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, 2004


[ ] 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


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


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

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-K  (ss.229.405 of this chapter) is not contained in this form, and
no  disclosure  will be  contained  to the best of  registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]

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

     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 June
30, 2004 was $___________,  based on the closing bid price of $0.13 per share On
June 30, 2004.

     As of March 30, 2005, there were 40,530,000 shares Outstanding.

     Documents Incorporated by Reference: None









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                                SOYO GROUP, INC.
                                   FORM 10-K
                                     INDEX

                                                                            Page
                                                                            ----

                                     PART I

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

Item 2.  Properties...........................................................14

Item 3.  Legal Proceedings....................................................14

Item 4.  Submission of Matters to a Vote of Security Holders..................14

                                     PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters
         and Issuer Purchases of Equity Securities............................15

Item 6.  Selected Financial Data..............................................17

Item 7   Management's Discussion and Analysis of Financial Condition
         and Results of Operations............................................18

Item 7A  Quantitative and Qualitative Disclosures About Market Risk...........32

Item 8.  Financial Statements and Supplementary Data..........................32

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

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

Item 9B. Other Information....................................................70

                           PART III


Item 10. Directors and Executive Officers of the Registrant...................70


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Item 11  Executive Compensation...............................................73

Item 12. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters......................................73

Item 13. Certain Relationships and Related Transactions.......................75

Item 14. Principal Accountant Fees and Services...............................75

                           PART IV

Item 15. Exhibits, Financial Statement Schedules .............................76

Signatures....................................................................77









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                                     PART I

ITEM 1. BUSINESS.

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

Company History

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

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

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

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


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<PAGE>

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

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

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

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

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

         Name                                        Title
         ----                                        -----

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

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

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

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


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<PAGE>

     Until October 24, 2002, the Company had only nominal assets and liabilities
and no current business operations. As a result of the Acquisition,  the Company
will continue the business operations of SOYO Nevada which are described below.

     Incorporated  in  Nevada  on  October  22,  1998,  SOYO  Group,  Inc.  is a
distributor of computer products a substantial portion of which are manufactured
in Taiwan and China.  Through SOYO Group, Inc. the Company offers a full line of
designer   motherboards  and  related   peripherals  for  intensive   multimedia
applications,  corporate  alliances,  telecommunications  and  specialty  market
requirements.  The breadth of the product line also  includes Bare Bone systems,
flash memory as well as small hard disk drives for  corporate  and mobile