
related to purchases made in 2004.  The company and its suppliers  settled their



                                                                              30
<PAGE>

differences in 2005. The company  accounted in 2005 for the settlement as a gain
contingency, in accordance with FAS 5, Accounting for Contingencies.

The  company  also  accounted  in 2005  for its  settlement  with  suppliers  of
discounts and  allowances as a reduction of cost of goods sold because  purchase
discounts and allowances are of a "character  typical of the customary  business
activities  of the  entity"  in  accordance  with APB 9, as  amended  by APB 30,
Reporting  the  Results of  Operations-Reporting  the  Effects of  Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and Transactions.


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.

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.

Sales Incentives

The  Company  offers  sales  incentives  to our  customers  in the form of co-op
advertising,  price  protection and sales  discounts.  All costs associated with
sales incentives are classified as a reduction to net revenues. The following is
a summary of the different types of sales incentives:

Co-operative  advertising allowances are offered to customers as a reimbursement
towards their costs for  advertising in which our product is featured on its own
or in conjunction with other companies' products. The amount offered is either a
fixed  amount or is based  upon a fixed  percentage  of sales  revenue  during a
specified time period.



                                                                              31
<PAGE>

Price  protection  is a concession  given by the Company to  compensate  for the
difference  between  the  price  of  the  product  paid  by the  customer  and a
subsequent price reduction of the product by the Company.

Sales  discounts are offered to customers at various times based on management's
discretion.  Discounts could be used to increase sales of a certain model,  move
stale  inventory out of the  warehouse,  introduce new products,  or for another
reason that management finds attractive.

Allowance ofr Doubtful Accounts

The Company regularly analyzes customer balances, and, when it becomes evident a
specific  customer  will be  unable  to meet its  financial  obligations  to the
Company,  such as in the case of the  deterioration in the customer's  operating
results or financial  position,  a specific  allowance  for doubtful  account is
recorded  to reduce  the  related  receivable  to the  amount  that is  believed
reasonably  collectible.  The  Company  also  records  allowances  for  doubtful
accounts for all other  customers  based on a variety of factors  including  the
length  of time the  receivables  are past  due,  the  financial  health  of the
customer  and  historical  experience.  If  circumstances  related  to  specific
customers  change,  estimates  of the  recoverability  of  receivables  could be
further adjusted.

Stock Based Compensation

Prior to  January  1, 2006,  the  Company  accounted  for  employee  stock-based
compensation  using  the  intrinsic  value  method  supplemented  by  pro  forma
disclosures in accordance  with APB 25 and SFAS 123  "Accounting for Stock-Based
Compensation"   ("SFAS  123"),  as  amended  by  SFAS  No.148   "Accounting  for
Stock-Based Compensation--Transition and Disclosures." Under the intrinsic value
based  method,  compensation  cost is the excess,  if any, of the quoted  market
price of the stock at grant  date or other  measurement  date over the amount an
employee must pay to acquire the stock.  Under the intrinsic  value method,  the
Company has  recognized  stock-based  compensation  common  stock on the date of
grant.

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

SFAS  123(R)  requires  forfeitures  to be  estimated  at the time of grant  and
revised,  if necessary,  in subsequent periods if actual forfeitures differ from
initial  estimates.  Stock-based  compensation  expense has been recorded net of
estimated forfeitures for the year ended December 31, 2006 such that expense was



                                                                              32
<PAGE>

recorded only for those stock-based awards that are expected to vest. Previously
under  APB  25 to the  extent  awards  were  forfeited  prior  to  vesting,  the
corresponding  previously  recognized  expense  was  reversed  in the  period of
forfeiture.

SFAS 123 requires the Company to provide  pro-forma  information  regarding  net
loss as if  compensation  cost for the stock  options  granted to the  Company's
employees had been  determined  in  accordance  with the fair value based method
prescribed in SFAS 123. Options granted to non-employees are recognized in these
financial  statements as compensation expense under SFAS 123 (See Note 11) using
the Black-Scholes option-pricing model.

If the fair value  based  method  under FAS 123 had been  applied  in  measuring
stock-based  compensation  expense for the year ended December 31, 2005, the pro
forma on net income  (loss) and net income  (loss) per share  would have been as
follows:

                                                             Year ended December
                                                                   31, 2005

Net income (loss) attributable to common shareholders,          $  (633,443)
   as reported
Add:  Stock-based  employee   compensation  expense
   included  in reported net income, net of  related
   tax effect                                                              -

Deduct:   Total   stock-based   employee   compensation
   expense determined  under  fair-value  based method
   for all awards not included in net income (loss)                (224,919)
                                                            -----------------
Pro forma net income (loss) attributable to common
  Shareholders                                                  $  (858,362)
                                                            =================

Income (loss) per share:
  Basic/diluted - as reported                                ($0.01)/($0.01)
                                                            -----------------
  Basic/diluted - pro forma                                  ($0.02)/($0.02)
                                                            -----------------




Results of Operations:

Years Ended December 31, 2006 and 2005-

Net Revenues.  Net revenues  increased by $18,495,656 or 48.3% to $56,758,688 in
2006 as compared to  $38,263,032  in 2005.  The  increase  in net  revenues  was
primarily  attributable to the strong sales of LCD TVs and LCD monitors, as well
as the success of our sales force in opening  new  markets  and  developing  new
business opportunities New customers that purchased products from the Company in
2006 that had never before purchased products from the Company included Staples,
the Home Depot and Wal Mart Canada.

During the years ended  December 31, 2006 and 2005,  the Company  offered  price
protection to certain customers under specific programs  aggregating $70,119 and
$140,828  respectively,  which  reduced net  revenues  and  accounts  receivable
accordingly.



                                                                              33
<PAGE>


Gross  Margin.  Gross  margin was  $9,224,439  or 16.3% in 2006,  as compared to
$4,692,970  or 12.3 % in 2005.  Gross  margin  increased  in 2006 as compared to
2005,  both on an  absolute  and  percentage  of revenue  basis,  as the Company
completed  the  changed in its core sales  offerings  from  primarily  hardware,
motherboards and barebones systems to a greater emphasis on computer peripherals
and consumer  electronics.  The Company was able to earn high margins throughout
most of the year on LCD monitors, and LCD televisions.  Margins were also helped
by lower than expected RMA claims and returns of the Company's LCD monitors.

Sales and  Marketing  Expenses.  Selling and  marketing  expenses  increased  by
$232,436 or 25.5 %, to $1,143,475 in 2006, as compared to $911,039 in 2005.  The
increase was entirely due to payments to outside sales reps during the year. The
Company  began to employ  outside sales reps to assist in obtaining new clients.
The program was successful,  as the outside reps were primarily  responsible for
the  Company  obtaining  Staples,  Home  Depot and other  big box  retailers  as
customers.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  by  $1,951,472  or 53.3 %, to  $5,610,810  in 2005,  as  compared  to
$3,659,338 in 2005. There were several reasons for the increase.

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

The Company  adopted  SFAS No.  123(R)  effective  January 1, 2006.  The Company
adopted the modified  prospective  method. As a result, the Company recognized a
charge  against  earnings of $134,952 for the three months ended March 31, 2006,
$121,573 for the three months ended June 30, 2006, $126,924 for the three months
ended  September 30, 2006,  and $122,773 for the three months ended December 31,
2006. The complete effect of the adoption was a non cash charge against earnings
of approximately $506,222 over the twelve month period.

The next  element  contributing  to the  increase in the S,G&A  expenses was the
Company's use of consultants during the year. The Company was actively searching
for new financing throughout the year,  culminating in the completion of the UCB



                                                                              34
<PAGE>

$12 million  revolving loan commitment  (see Form 8-K filed March 1, 2007).  The
Company  employed  several high cost  consultants to identify and negotiate with
potential financial partners.  All together,  the Company spent over $600,000 to
pay  consultants  during  the  year.  The  cost of the  consultants  will not be
repeated in 2007, as the Company has terminated their services.

The final  element  contributing  to the  increased  SG&A costs in 2006 were the
legal fees. The Company defended itself against several lawsuits during 2006 and
negotiated settlements with both the California Attorney General and the Federal
Trade  Commission  in regard to charges that the Company did not process and pay
customer  rebate  claims  properly  (see Item 3- Legal  Proceedings).  The costs
associated with the Company's  defense of the lawsuits  stemming from the rebate
issues, and the administrative penalty totalled almost $600,000.

Taken together, the costs of adapting SFAS No. 123(R) , the business consultants
and the increase in legal fees over 2005  totaled  approximately  $1.7  million,
which accounts for substantially all of the increased costs over 2005.

Provision  for  Doubtful  Accounts.  The  provision  for  doubtful  accounts was
increased to $907,065 in 2006, as compared to $34,513 in 2005.  Since 2004,  the
Company has used three  different  factors to increase  cash flow.  As a result,
credit policies and requirements have changed  frequently in the last few years.
When the Company was prepared to sign the agreement for the $12 million  finance
line (see Form 8-K file March 2, 2007),  it reexamined the receivables and wrote
off all balances over 90 days, and wrote down to present value all balances over
90 days that were making  monthly  payments.  This resulted in a large write off
taken in the  fourth  quarter.  As a  result,  any  balances  with  even a small
question about  collectivity  have been written off.  Because of this aggressive
stance,  the  allowance  for bad debts has  decreased,  even though the accounts
receivables balance has increased by over $5 million.


Depreciation  and  Amortization.  Depreciation  and amortization of property and
equipment  was  $43,818 in 2006 as compared to $35,394 in 2005.

Income (Loss) from Operations. The income from operations was $1,519,271 for the
year ended  December 31, 2006, as compared to income from  operations of $52,686
for the year ended December 31, 2005.

Interest Expense.  Interest expense increased substantially to $901,900 in 2006,
as compared to $129,567 in 2005.  The  increase is due to the Company  factoring
all receivables in 2006 to improve cash flow, and paying  penalties twice during
the year for failing to meet the  factor's  minimum  volume  requirements.  As a
result of these penalties,  the Company  terminated the contract with the factor
in February 2007.

Interest  Income.  Interest  income was $10,561 in 2006 as compared to $5,301 in
2005. The increase was due to the Company's  increased cash flow  throughout the
year.



                                                                              35
<PAGE>

Other Income (Expense). Other income/miscellaneous  revenue (expense) was a loss
of ($106,262) as compared to a profit of $150,456 in 2005.


Income Tax Expense. The Company calculated its income tax expense at $20,310 for
2006 after using net operating loss  carryforwards to offset most of its taxable
income. The provision for income taxes was $800 in 2005.

Deferred  Income Tax Gain: The Company  recognized a deferred income tax gain of
$177,177 in 2006 as an offset to booking the  compensation  expense  required by
the adoption of FASB 123R.

Net Income/Loss.  The net income before preferred dividends was $678,537 for the
year ended  December  31,  2006,  as  compared  to  $540,310  for the year ended
December 31, 2005. The reasons for the turnaround are discussed in detail in the
above paragraphs.

Preferred Stock  Dividends.  Accreted and deemed  preferred stock dividends were
$216,488 in 2006,  as compared to accreted and declared  dividends of $1,173,753
in  2005.   The  accreted   dividends  were  actually   $174,753   during  2005.
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 $1,000.  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.  No such  adjustments  were
required in 2006.

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.

On a comparable  basis,  revenues  declined in N. America and Central America in
2005 vs.  2004.  There were several  reasons for this.  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.  For this  reason,  sales to Hong Kong were very  strong in
2005,  where they had never  been  before.  When the  initial  inventory  of the



                                                                              36
<PAGE>

consumer  electronics products began to arrive, the Company put its efforts into
selling those products and  establishing  those markets,  which led to increased
sales throughout the rest 2005 and through the present. However, when taken on a
comparable  basis, due to that period of inactivity,  sales in 2005 decreased in
2005 vs. 2004 for the N. American and Central American markets.


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.  The demand
for the new products,  specifically the LCD monitors and televisions,  was great
enough that the Company was able to earn higher margins than in past years sales
of computer peripherals.

At the  start of the year,  the  Company  was  holding  inventory  that had been
purchased  during  2004  that was  significantly  different  in  appearance  and
functionality  than the products  the Company had sought to  purchase.  For this
reason,  the Company could not sell the products  through normal sales channels.
The Company thus  continued to negotiate  with suppliers to return the products.
Subsequently,  the  negotiations  were  completed,  and the  Company  booked the
results as prior years' purchase  discounts and  allowances.  This decreased the
cost of revenues, thereby, increasing the gross margin.

The gross margin was a little over 4% before taking into account the  settlement
of the prior year's purchase discounts and allowances. The Company believes that
gross  margin  increased by about 4% due to the  settlement  of the prior year's
purchase discounts and allowances, and that gross margin was over 8% because the
settlement was included in the calculation.


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
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



                                                                              37
<PAGE>

accounting fees in 2004 that were not repeated.  However,  the Company did spend
over $150,000 in legal fees to defend  itself  against the two legal cases filed
against it, and described in section 4 of this report. Additionally, the Company
created an Employee Stock Option Plan in 2005 at a cost exceeding  $25,000.  The
Company began factoring  invoices to improve cash flow in 2005. That resulted in
higher expenses,  but the Company obtained the services of experts in evaluating
customer credit,  which led to a huge reduction in bad debt expense.  The set up
and  approval  of the  program  cost the Company  over  $25,000.  As the Company
redesigned itself primarily as a distributor of electronics rather than consumer
peripherals,  the  "launch  costs" of the new  products,  especially  travel and
entertainment,  increased  significantly  in  2005.  The  Company's  travel  and
entertainment expenses for 2005 increased by over $100,000. Finally, the Company
had a large  turnover in  personnel  relative to the new product  offerings.  By
bringing in  specialists  to manage the different  departments  and sell the new
products, the Company substantially upgraded its management and sales staffs, at
an incremental cost of approximately $90,000.


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  $150,456  in 2005,  as
compared to $17,609 in 2004.

Provision  for Income  Taxes.  Provision for income taxes of $800 was booked for
both 2005 and 2004.



                                                                              38
<PAGE>

Net  Income/(Loss).  The net income before preferred  dividends 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.

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 $1,000.  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.


Net Operating Loss Carryforwards:

As of December 31, 2006, the Company had federal operating loss carryforwards of
approximately  $4,195,130  expiring in various years through 2024,  which can be
used to offset future taxable income,  if any. 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.  As of
December 31, 2006, there were no state operating loss carryforwards available to
the Company.

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, 2006:


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  to 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
would be issued by the Company to the unrelated  third party in exchange for the
long-term payable.



                                                                              39
<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 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, 2006, the Company recorded  aggregate  dividends
of $216,488,  based on the  accretion of the discount on the Class B Convertible
Preferred Stock. The Company did not declare or accrue any additional  dividends
on the Class B Preferred Stock.

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.



                                                                              40
<PAGE>

Through March 31, 2007,  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 $3,088,615  from operating
activities  during the year ended December 31, 2006,  compared to utilizing cash
of $178,088 from operating  activities  during the year ended December 31, 2004,
and utilizing cash of $183,925 from operating  activities  during the year ended
December 31, 2004.

The use of cash in 2006 was due  primarily to the  Company's  large  increase in
receivables in 2006. As the Company used factors to assist in credit  decisions,
the Company  extended  credit to more customers,  resulting in large  receivable
balances.  The reasons for the usage of cash in 2005 were the large increases in
inventories an receivables,  partially offset by the decrease in payables, which
were settled  with common  stock.  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.

At December 31, 2006 the Company's  cash and cash  equivalents  had increased by
$672,746 to $1,501,040, as compared to $828,294 at December 31, 2005.

The Company had working  capital of $5,495,642 at December 31, 2006, as compared
to working capital of $689,141 at December 31, 2005, resulting in current ratios
of 1.33 to 1 and 1.04:1 at December 31, 2006 and 2005, respectively.

Accounts  receivable  increased to $12,878,732 at December 31, 2006, as compared
to  $7,278,520 at December 31, 2005, an increase of  $5,600,212,  or 76.9%.  The
large  increase  was due to several  factors.  Most  importantly,  net  revenues
increased  by  $18,495,656  during  the year.  Another  factor is the  increased
diversity of the Company's  customer list. The Company used a factor  throughout
the year to increase cash flow, and the factor approved all customers for credit
lines and  limits.  As a result of the  Company's  faith in the  ability  of the
factor's  credit  analysis,  credit lines were  approved for a larger  number of
customers, resulting in larger credit sales and receivables balances.

Inventories  decreased  to  $7,792,621  at  December  31,  2006,  as compared to
$7,991,030  at December 31, 2005, a decrease of $198,409 or 2.4%.  The inventory
balances  included  inventory in transit of  $4,005,265 at December 31, 2006 and
$2,686,298 at December 31, 2005.  Those figures  indicate that  inventory in the
warehouse was under  $4,000,000 at December 31, 2006. The physical  inventory on
hand  was  very  low  due  to  high  sales  volume  in  the  4th  quarter,   and
correspondingly,  the  inventory  in transit was very high as the Company  fills
orders for products and attempts to stock products for future sales.

Accounts payable  increased by $2,096,038 to $16,073,617 at December 31, 2006 as



                                                                              41
<PAGE>

compared to $13,977,579 at December 31, 2005. The reason for the increase is the
increased  business  volume.   The  increase   corresponds  to  an  increase  in
receivables for the same time period.  The increase would have been larger,  but
the Company  came to an  agreement  in 2006 with a supplier to pay a balance due
over time, resulting in that being reclassified to a long term payable. For more
information, see the Form 8-K filed by the Company on December 27, 2006.

Accrued  liabilities  decreased to $539,767 at December 31, 2006, as compared to
$1,287,108  at December 31, 2005, a decrease of $747,341 or 58.1%.  The decrease
is primarily due to the Company having a better  understanding  of the amount of
RMA accruals that were needed at year end. In 2005, the Company had been selling
LCD  televisions  and monitors for only a short time. As a result,  there was no
historical  data  available to determine the amount of the accrual  necessary to
cover repairs and returns.  In keeping with the Company's  conservative  policy,
the Company reserved a large amount for those future expenses. With another year
of data to analyze,  the Company  believes that the current accrual is adequate,
although smaller than the 2005 accrual.


Investing  Activities.  The Company expended  $48,894,  $621,970 and $158,670 In
2006,  2005 and 2004  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.

The Company  began  factoring  its  invoices in 2005 to improve  cash flow.  The
Company's  initial  factor was Wells Fargo PLC. In  February  2006,  the Company
signed a one year contract with Accord Financial  Services of North Carolina for
factoring services.  The agreement expired in February 2007 and was not renewed.
At December 31, 2006, $3,407,463 of the Company's receivables had been bought by
Accord  Financial  Services.  At December  31, 2005,  $580,363 of the  Company's
receivables had been factored and were owned by Wells Fargo.

Under the Accord agreement,  all of our receivables were sold with recourse.  As
such,  the Company  continues to evaluate each of these  receivables  monthly in
regard to its allowance for bad debts. The original factor,  Wells Fargo, bought
all accounts  without  recourse.  When the switch over to Accord occured,  those
transactions  were  "with  recourse".  For  more  information,  please  see  the
contract, which is included as exhibit 10.3 to this report.

In 2006, the Company  entered into a Trade Finance Flow facility with GE Capital
to fund "Star" transactions.  The agreement provided for GE Capital to guarantee
payment,  on the  Company's  behalf,  for  merchandise  ordered  from GE Capital
approved  manufacturers in Asia. GE Capital  guarantees the payment subject to a
purchase order from one of our customers.  The Company  accepts  delivery of the



                                       42
<PAGE>
<TABLE>
<CAPTION>

goods in the US,  then has the  option to  either  pay for the goods or sell the
receivable  (from the  customer)  to our factor,  who paid GE Capital.  For more
information,  please see the contract, which is included as exhibit 10.4 to this
report.

In March 2007,  the Company  announced  that it had secured a $12 MM Asset Based
Credit Facility from a California bank to provide funding for future growth. For
more information, please see the form 8-K, filed by company on March 2, 2007.


In October 2005,  the Company  borrowed  $165,000 from an individual for working
capital  purposes.  The Company  repaid $65,000 of the loan during the year. The
balance at the end of 2006 was $100,000.


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 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 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.

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.

Principal Commitments:

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

-------------------------------------------------------------------------------------------------------------
Contractual Cash Obligations           Less than 1 year      2-3 years      4-5 years       Over 5 years
-------------------------------------- --------------------- -------------- --------------- -----------------
<S>                                    <C>                   <C>            <C>             <C>
Operating Leases                       $212,692              $194,967       N/A             N/A
-------------------------------------- --------------------- -------------- --------------- -----------------
Advances from Directors                N/A                   N/A            N/A             N/A
-------------------------------------- --------------------- -------------- --------------- -----------------
Notes Payable/ Short Term Loan         $100,000              N/A            N/A             N/A
-------------------------------------- --------------------- -------------- --------------- -----------------
Purchase Commitments                   $4,005,265            N/A
-------------------------------------- --------------------- -------------- --------------- -----------------
Total                                  $4,317,957            $194,967
-------------------------------------------------------------------------------------------------------------
</TABLE>



                                                                              43
<PAGE>

     At December  31,  2006,  the  Company  did not have any long term  purchase
     commitment  contracts  to honor.  The only  purchase  commitments  were for
     inventory already purchased and in transit of $4,005,265.

     At December 31, 2006, 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.

On February 8, 2007,  SOYO Group  announced  that the Company had entered into a
licensing agreement with Honeywell  International  Properties Inc. and Honeywell
International Inc., effective January 1st 2007, under which SOYO will supply and
market certain consumer electronics products under the Honeywell Brand.

The  agreement  is for a minimum  period of 6.5 (six point five) years and calls
for the payment of minimum  royalties by SOYO to Honeywell  totaling  $3,840,000
(Three Million,  Eight Hundred and Forty Thousand Dollars U.S.). Sales levels in
excess of minimum  agreed  targets  will result in  associated  increases in the
royalty  payments due. There are no minimum payments due each calendar year. For
more informaiton,  please see the contract, which is included as exhibit 10.4 to
this report.


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, 2006 and 2005 were primarily
short-term in nature,  and since any interest bearing debt was at a pre-arranged
rate, the Company had only minimal risk from an increase in interest rates.  The
Company has factored $3,407,463 of its accounts receivable at December 31, 2006,
and any  increase in the prime  lending rate would lead to a higher rate charged
on future advances. 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.


                                                                              44
<PAGE>



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 Registered Public Accounting Firm

     2.   Consolidated Balance Sheets as of December 31, 2006 and 2005

     3.   Consolidated Statements of Operations for the years ended December 31,
          2006, 2005 and 2004

     4.   Consolidated  Statements  of  Shareholders'  Equity  (Deficit) for the
          years ended December 31, 2006, 2005 and 2004

     5.   Consolidated Statements of Cash Flows for the years ended December 31,
          2006, 2005 and 2004

     6.   Notes to Consolidated Financial Statements.



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


                                                                            Page
                                                                       ---------

Report of Independent Registered Public Accounting Firm
  - Vasquez & Company LLP                                                    F-2


Consolidated Balance Sheets - December 31, 2005 and 2004               F-3 - F-4


Consolidated Statements of Operations -

Years Ended December 31, 2005, 2004 and 2003                           F-5 - F-6


Consolidated Statements of Shareholders' Equity (Deficit) -
  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-10


Notes to Consolidated Financial Statements -

  Years Ended December 31, 2005, 2004 and 2003                       F-11 - F-33





                                                                              45
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Soyo Group, Inc.
and  Subsidiary as of December 31, 2006 and 2005,  and the related  consolidated
statements  of  operations,  shareholders'  equity  and cash flows for the years
ended  December  31,  2006.  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 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 audits 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  financial   statements,   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 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, 2006 and 2005, and the consolidated results of
its  operations  and its cash flows for the years  ended  December  31,  2006 in
conformity with accounting principles generally accepted in the United States of
America.



/s/ Vasquez and Company
-----------------------
Vasquez and Company, L.P
Los Angeles, California
March 30, 2007





                                                                              46
<PAGE>


                           Consolidated Balance Sheets


                                                         December 31,
---------------------------------------------   ------------    ------------
                                                        2006            2005
---------------------------------------------   ------------    ------------
ASSETS
---------------------------------------------   ------------    ------------
CURRENT
---------------------------------------------   ------------    ------------
Cash and cash equivalents                       $  1,501,040    $    828,294
---------------------------------------------   ------------    ------------
Accounts receivable, net of allowance             12,878,732       7,278,520
for doubtful accounts of $388,958
and $589,224 at December 31, 2006
and 2005respectively
---------------------------------------------   ------------    ------------
Inventories                                        7,792,621       7,991,030
---------------------------------------------   ------------    ------------
Prepaid Expenses                                      36,633          20,984
---------------------------------------------   ------------    ------------
Income tax refund receivable                               0               0
---------------------------------------------   ------------    ------------

Total Current Assets                              22,209,026      16,118,828
---------------------------------------------   ------------    ------------


---------------------------------------------   ------------    ------------
Property and Equipment                               711,015         867,122
---------------------------------------------   ------------    ------------
  Less:  accumulated depreciation                   (159,300)       (115,480)
         and amortization
---------------------------------------------   ------------    ------------
                                                     551,715         751,642
---------------------------------------------   ------------    ------------
Deferred Income Tax Asset                            177,177               0
---------------------------------------------   ------------    ------------
Deposits                                             243,095          36,920
---------------------------------------------   ------------    ------------
---------------------------------------------   ------------    ------------
Total Assets                                    $ 23,181,013    $ 16,907,390
---------------------------------------------   ------------    ------------

                                                         December 31,

---------------------------------------------   ------------    ------------
                                                        2006            2005
---------------------------------------------   ------------    ------------
LIABILITIES
---------------------------------------------   ------------    ------------
CURRENT
---------------------------------------------   ------------    ------------
Accounts payable                                  16,073,617      13,977,579
---------------------------------------------   ------------    ------------
Total Accounts Payable                            16,073,617      13,977,579
---------------------------------------------   ------------    ------------

---------------------------------------------   ------------    ------------
Accrued liabilities                                  539,767       1,287,108
---------------------------------------------   ------------    ------------
Advances from officers, directors and major                0               0
shareholder
---------------------------------------------   ------------    ------------
Business Loan                                              0               0
---------------------------------------------   ------------    ------------
Short Term Loan                                      100,000         165,000
---------------------------------------------   ------------    ------------
---------------------------------------------   ------------    ------------
Current Liabilities                               16,713,384      15,429,687
---------------------------------------------   ------------    ------------
---------------------------------------------   ------------    ------------
        Long Term Payable                          3,735,198               0
---------------------------------------------   ------------    ------------
Total Liabilities                                 20,448,582      15,429,687
---------------------------------------------   ------------    ------------


                                                                              47
<PAGE>



---------------------------------------------   ------------    ------------
EQUITY
---------------------------------------------   ------------    ------------
Class B Preferred stock, $0.001 par value,         1,918,974       1,702,486
authorized - 10,000,000 shares,  Issued
and outstanding - 2,797,738 shares in 2006
and 2005
---------------------------------------------   ------------    ------------
Preferred Stock Backup Withholding                  (149,945)        (84,999)
---------------------------------------------   ------------    ------------
Common stock, $0.001 par value  Authorized-           49,026          48,682
75,000,000 shares, Issued and outstanding -
49,025,511 shares (48,681,511 shares - 2005)
---------------------------------------------   ------------    ------------
Additional paid-in capital                        17,866,531      17,225,738
---------------------------------------------   ------------    ------------

---------------------------------------------   ------------    ------------
Accumulated deficit                              (16,952,155)    (17,414,204)
---------------------------------------------   ------------    ------------
      Total Shareholders' Equity                   2,732,431       1,477,703
---------------------------------------------   ------------    ------------
Total Liabilities plus Shareholders' Equity     $ 23,181,013    $ 16,907,390
---------------------------------------------   ------------    ------------












                                                                              48
<PAGE>


                         SOYO Group, Inc. and Subsidiary
                      Consolidated Statements of Operations



                             Year Ended December 31,
                             -----------------------
-----------------------------------  ------------   ------------   ------------
                                             2006           2005           2004
-----------------------------------  ------------   ------------   ------------
Net revenues                         $ 56,758,688   $ 38,263,032   $ 32,426,414
-----------------------------------  ------------   ------------   ------------
Cost of revenues, including            47,534,249     34,905,874     30,210,042
inventory purchased from SOYO
Computer, Inc. of $0, $0, and
$14,004,259 in 2006, 2005 and
2004 respectively
-----------------------------------  ------------   ------------   ------------
Prior years' purchase discounts                 0
and allowances settled in 2005                        (1,335,812)             0
-----------------------------------  ------------   ------------   ------------
Gross margin                            9,224,439      4,692,970      2,216,372
-----------------------------------  ------------   ------------   ------------
Costs and expenses:
-----------------------------------  ------------   ------------   ------------
Sales and marketing                     1,143,475        911,039      1,577,609
-----------------------------------  ------------   ------------   ------------
General and                             5,610,810      3,659,338      3,560,710
administrative
-----------------------------------  ------------   ------------   ------------
Provision for doubtful accounts           907,065         34,513        956,738
-----------------------------------  ------------   ------------   ------------
Adjustment of Allowance                         0       (462,234)             0
-----------------------------------  ------------   ------------   ------------
Depreciation and amortization:
-----------------------------------  ------------   ------------   ------------
   Property and equipment                  43,818         35,394         34,998
-----------------------------------  ------------   ------------   ------------
          Total costs and expenses      7,705,168      4,178,050      6,130,055
-----------------------------------  ------------   ------------   ------------
Income (Loss) from operations           1,519,271        514,920     (3,913,683)
-----------------------------------  ------------   ------------   ------------
Other income (expense):
-----------------------------------  ------------   ------------   ------------
   Interest income                         10,561          5,301              0
-----------------------------------  ------------   ------------   ------------
   Interest expense                      (901,900)      (129,567)       (23,371)
-----------------------------------  ------------   ------------   ------------
Other income                             (106,262)       150,456         17,609
(expense)
-----------------------------------  ------------   ------------   ------------
Other income (expense),                  (997,601)        26,190         (5,762)
net
-----------------------------------  ------------   ------------   ------------
Income (Loss) before provision            521,670        541,110     (3,919,445)
(benefit) for income taxes
-----------------------------------  ------------   ------------   ------------
Provision for income taxes
-----------------------------------  ------------   ------------   ------------
Current Income Tax Expense                (20,310)           800            800
-----------------------------------  ------------   ------------   ------------
Deferred Income Tax Gain (Expense)        177,177           --             --
-----------------------------------  ------------   ------------   ------------
Net Income (loss)                         678,537        540,310     (3,920,245)
-----------------------------------  ------------   ------------   ------------



                                                                              49
<PAGE>

-----------------------------------  ------------   ------------   ------------
Less: Dividends on Convertible           (216,488)    (1,173,753)      (223,733)
Preferred Stock
-----------------------------------  ------------   ------------   ------------
Net income/ (loss) attributable           462,049       (633,443)    (4,143,978)
to common shareholders
-----------------------------------  ------------   ------------   ------------
Net loss per common share -                 0.01           (0.01)         (0.10)
Basic and diluted                           0.01
-----------------------------------  ------------   ------------   ------------
Weighted average number of shares      49,025,511     48,511,681     40,000,000
of common stock outstanding -          59,786,042     52,868,673     40,000,000
Basic and diluted
-----------------------------------  ------------   ------------   ------------




                                       50
<PAGE>
<TABLE>
<CAPTION>

                        SOYO Group, Inc. and Subsidiary
            Consolidated Statements of Shareholders' Equity (Deficit)
                  Years Ended December 31, 2006, 2005 and 2004

                                                                                            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 Payment of Services               30,000        30                                                                    30
Issuance of Common
Stock for Payment of Accounts Payable    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 Conversion 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)
                                       --------------------------------------------------------------------------------------------
Balance, December 31, 2005              48,681,511    48,682      2,614,195   1,617,487   17,225,738    (17,414,204)     1,477,703
                                       ============================================================================================
Issuance of Common Stock                    39,000        39                                  24,531                        24,570
Issuance of Common Stock                   267,000       267                                  80,100                        80,367
Issuance of Common Stock                    38,000        38                                  12,502                        12,540
Accretion of Discount                                                           216,488                                    216,488
Preferred Stock Backup Withholding                                              (64,946)                                   (64,946)
To book FAS 123 adjustment                                                                   506,221                       506,221
Misc. Adjustment                                                                              17,439                        17,439
Net Income                                                                                                  462,049        462,049
                                       --------------------------------------------------------------------------------------------
                                        49,025,511    49,026      2,614,195   1,769,029   17,866,531    (16,952,155)     2,732,431
                                       ============================================================================================
</TABLE>

                                                                              51
<PAGE>




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

                                               Years Ended December 31,
--------------------------------------------------------------------------------
                                        2006           2005           2004
----------------------------------  -----------    -----------    --------------
OPERATING ACTIVITIES
----------------------------------  -----------    -----------    -----------
Net Income (loss)                   $   678,537    $   540,310    $(3,920,245)
----------------------------------  -----------    -----------    -----------
Adjustments to reconcile net
income(loss) to net cash provided
by (used in) operating activities:
----------------------------------  -----------    -----------    -----------
Depreciation                             43,818         35,394         34,998
----------------------------------  -----------    -----------    -----------
Provision for doubtful accounts         907,065         34,513        956,738
----------------------------------  -----------    -----------    -----------
Stock compensation for employees        506,222           --             --
----------------------------------  -----------    -----------    -----------
Stock compensation paid for
professional services                   134,915           --             --
----------------------------------  -----------    -----------    -----------
Changes in operating assets
and liabilities:
----------------------------------  -----------    -----------    -----------
(Increase) decrease in:
----------------------------------  -----------    -----------    -----------
Accounts receivable                  (6,507,277)    (5,236,151)     3,785,110
----------------------------------  -----------    -----------    -----------
Inventories                             198,409     (4,128,119)     1,173,214
----------------------------------  -----------    -----------    -----------
Prepaid expenses                        (15,649)        51,432         18,557
----------------------------------  -----------    -----------    -----------
Deferred Income Tax Asset              (177,177)             0              0
----------------------------------  -----------    -----------    -----------
Deposits                               (206,175)        (2,109)        (9,776)
----------------------------------  -----------    -----------    -----------
Increase (decrease) in:
----------------------------------  -----------    -----------    -----------
Accounts payable -                            0     (1,314,910)    (5,242,343)
SOYO Computer, Inc
----------------------------------  -----------    -----------    -----------
Accounts payable -                    2,096,038      9,332,236      2,783,763
other
----------------------------------  -----------    -----------    -----------
Accrued liabilities                    (747,341)       509,316        236,059
----------------------------------  -----------    -----------    -----------
----------------------------------  -----------    -----------    -----------
Net cash provided by (used in)       (3,088,615)      (178,088)      (183,925)
operating activities
----------------------------------  -----------    -----------    -----------
----------------------------------  -----------    -----------    -----------
INVESTING ACTIVITIES
----------------------------------  -----------    -----------    -----------
Purchase of property and equipment      (48,891)      (621,970)      (158,670)

----------------------------------  -----------    -----------    -----------
Disposal of Fixed Assets                205,000
----------------------------------  -----------    -----------    -----------
Net cash Supplied (used) in             156,109       (621,970)    (158,670)
investing activities
----------------------------------  -----------    -----------    -----------




                                                                              52
<PAGE>

FINANCING ACTIVITIES
-----------------------------------   -----------    -----------    -----------
Advances from officer,                                   165,000
director and
major shareholder
-----------------------------------   -----------    -----------    -----------
Business                                                                913,750
Loan
-----------------------------------   -----------    -----------    -----------
Long-term debt                          3,735,198
-----------------------------------   -----------    -----------    -----------
Repayment of advances to officer,         (65,000)      (240,000)
director and major shareholder
-----------------------------------   -----------    -----------    -----------
Proceeds from issuance of common                         500,000
stock
-----------------------------------   -----------    -----------    -----------
Payment of backup withholding
taxes on accreted dividends               (64,946)       (84,999)
on preferred stock
-----------------------------------   -----------    -----------    -----------

Net cash provided by financing          3,605,252        340,001        913,750
activities
-----------------------------------   -----------    -----------    -----------
-----------------------------------   -----------    -----------    -----------
CASH AND CASH EQUIVALENTS:
-----------------------------------   -----------    -----------    -----------
Net increase (decrease)                   672,746       (460,057)       571,155
-----------------------------------   -----------    -----------    -----------
At beginning of year                      828,294      1,288,351        717,196
-----------------------------------   -----------    -----------    -----------
At end of year                        $ 1,501,040    $   828,294    $ 1,288,351
-----------------------------------   -----------    -----------    -----------
-----------------------------------   -----------    -----------    -----------
SUPPLEMENTAL DISCLOSURE OF
  CASH FLOW INFORMATION:
-----------------------------------   -----------    -----------    -----------
Cash paid for interest                    901,900         97,783         23,371
-----------------------------------   -----------    -----------    -----------
Cash paid for income taxes                 20,310            800            800
-----------------------------------   -----------    -----------    -----------
-----------------------------------   -----------    -----------    -----------
NON-CASH INVESTING AND FINANCING
ACTIVITIES
-----------------------------------   -----------    -----------    -----------
Settlement of business loan of
$913,750 and accrued interest of
$51,251 through issuance of common                       965,001
stock
-----------------------------------   -----------    -----------    -----------
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 Class B          216,488        174,753        109,538
preferred stock
-----------------------------------   -----------    -----------    -----------
Deemed dividend on Class A                               999,000
preferred stock
-----------------------------------   -----------    -----------    -----------
Noncash dividend on Class B
preferred stock                              --                         114,195
-----------------------------------   -----------    -----------    -----------

                                                                              53
<PAGE>




                         SOYO Group, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 2006, 2005 and 2004


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.



                                                                              54
<PAGE>








































                                                                              55
<PAGE>


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

On October 24, 2002,  the primary  members of SOYO Nevada  management  were Ming
Tung Chok, the Company's  President,  Chief Executive Officer and Director,  and
Nancy Chu, the Company's Chief Financial Officer,  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.   Nature of Business

SOYO Group, Inc. is a distributor of consumer electronics, computer products and
communications  services and 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



                                                                              56
<PAGE>

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, and 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.

As a general rule, the Company has been totally reliant upon the cash flows from
its  operations to fund future  growth.  In the last few years,  the Company has
begun and continues to implement  the following  steps to increase its financial
position, liquidity, and long term financial health:

In 2005,  The  Company  completed a small  private  placement,  began  factoring
invoices to improve cash flows, and converted several million dollars of debt to
equity, all of which improved the Company's financial condition.

In 2006,  the Company  changed  factors to a more  beneficial  arrangement,  and
entered  into a Trade  Finance  Flow  facility  with GE Capital  to fund  "Star"
transactions. The agreement provided for GE Capital to guarantee payment, on the
Company's behalf, for merchandise ordered from GE Capital approved manufacturers
in Asia. GE Capital  guarantees the payment subject to a purchase order from one
of our customers.  The Company accepts delivery of the goods in the US, then has
the  option  to  either  pay for the  goods or sell  the  receivable  (from  the
customer) to our factor, who pays GE Capital.  For more information,  please see
the contract, whch is included as exhibit 10.4 to this report.

In March 2007,  the Company  announced  that it had secured a $12 MM Asset Based
Credit Facility from a California bank to provide funding for future growth. For
more informaiton, please see the Form 8-K filed by the company on March 2,2007.

There can be no assurances  that these measures will result in an improvement in
the  Company's  profitability  or  liquidity.  To the extent that the  Company's
profitability 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.



                                                                              57
<PAGE>


     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, 2006, 2005 and 2004, the Company  wrote-down
the value of its inventory by $0, $0 and $47,084 respectively.

     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



                                                                              58
<PAGE>

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, 2006 and
2005.

     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.

     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



                                                                              59
<PAGE>

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,  2006,  2005,  and 2004 were  $834,616,
$849,897,  and  $1,481,441  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
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



                                                                              60
<PAGE>

shares of preferred  stock,  and stock options granted to employees in 2005. The
stock options were not included in the  calculation of fully diluted EPS for the
year ended December 31, 2006, since the strike price of the outstanding  options
is below the market price of the Company's common stock. None of the potentially
dilutive  securities  were included in the calculation of loss per share for the
years ended  December  31, 2005,  and 2004  because the Company  incurred a loss
attributable to common  shareholders  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, 2006, 2005 and 2004.


     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, 2006,
2005 and 2004.

     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,
2006 and 2005  approximate  their  respective  fair values due to the short-term
nature of those instruments.

      p.  Stock Based Compensation

Prior to  January  1, 2006,  the  Company  accounted  for  employee  stock-based
compensation  using  the  intrinsic  value  method  supplemented  by  pro  forma
disclosures in accordance  with APB 25 and SFAS 123  "Accounting for Stock-Based
Compensation"   ("SFAS  123"),  as  amended  by  SFAS  No.148   "Accounting  for
Stock-Based Compensation--Transition and Disclosures." Under the intrinsic value
based  method,  compensation  cost is the excess,  if any, of the quoted  market
price of the stock at grant  date or other  measurement  date over the amount an
employee must pay to acquire the stock.  Under the intrinsic  value method,  the
Company has  recognized  stock-based  compensation  common  stock on the date of
grant.

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



                                                                              61
<PAGE>

expense on a straight-line  basis over the requisite  service  period,  which is
three years.

SFAS  123(R)  requires  forfeitures  to be  estimated  at the time of grant  and
revised,  if necessary,  in subsequent periods if actual forfeitures differ from
initial  estimates.  Stock-based  compensation  expense has been recorded net of
estimated forfeitures for the year ended December 31, 2006 such that expense was
recorded only for those stock-based awards that are expected to vest. Previously
under  APB  25 to the  extent  awards  were  forfeited  prior  to  vesting,  the
corresponding  previously  recognized  expense  was  reversed  in the  period of
forfeiture.

SFAS 123 requires the Company to provide  pro-forma  information  regarding  net
loss as if  compensation  cost for the stock  options  granted to the  Company's
employees had been  determined  in  accordance  with the fair value based method
prescribed in SFAS 123. Options granted to non-employees are recognized in these
financial  statements as compensation expense under SFAS 123 (See Note 11) using
the Black-Scholes option-pricing model.

If the fair value  based  method  under FAS 123 had been  applied  in  measuring
stock-based  compensation  expense for the year ended December 31, 2005, the pro
forma on net income  (loss) and net income  (loss) per share  would have been as
follows:

                               Year ended December
                                     31,2005

  Net income (loss) attributable to common shareholders,       $  (633,443)
     as reported
  Add:  Stock-based  employee   compensation  expense
        included in reported net income, net of
        related tax effect
                                                                         -
  Deduct:   Total   stock-based   employee
        compensation   expense  determined  under
        fair-value  based method for all awards
        not included in net income (loss)                        (224,919)
                                                           -----------------

  Pro forma net income (loss) attributable to
        common Shareholders                                    $  (858,362)
                                                           =================
  Income (loss) per share:
    Basic/diluted - as reported                             ($0.01)/($0.01)
                                                           -----------------

    Basic/diluted - pro forma                               ($0.02)/($0.02)
                                                           -----------------




     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



                                                                              62
<PAGE>

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.


     r.   Recent Accounting Pronouncements


In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial Assets and Financial  Liabilities" ("SFAS 159") which permits entities
to choose to measure many financial  instruments and certain other items at fair
value that are not  currently  required to be  measured at fair value.  SFAS 159
will be effective  for the Company on January 1, 2008.  The Company is currently
evaluating  the impact of  adopting  SFAS 159 on its  financial  position,  cash
flows, and results of operations.


In October 2006, the Emerging  Issues Task Force ("EITF") issued EITF 06-3, "How
Taxes Collected from Customers and Remitted to Governmental  Authorities  Should
Be Presented in the Income  Statement (that is, Gross versus Net  Presentation)"
to clarify diversity in practice on the presentation of different types of taxes
in the financial statements. The Task Force concluded that, for taxes within the
scope of the issue,  a company  may adopt a policy of  presenting  taxes  either
gross within  revenue or net.  That is, it may include  charges to customers for
taxes  within  revenues  and the charge for the taxes from the taxing  authority
within cost of sales, or,  alternatively,  it may net the charge to the customer
and the charge  from the  taxing  authority.  If taxes  subject to EITF 06-3 are
significant,  a company  is  required  to  disclose  its  accounting  policy for
presenting  taxes and the amounts of such taxes that are  recognized  on a gross
basis.  The  guidance  in this  consensus  is  effective  for the first  interim
reporting  period  beginning  after  December 15, 2006 (the first quarter of the
Company's  fiscal year 2007).  The Company  does not expect the adoption of EITF
06-3 to have a material impact on our results of operations,  financial position
or cash flow.


In September 2006, the United States  Securities and Exchange  Commission  (SEC)
issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements   when   Quantifying   Misstatements  in  Current  Year  Financial
Statements"  ("SAB 108"). This SAB provides guidance on the consideration of the
effects of prior year  misstatements in quantifying  current year  misstatements
for the purpose of a materiality  assessment.  SAB 108  establishes  an approach
that requires  quantification of financial statement errors based on the effects
on each of the company's  balance  sheets,  statements of operations and related
financial  statement  disclosures.  The SAB permits existing public companies to
record the  cumulative  effect of initially  applying this approach in the first
year ending  after  November  15, 2006 by  recording  the  necessary  correcting
adjustments to the carrying values of assets and liabilities as of the beginning
of that year with the offsetting  adjustment  recorded to the opening balance of
retained  earnings.  Additionally,  the use of the cumulative  effect transition
method requires detailed  disclosure of the nature and amount of each individual
error being  corrected  through the  cumulative  adjustment  and how and when it
arose.  The Company is currently  evaluating  the impact SAB 108 may have on its
results of operations and financial condition.

In September  2006,  the FASB issued SFAS No. 158,  "Employer's  accounting  for
Defined Benefit Pension and Other Post Retirement Plans".  SFAS No. 158 requires
employers  to  recognize  in its  statement  of  financial  position an asset or
liability based on the retirement  plan's over or under funded status.  SFAS No.
158 is effective for fiscal years ending after December 15, 2006. The Company is
currently  evaluating the effect that the  application of SFAS No. 158 will have
on its results of operations and financial condition.


In September  2006,  the  Financial  Accounting  Standards  Board (FASB)  issued
Statement  of Financial  Accounting  Issues No. 157,  "Fair Value  Measurements"



                                                                              63
<PAGE>

("SFAS  157"),  which  defines  the fair  value,  establishes  a  framework  for
measuring fair value and expands disclosures about fair value measurements. This
statement  is  effective  for  financial  statements  issued  for  fiscal  years
beginning  after  November 15,  2007,  and interim  periods  within those fiscal
years.  Early  adoption  is  encouraged,  provided  that the Company has not yet
issued  financial  statements  for that fiscal  year,  including  any  financial
statements  for an interim  period  within  that  fiscal  year.  The  Company is
currently  evaluating the impact SFAS 157 may have on its financial condition or
results of operations.

In July 2006,  the FASB  released FASB  Interpretation  No. 48,  Accounting  for
Uncertainty in Income Taxes,  an  interpretation  of FASB Statement No. 109 (FIN
48). FIN 48 clarifies the accounting and reporting for  uncertainties  in income
tax law. This interpretation  prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns. This statement is
effective for fiscal years  beginning  after  December 15, 2006.  The Company is
currently  evaluating  the impact FIN 48 may have on its financial  condition or
results of operations.

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial  Assets"  ("SFAS NO.  156"),  which  provides  an approach to simplify
efforts to obtain  hedge-like  (offset)  accounting.  This Statement amends FASB
Statement No. 140,  "Accounting for Transfers and Servicing of Financial  Assets
and  Extinguishments  of  Liabilities",  with  respect  to  the  accounting  for
separately recognized servicing assets and servicing liabilities.  The Statement
(1)  requires an entity to recognize a servicing  asset or  servicing  liability
each time it undertakes  an obligation to service a financial  asset by entering
into a servicing contract in certain situations;  (2) requires that a separately
recognized  servicing asset or servicing liability be initially measured at fair
value, if practicable;  (3) permits an entity to choose either the  amortization
method or the fair value  method for  subsequent  measurement  for each class of
separately recognized servicing assets or servicing liabilities;  (4) permits at
initial adoption a one-time reclassification of available-for-sale securities to
trading securities by an entity with recognized  servicing rights,  provided the
securities  reclassified  offset the  entity's  exposure  to changes in the fair
value  of the  servicing  assets  or  liabilities;  and  (5)  requires  separate
presentation of servicing assets and servicing liabilities subsequently measured
at fair value in the balance sheet and additional disclosures for all separately
recognized servicing assets and servicing liabilities. SFAS No. 156 is effective
for  all  separately  recognized  servicing  assets  and  liabilities  as of the
beginning of an entity's  fiscal year that begins after September 15, 2006, with
earlier  adoption  permitted  in  certain  circumstances.   The  Statement  also
describes  the manner in which it should be initially  applied.  This  Statement
does not affect the Company's financial statements.

In February 2006, the FASB issued SFAS No. 155,  "Accounting  for Certain Hybrid
Financial  Instruments",  which amends SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities" and SFAS No. 140,  "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishment of Liabilities".  SFAS No.
155 amends  SFAS No. 133 to narrow the scope  exception  for  interest-only  and
principal-only   strips  on  debt   instruments  to  include  only  such  strips
representing  rights to receive a specified portion of the contractual  interest
or  principle  cash  flows.  SFAS No.  155  also  amends  SFAS No.  140 to allow
qualifying  special-purpose  entities  to hold a  passive  derivative  financial
instrument  pertaining  to  beneficial  interests  that  itself is a  derivative
instrument. This Statement does not affect the Company's financial statements.

In November 2005,  the FASB issued FSP FAS 115-1 and FAS 124-1,  "The Meaning of
Other-Than-Temporary  Impairment  and Its  Application  to Certain  Investments"
("FSP 115-1 and  124-1"),  which  clarifies  when an  investment  is  considered
impaired, whether the impairment is other-than-temporary, and the measurement of
an impairment loss. It also includes accounting considerations subsequent to the
recognition  of  the   other-than-temporary   impairment  and  requires  certain
disclosures   about   unrealized   losses  that  have  not  been  recognized  as
other-than-temporary  impairments.  FSP 115-1 and  124-1 are  effective  for all
reporting  periods  beginning  after  December  15,  2005.  The Company does not
anticipate that the  implementation  of these statements will have a significant
impact on its financial position, results of operations or cash flows.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections"  ("SFAS No.  154").  SFAS No. 154 is a  replacement  of  Accounting
Principles  Board Opinion No. 20 and SFAS No. 3. SFAS No. 154 provides  guidance
on the accounting for and reporting of accounting changes and error corrections.



                                                                              64
<PAGE>

It establishes  retrospective application as the required method for reporting a
change in accounting  principle.  SFAS No. 154 provides guidance for determining
whether  retrospective  application  of a  change  in  accounting  principle  is
impracticable  and for  reporting a change  when  retrospective  application  is
impracticable.  SFAS No. 154 also  addresses the reporting of a correction of an
error  by  restating  previously  issued  financial  statements.  SFAS No 154 is
effective for accounting  changes and corrections of errors made in fiscal years
beginning  after  December 15,  2005.  The Company does not believe that it will
have a material impact on its financial position,  results of operations or cash
flows.

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 153,  "Exchanges of Nonmonetary  Assets, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary  Transactions."  The amendments made by Statement 153
are based on the  principle  that  exchanges  of  nonmonetary  assets  should be
measured  based  on  the  fair  value  of the  assets  exchanged.  Further,  the
amendments  eliminate the narrow exception for nonmonetary  exchanges of similar
productive  assets and  replace it with a broader  exception  for  exchanges  of
nonmonetary assets that do not have commercial substance. Previously, Opinion 29
required that the accounting for an exchange of a productive asset for a similar
productive  asset or an  equivalent  interest in the same or similar  productive
asset should be based on the recorded amount of the asset relinquished.  Opinion
29 provided an exception  to its basic  measurement  principle  (fair value) for
exchanges  of  similar  productive  assets.  The FASB  believes  that  exception
required that some nonmonetary exchanges,  although commercially substantive, be
recorded on a carryover  basis. By focusing the exception on exchanges that lack
commercial  substance,  the FASB  believes  this  statement  produces  financial
reporting that more  faithfully  represents  the economics of the  transactions.
SFAS 153 is  effective  for  nonmonetary  asset  exchanges  occurring  in fiscal
periods  beginning  after June 15, 2005.  Earlier  application  is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after the date
of issuance.  The  provisions  of SFAS 153 shall be applied  prospectively.  The
Company  has  evaluated  the impact of the  adoption  of SFAS 153,  and does not
believe the impact  will be  significant  to the  Company's  overall  results of
operations or financial position.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB No. 43,  Chapter 4". The  amendments  made by Statement  151 clarify that
abnormal amounts of idle facility expense,  freight,  handling costs, and wasted
materials  (spoilage) should be recognized as current period charges and require
the allocation of fixed  production  overheads to inventory  based on the normal
capacity of the production  facilities.  The guidance is effective for inventory
costs  incurred  during  fiscal years  beginning  after June 15,  2005.  Earlier
application  is permitted  for  inventory  costs  incurred  during  fiscal years
beginning  after November 23, 2004. This Statement does not affect the Company's
financial statements.



3.   Accounts Receivable


The Company's  accounts  receivable at December 31, 2006 and 2005 are summarized
as follows:


                                                      December 31,
----------------------------------------------------------- ------------------
                                                 2006               2005
----------------------------------------------------------- ------------------
Accounts receivable                          $  13,267,690       $  7,867,744
----------------------------------------------------------- ------------------
Less:  allowance for doubtful accounts           (388,958)          (589,224)
----------------------------------------------------------- ------------------
                                               $12,878,732         $7,278,520
----------------------------------------------------------- ------------------



                                                                              65
<PAGE>


Changes in the allowance for doubtful  accounts for the years ended December 31,
2006 and 2005 are summarized as follows:

---------------------------------------------------------------- ------------
                                                 2006               2005
---------------------------------------------------------- ------------------
Balance, beginning of year                      $ 589,224        $ 1,074,550
---------------------------------------------------------- ------------------
Add:  Amounts provided during the year            103,184             34,513
---------------------------------------------------------- ------------------
Less: Amounts written off during the year        (436,205)           (57,605)
---------------------------------------------------------- ------------------
Less: Adjustment based on current estimate        132.755           (462,234)
---------------------------------------------------------- ------------------
Balance, end of year                            $ 388,958          $ 589,224
---------------------------------------------------------- ------------------



Since 2004, the Company has used three different  factors to increase cash flow.
As a result,  credit policies and  requirements  have changed  frequently in the
last few years.  When the Company was prepared to sign the agreement for the $12
million  finance  line (see Form 8-K file  March 2,  2007),  it  reexamined  the
receivables  and wrote off all balances over 90 days,  and wrote down to present
value all balances over 90 days that were making monthly payments. This resulted
in a large write off taken in the fourth quarter. As a result, any balances with
even a small question about  collectivity have been written off. Because of this
aggressive  stance,  the allowance for bad debts has decreased,  even though the
accounts receivables balance has increased by over $5 million.


The Company  began  factoring  its  invoices in 2005 to improve  cash flow.  The
Company's  initial  factor was Wells Fargo PLC. In  February  2006,  the Company
signed a one year contract with Accord Financial  Services of North Carolina for
factoring services. The agreement expired in February 2007 and was not renewed.

Under the Accord agreement,  all of our receivables were sold with recourse.  As
such,  the Company  continues to evaluate each of these  receivables  monthly in
regard to its allowance for bad debts. The original factor,  Wells Fargo, bought
all accounts  without  recourse.  When the switch over to Accord occured,  those
transactions were "with recourse".

In 2006, the Company  entered into a Trade Finance Flow facility with GE Capital
to fund "Star" transactions.  The agreement provided for GE Capital to guarantee
payment,  on the  Company's  behalf,  for  merchandise  ordered  from GE Capital
approved  manufacturers in Asia. GE Capital  guarantees the payment subject to a
purchase order from one of our customers.  The Company  accepts  delivery of the
goods in the US,  then has the  option to  either  pay for the goods or sell the
receivable (from the customer) to our factor, who paid GE Capital. The terms and
conditions of each advance vary according to current market conditions.

At December 31, 2006, $3,407,463 of the Company's receivables had been bought by
Accord  Financial  Services.  At December  31, 2005,  $580,363 of the  Company's
receivables had been factored and were owned by Wells Fargo.



                                                                              66
<PAGE>




4.   Property and Equipment

At  December  31,  2006  and  2005,  property  and  equipment  consisted  of the
following:


                                                December 31,
---------------------------------------------------- ----------------------
                                      2006                   2005
---------------------------------------------------- ----------------------
Computer and Equipment               $567,642               $744,176
---------------------------------------------------- ----------------------
Furniture and Fixtures                 40,357                 27,943
---------------------------------------------------- ----------------------
Leasehold Improvements                 91,941                 83,928
---------------------------------------------------- ----------------------
Automobiles                            11,075                 11,075
---------------------------------------------------- ----------------------
Less: Accumulated Depreciation       (159,300)              (115,480)
---------------------------------------------------- ----------------------
           Total                     $551,715               $751,642
---------------------------------------------------- ----------------------


For the  years  ended  December  31,  2006,  2005  and  2004,  depreciation  and
amortization expense related to property and equipment was $43,818,  $35,394 and
$34,998, respectively.



5.   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.



                                                                              67
<PAGE>


In October 2005,  the Company  borrowed  $165,000 from an individual for working
capital purposes.  During 2006,  $65,000 of the loan was repaid. At December 31,
2006, the loan balance stands at $100,000.

6.   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. 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.


7.   Commitments and Contingencies

     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,
     -------------------------

     2007              212,692
     2008              194,967

Rent expense for the years ended December 31, 2006,  2005 and 2004 was $229,540,
$238,836 and $229,718 respectively.



     8.   Income Taxes


For the year ended  December 31, 2006,  the Company  booked  federal  income tax
expense of $68,  and state income tax expense of $20,242.  The Company  believes
that all other  income  taxes due are offset by federal and state net  operating
loss carryforwards.  For the years ended December 31, 2005 and 2004, the Company
incurred net losses and  accordingly,  had no tax liability,  other than minimum
state franchise taxes.

As of December 31, 2006,  the Company had federal and state net  operating  loss
carryforwards  of  $4,195,130  and $0  respectively,  expiring in various  years
through 2024,  which can be used to offset  future  taxable  income,  if any. 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.



                                                                              71
<PAGE>
<TABLE>
<CAPTION>


The  reconciliation  of the effective  income tax rate to the Federal  statutory
rate is as follows:

                                                        Year ended
                                                        December 31,
-------------------------------------------------------------------------------
                                                 2006             2005
-------------------------------------------------------------------------------
Federal income tax                                34%             34%
-------------------------------------------------------------------------------
State income tax                                  9%               9%
-------------------------------------------------------------------------------
Effect of net operating loss and net
operating loss carry forward                     (43%)           (43%)
-------------------------------------------------------------------------------
Effective income tax rate                         0%               0%
-------------------------------------------------------------------------------

                                                                                               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 Payment of Services                30,000         30             30
Issuance of Common
Stock for Payment of Accounts Payable     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 Conversion 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)
                                         -------------------------------------------------------------------------------------------
Balance, December 31, 2005               48,681,511     48,682      2,614,195    1,617,487   17,225,738    (17,414,204)   1,477,703
                                         ===========================================================================================
Issuance of Common Stock                     39,000         39         24,531       24,570
Issuance of Common Stock                    267,000        267         80,100       80,367
Issuance of Common Stock                     38,000         38         12,502       12,540
Accretion of Discount                       216,488    216,488
Preferred Stock Backup Withholding          (64,946)   (64,946)
To book FAS 123 adjustment                  506,221    506,221
Misc. Adjustment                             17,439     17,439
Net Income                                  462,049    462,049
                                         -------------------------------------------------------------------------------------------
                                         49,025,511     49,026      2,614,195    1,769,029   17,866,531    (16,952,155)   2,732,431
                                         ===========================================================================================
</TABLE>



9.  Significant Concentrations

     a.   Customers

The Company sells to both  distributors  and  retailers.  Revenues  through such
distribution  channels for the years ended December 31, 2006,  2005 and 2004 are
summarized as follows:


                                  Year Ended December 31,
------------- ------------- -------- ------------ -------- ------------- -------
                    2006        %          2005        %       2004          %
------------- ------------- -------- ------------ -------- ------------- -------
Revenues
------------- ------------- -------- ------------ -------- ------------- -------
Distributors  $35,510,804     62.6   $22,312,488    58.3   $14,704,452     45.3
------------- ------------- -------- ------------ -------- ------------- -------
Retailers     $15,187,152     26.8   $15,742,332    41.2   $17,721,962     54.7
------------- ------------- -------- ------------ -------- ------------- -------
Others        $  6,060,732    10.6       208,212     .5         N/A
------------- ------------- -------- ------------ -------- ------------- -------
Total         $56,758,688   100.0    $38,263,032  100.0    $32,426,414   100.0
------------- ------------- -------- ------------ -------- ------------- -------

During the year ended December 31, 2006, no customer  accounted for more than 8%
of sales.

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.


b. Geographic Segments

Revenues by geographic segment are summarized as follows:

                                    Year Ended December 31,
------------------------------- ------ ------------- ------- ------------- -----
                    2006          %        2005        %        2004          %
------------------------------- ------ ------------- ------- ------------- -----
Revenues
------------------------------- ------ ------------- ------- ------------- -----
United States      $42,628,547   75.2   $20,686,944    54.1   $25,936,978   80.0
------------------------------- ------ ------------- ------- ------------- -----
Other N. America    $2,472,209    4.4       983,606     2.6           N/A
------------------------------- ------ ------------- ------- ------------- -----
Central and South  $10,253,665   18.0    $2,993,532     7.8    $6,317,907   19.5
America
------------------------------- ------ ------------- ------- ------------- -----



                                                                              72
<PAGE>
<TABLE>
<CAPTION>

------------------------------- ------ ------------- ------- ------------- -----
Hong Kong            $ 139,490    0.2   $13,598,950    35.5      $171,529    0.5
------------------------------- ------ ------------- ------- ------------- -----
Other locations     $1,264,777    2.2
------------------------------- ------ ------------- ------- ------------- -----
Total              $56,758,688  100.0   $38,263,032   100.0   $32,426,414  100.0
------------------------------- ------ ------------- ------- ------------- -----

During the year 2004 segment data on the "Other N. America Business" segment was
not  kept as it was very  small in  relation  to the size of the  United  States
business at that time,  no  compilations  of the data were made as there were no
internal  decision process that would have been governed by such information and
the compilation of this  information  would have been impractical and offered no
value to the organization.


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.



Revenues by product line are summarized as follows:



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

                        2006           %      2005            %        2004             %
--------------------- ------------------------------------------------------------------------
<S>                     <C>           <C>     <C>             <C>      <C>            <C>

Consumer Electronics    27,543,873    48.5    $18,739,719     49.0     N/A
--------------------- ------------------------------------------------------------------------
Computer parts and
 peripherals            29,204,792    51.5      18,906,367    49.4     N/A
--------------------- ------------------------------------------------------------------------
Voice and
communication               10,023    N/A          616,946    1.6      N/A
--------------------- ------------------------------------------------------------------------
--------------------- ------------------------------------------------------------------------
Total                 $56,758,688     100.0   $38,263,032     100.0    $32,426,414
--------------------- ------------------------------------------------------------------------
</TABLE>


The  breakdowns  to segregate  sales by product line is not  available for years
prior to 2005.  During  the years  prior to 2005,  the  Company  sold  primarily
computer  parts and  peripherals.  The dollar  volume of sales of both  consumer
electronics and voice and communication  products were very small and immaterial
in the scope of the Company's  business.  As sales of consumer  electronics  and
voice and  communication  products have grown, the Company has begun recognizing
the  sales in each  category,  and will  continue  to  segregate  the  sales for
reporting purposes in the future.


     c.   Suppliers


>From  the  Company's  inception  through  December  31,  2003,  over 80% of the
products



                                                                              73
<PAGE>

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 years ended  December 31, 2006 and 2005, the Company did not purchase
any products from SOYO Taiwan.  As of December 31, 2006, no more than 44% 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, 2006, 2005 and 2004:


                                                  December 31,
----------------------------------------------- --------------- ----------------
                                    2006            2005             2004
----------------------------------------------- --------------- ----------------
Accounts payable to SOYO Taiwan             $0              $0       $1,314,910
----------------------------------------------- --------------- ----------------
Long-term payable to SOYO Taiwan            $0              $0               $0
----------------------------------------------- --------------- ----------------





                                            Years Ended December 31,
----------------------------------------------- --------------- ----------------
                                    2006            2005             2004
----------------------------------------------- --------------- ----------------
Purchases from SOYO Taiwan                  $0              $0      $14,004,259
----------------------------------------------- --------------- ----------------
Payments to SOYO Taiwan                     $0        $873,050      $19,154,603
----------------------------------------------- --------------- ----------------


As of December 31, 2006,  no more than 44% 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 17%  percent  of the  Company's
inventory  available for sale. SOYO Group, Inc. is establishing new partnerships
with other OEM  manufacturers  in the North America and Asia Pacific  Regions in
order to provide innovative products for consumers.

In  continuing  efforts to work with and leverage its supply base,  SOYO entered
into an agreement  with GE Capital in 2006 whereby GE  guarantees  payment to GE
approved  vendors  thereby  facilitating  larger  orders,  decreasing  risk  and
allowing SOYO to seamlessly finance these transactions.



                                                                              74
<PAGE>


10.  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 49,025,511 shares outstanding as of December 31, 2006.


     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.

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.



                                                                              75
<PAGE>


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  to 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 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.




                                                                              76
<PAGE>


For the year ended December 31, 2006, the Company recorded accreted dividends of
$216,488. 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.

     c.   Stock Options and Warrants

As of December 31, 2006, the Company had both warrants and options  outstanding.
The  outstanding  warrants were those issued to Evergreen  Technology as part of
the private placement completed in March 2005, and described above.

On July 22, 2005, the Company issued  2,889,000  option grants to employees at a
strike price of $0.75.  One third of those options vested and were available for
purchase on July 22, 2006,  one third will vest on July 22, 2007,  and one third
will vest on July 22, 2008. The grants will expire if unused on July 22, 2010.

The Company did not grant any stock options to employees,  officers or directors
in 2006. As of December 31, 2006, 13 individuals had left the Company, resulting
in the forfeiture of 510,000 options. As of December 31, 2006,  2,379,000 of the
2,889,000 options granted were still outstanding,  and 793,000 had vested. As of
December 31, 2006, none of the options outstanding had been exercised.

Stock Based Compensation

Upon the adoption of SFAS123(R),  the Company recorded  $506,222 in compensation
costs  relating to stock  options  granted to  employees.  The amounts  recorded
represent equity-based  compensation expense related to options that were issued
in 2005. The  compensation  costs are based on the fair value at the grant date.
There was no such expense recorded during our fiscal year 2005.

The fair value of the options  expensed  during the year ended December 31, 2006
was estimated using the  Black-Scholes  option-pricing  model with the following
assumptions:  risk free interest rate of 4.04 %, expected life of five (5) years
and expected  volatility  147%.  The weighted  average fair value of the options
granted during the year was approximately $1.5 million.



11. Quarterly Results (Unaudited)



                                                                              77
<PAGE>

<TABLE>
<CAPTION>

Presented  below is a summary of the  quarterly  results of  operations  for the
years ended December 31, 2006 and 2005.

                                            Three months ended:
----------------------- ---------------- ---------------- ---------------- ----------------- ----------------
                        March 31, 2006    June 30, 2006    Sept 30, 2006    Dec 31, 2006      Total
----------------------- ---------------- ---------------- ---------------- ----------------- ----------------
<S>                     <C>              <C>              <C>              <C>               <C>
Net revenues              $ 11,548,187    $ 10,787,515    $ 10,005,084    $ 24,417,902    $ 56,758,688
-----------------------   ------------    ------------    ------------    ------------    ------------
Gross margin                 1,651,088       2,306,753       2,233,361       3,033,237       9,224,439
-----------------------   ------------    ------------    ------------    ------------    ------------
Income (loss) from            (209,526)        635,182         526,909         566,706       1,519,271
Operations
-----------------------   ------------    ------------    ------------    ------------    ------------
Other Income                   (64,609)        (73,968)       (207,338)       (651,686)       (997,601)
(Expense), Net
-----------------------   ------------    ------------    ------------    ------------    ------------
Income (loss) before          (274,135)        561,214         319,568         (84,977)        521,670
taxes
-----------------------   ------------    ------------    ------------    ------------    ------------
Income taxes                         0               0               0         (20,310)        (20,310)
-----------------------   ------------    ------------    ------------    ------------    ------------
Deferred Income Tax                  0               0               0         177,177         177,177
Gain (Expense)
-----------------------   ------------    ------------    ------------    ------------    ------------
Net Income (loss)             (274,135)        561,214         319,568          71,890         678,537
-----------------------   ------------    ------------    ------------    ------------    ------------
Dividends                      (49,856)        (52,598)        (55,491)        (58,543)       (216,488)
-----------------------   ------------    ------------    ------------    ------------    ------------
Net Income(Loss)              (323,991)        508,616         264,077          13,347         462,049
Attributable to
Common Shareholders
-----------------------   ------------    ------------    ------------    ------------    ------------
Net income
  (loss) per
  common share -
Basic
Diluted                           (.01)            .01            (.00)           (.01)           (.01)
                                  (.01)            .01            (.00)           (.01)           (.01)

-----------------------   ------------    ------------    ------------    ------------    ------------
Weighted  average
  number of
  common
  shares
  outstanding -
Basic                       48,834,511      48,834,511      48,853,511      48,853,511      49,025,511
Diluted                     51,857,043      55,342,474      55,515,583      57,238,826      59,786,042

-----------------------   ------------    ------------    ------------    ------------    ------------
</TABLE>

                                       78
<PAGE>
<TABLE>
<CAPTION>


Three months ended:
----------------------- ---------------- ----------------- -------------- ------------------ ----------------
                        March 31, 2005    June 30, 2005    Sept 30, 2005    Dec 31, 2005      Total
----------------------- ---------------- ----------------- -------------- ------------------ ----------------
<S>                     <C>              <C>               <C>            <C>                <C>

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    $  4,692,970
-----------------------   ------------    ------------    ------------    ------------    ------------
Income (loss) from        $    308,724    $     36,760    ($   482,407)   $    651,843    $    514,920
Operations
-----------------------   ------------    ------------    ------------    ------------    ------------
Other Income              $     77,951    $     65,359    $    120,215    ($   237,335)   $     26,190
(Expense), Net
-----------------------   ------------    ------------    ------------    ------------    ------------
Income (loss) before      $    386,675    $    102,119    ($   362,192)   $    414,508    $    541,110
taxes
-----------------------   ------------    ------------    ------------    ------------    ------------
Income taxes                      (800)           (800)
-----------------------   ------------    ------------    ------------    ------------    ------------
Net Income (loss)         $    386,675    $    102,119    ($   362,192)   $    413,708    $    540,310
-----------------------   ------------    ------------    ------------    ------------    ------------
Dividends                 $     39,213    $     42,458    $     42,935    $  1,049,147    $  1,173,753
-----------------------   ------------    ------------    ------------    ------------    ------------
Net Income(Loss)          $    347,462    $     59,661    ($   405,127)   ($   635,439)   ($   633,443)
Attributable to
Common Shareholders
-----------------------   ------------    ------------    ------------    ------------    ------------
Net income
  (loss) per
  common share -
Basic
Diluted                            .01            --              (.01)           (.01)           (.01)
                                   .01            --              (.01)           (.01)           (.01)
-----------------------   ------------    ------------    ------------    ------------    ------------
Weighted  average
  number of
  common
  shares
  outstanding -
Basic                       48,681,511      48,681,511      48,681,511      48,681,511      48,511,681
Diluted                     52,736,204      52,736,204      48,681,511      48,681,511      48,511,681
-----------------------   ------------    ------------    ------------    ------------    ------------
</TABLE>

During the year 2005, 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.

None.



                                       79
<PAGE>




                                                                              80
<PAGE>





                                                                              81
<PAGE>




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, 2006,  the Company's  Chief  Executive  Officer and its Chief
Financial  Officer  reviewed and  evaluated the  effectiveness  of the Company's
disclosure  controls and  procedures  (as defined in Exchange Act Rule 13a-15(e)
and  15d-15(e)),  which are  designed to ensure that  material  information  the
Company must  disclose in its reports  filed or submitted  under the  Securities
Exchange Act of 1934, as amended (the "Exchange  Act"), is recorded,  processed,
summarized  and reported on a timely basis,  and have  concluded,  based on that
evaluation,  that  as of  such  date,  the  Company's  disclosure  controls  and
procedures were not effective.  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 2006 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 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



                                                                              82
<PAGE>

difficulty  in  identifying   and   assembling   all  relevant   contemporaneous
documentation  for ongoing  business  transactions,  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, 2006.

In view of the fact that the financial  information presented in the 2006 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 2006 annual report.




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


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.

>>   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.


                                                                              83
<PAGE>



     (b)  Changes in internal control over financial reporting:

In light of the foregoing,  in 2006,  management  took the following  actions to
rectify the deficiencies as described above.

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

>>   Management hired experts to assist in the evaluation and  implementation of
     new accounting software. The evaluation was completed, and the software has
     been paid for. The software  will be installed and  operational  during the
     second quarter of fiscal year 2007.

The Company  believes that once the new software is installed  and  operational,
all significant deficiencies will have been addressed and corrected.

ITEM 9B. OTHER INFORMATION- NONE


                                    PART III



ITEM 10. DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


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, 2007. 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.

------------------- -------- --------------------------------------------------
Name                Age      Position Held
------------------- -------- --------------------------------------------------
Ming Tung Chok      46       Chief Executive Officer and Director
------------------- -------- --------------------------------------------------
Nancy Chu           50       Chief Financial Officer, Secretary and Director
------------------- -------- --------------------------------------------------
Paul F. Risberg     46       Director
------------------- -------- --------------------------------------------------
Chung Chin Keung    41       Director
------------------- -------- --------------------------------------------------
Zhi Yang Wu         38       Director
------------------- -------- --------------------------------------------------



                                                                              84
<PAGE>


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  Engineering 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.

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.

Chung Chin Keung was appointed in October 2005 as an  independent  non-executive
director,  audit committee member and compensation  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.

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

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



                                                                              85
<PAGE>

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.

     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 2007 Annual  meeting,  the date of which has not yet been set. None of
the directors is an Audit Committee Financial Expert.

     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



                                       86
<PAGE>

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

     COMPENSATION DISCUSSION AND ANALYSIS

The  Compensation  Committee of our board of directors and our CEO, CFO and head
of  Human  Resources  are   collectively   responsible  for   implementing   and
administering all aspects of our benefit and compensation plans and programs, as
well as developing  specific  policies  regarding  compensation of our executive
officers.  Both of the members of our Compensation  Committee,  Chung Chin Keung
and Zhi Yang Wu are independent directors.

Compensation Objectives

The  stated  goal  of our  compensation  committee  with  respect  to  executive
compensation  has been to set compensation at levels that attract and retain the
most talented and dedicated  executives  possible.  We attempt to set individual
executive  compensation  levels comparable with executives in other companies of
similar size and stage of development. We attempt to reward employees for strong
Company  performance  through the use of stock options.  Our Executive Officers,
Ming Tung Chok and Nancy Chu,  are husband and wife,  and are also our  founders
and largest shareholders.

Elements of Compensation



                                                                              87
<PAGE>


Base Salary.  All full time executives are paid a base salary. In all cases, the
Committee  establishes  a minimum base salary for our executive  officers.  Base
salaries  for our  executives  are  established  based  on the  scope  of  their
responsibilities and the current financial situation of the Company. We also try
to take into account  competitive market compensation paid by other companies in
our  industry  for  similar  positions,  professional  qualifications,  academic
background,  and the other  elements  of the  executive's  compensation,  namely
stock-based compensation.

Equity Compensation.  We believe that long-term  performance is achieved through
an ownership culture  participated in by our executive  officers through the use
of stock-based awards.  Currently, we do not maintain any incentive compensation
plans based on pre-defined  performance criteria. The Compensation Committee has
the general authority,  however,  to award equity incentive  compensation,  i.e.
stock  options,  to our executive  officers in such amounts and on such terms as
the committee  determines in its sole discretion.  The Committee does not have a
determined  formula  for  determining  the  number of  options  available  to be
granted,  subject to the number of options  available through our Employee Stock
Ownership Program. Incentive compensation is intended to compensate officers for
accomplishing   strategic   goals  such  as  meeting   defined   revenue  goals,
profitability,  and fund  raising in  accordance  with the  Company's  needs for
future growth.  The  Compensation  Committee  awarded stock options to executive
officers,  employees  and  consultants  upon the  filing of our  Employee  Stock
Ownership  Program in 2005,  and  expects to award  stock  options to  executive
officers,  employees and  consultants  in 2007. No stock options were granted in
2006. Our Compensation  Committee grants equity  compensation only at times when
we do not have material  non-public  information  to avoid timing issues and the
appearance that such awards are made based on any such information.


Determination of Compensation

Our  CEO,  CFO and  head of Human  Resources  meet  annually  to  evaluate  each
non-executive  employee's performance.  A meeting is held towards the end of the
fiscal year to determine each employee's compensation for the following year. In
the  case  of our  executive  officers,  the  Compensation  Committee  similarly
evaluates the  executive's  performance and the objectives set forth above at or
about the end of our fiscal year to determine executive compensation.

The  following  table sets forth the cash and other  compensation  paid by us in
2004, 2005 and 2006 to the individuals who served as our chief executive officer
and chief financial  officer.  No other executives  received total  compensation
greater than $100,000 in 2006.

Summary Compensation Table
----------------------------- -------- ----------- -------------------
            Name                Year    Salary      Options Granted

----------------------------- -------- ----------- -------------------
Ming Tung Chok (i)              2004    $144,000           0
President, Chief Executive      2005    $144,000     600,000
Officer                         2006    $144,000           0
and Director
----------------------------- -------- ----------- -------------------
Nancy Chu  (ii)                 2004    $120,000           0
Chief Financial Officer and     2005    $120,000     600,000
Seretary                        2006    $120,000           0
----------------------------- -------- ----------- -------------------



                                                                              88
<PAGE>



(i) 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
Engineering  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.

(ii) 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.


Outstanding Stock Options At December 31, 2006
--------------- ------------ --------------- -------------- ------------------
Name            Number of    Exercise Price  Vesting Date   Option Expiration
                Exercisable                                 Date
                Options
--------------- ------------ --------------- -------------- ------------------
Ming Tung Chok  200,000      $.75            July 22, 2006  July 22, 2010
                200,000      $.75            July 22, 2007  July 22, 2010
                200,000      $.75            July 22, 2008  July 22, 2010
--------------- ------------ --------------- -------------- ------------------
Nancy Chu       200,000      $.75            July 22, 2006  July 22, 2010
                200,000      $.75            July 22, 2007  July 22, 2010
                200,000      $.75            July 22, 2008  July 22, 2010
--------------- ------------ --------------- -------------- ------------------

Pension Benefits

We do not sponsor any qualified or non-qualified defined benefit plans.

Nonqualified Deferred Compensation

We  do  not  maintain  any  non-qualified   defined   contribution  or  deferred
compensation  plans.  Our Compensation  Committee,  which is comprised solely of
"outside  directors" as defined for purposes of Section  162(m) of the Code, may
elect to provide our officers and other  employees  with  non-qualified  defined
contribution or deferred  compensation  benefits if the  Compensation  Committee
determines that doing so is in our best interests.



                                                                              89
<PAGE>


Compensation of Directors

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.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee have any relationship with the
Company or any of its officers or employees  other than in connection with their
role as a  director.  None of the  members of the  Compensation  Committee  have
participated  in any  related  party  transactions  with the  Company  since the
beginning of the Company's last fiscal year.

EMPLOYMENT CONTRACTS

We do not  currently  have  employment  contracts  with  any  of  our  executive
officers.  We may enter into employment  contracts with our executive  officers,
employees or  consultants  at any time if we deem it to be in the best interests
of the company.



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, 2007 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, 2006;  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                      24.48%
--------------------------- ------------------------- --------------------------
Nancy Chu                   14,209,548                      28.98%
--------------------------- ------------------------- --------------------------
Paul F. Risberg                 57,000                        .02%
--------------------------- ------------------------- --------------------------
Chung Chin Keung                10,000                        .01%
--------------------------- ------------------------- --------------------------
Zhi Yang Wu                     10,000                        .01%
--------------------------- ------------------------- --------------------------
All officers and            26,248,548                      53.50%
directors as a
group (3)
--------------------------- ------------------------- --------------------------
Urmston Capital (4)         10,054,596                       20.5%
--------------------------- ------------------------- --------------------------



                                                                              90
<PAGE>


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

(2) The  percentage  ownership is based upon  49,025,511  shares  outstanding on
March 30, 2007.

(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
$0.26 per share on December 31, 2006, the holder would have 10,054,596 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:



                                       91
<PAGE>



December 31,
-----------------------------------------------   -----------   -----------
                                                      2006          2005
-----------------------------------------------   -----------   -----------
Accounts payable to SOYO Taiwan                        $0           $0
-----------------------------------------------   -----------   -----------
Long-term payable to SOYO Taiwan                       $0           $0
-----------------------------------------------   -----------   -----------



Years Ended December 31,
---------------------------------   -----------   -----------   -----------
                                        2004          2003          2004
---------------------------------   -----------   -----------   -----------
Purchases from SOYO Taiwan              $0            $0            $0
---------------------------------   -----------   -----------   -----------
Payments to SOYO Taiwan                 $0            $0         $873,050
---------------------------------   -----------   -----------   -----------





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 2006 and 2005.

-------------------------------------   ---------   ---------
                                           2006        2005
-------------------------------------   ---------   --------
Audit Fees (1)                          $122,500    $121,580
-------------------------------------   ---------   ---------

Tax Fees                                  15,000      13,000
-------------------------------------   ---------   ---------
All Other
Fees
-------------------------------------   ---------   ---------
Total                                   $137,500    $134,580
Fees
-------------------------------------   ---------   ---------



                                                                              92
<PAGE>



(1)  Includes  annual  audit fees and fees for  preissuance  review of quarterly
filings.
In 2006,  Grobstein,  Horwath & Company,  the  Company's  predecessor  auditors,
charged $6,000 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.


10.1      SOYO  Group  Agreement  with  China  Unicom  dated  February  1, 2004,
          Incorporated  herein by reference to the Form 10-K for the fiscal year
          ended December 31, 2004, File No. 333-42036, filed on March 31, 2005

10.2      Office  Lease at 140 S.  Vintage  Ave.,  Ontario,  CA dated August 21,
          2003, Incorporated herein by reference to the Form 10-K for the fiscal
          year ended December 31, 2004, File No.  333-42036,  filed on March 31,
          2005

10.3

          SOYO Group Agreement with Accord Financial Services, dated February 6,
          2006

10.4

          SOYO Group Agreement with GE Capital, dated August 3, 2006


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

23.1      Consent of Independent  Registered Public  Accounting Firm,  Vasquez &
          Company LLP


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



                                                                              93
<PAGE>


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



*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, 2007             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, 2007            By  /s/ Ming Tung Chok
                                   ---------------------------------------------
                                   Name: Ming Tung Chok
                                   Title: President, Chief Executive Officer and
                                   Director


Dated:  March 31, 2007            By  /s/ Nancy Chu
                                   ---------------------------------------------
                                   Name: Nancy Chu
                                   Title: Chief Financial Officer, Secretary and

Dated:  March 31, 2007            By  /s/ Paul F. Risberg
                                   ---------------------------------------------
                                   Name: Paul F. Risberg
                                   Title: Director

Dated:  March 31, 2007            By  /s/ Chung Chin Keung
                                   ---------------------------------------------
                                   Name: Chung Chin Keung
                                   Title: Director

Dated:  March 31, 2007            By  /s/ Zhi Yang Wu
                                   ---------------------------------------------
                                   Name: Zhi Yang Wu
                                   Title: Director



                                                                              94
<PAGE>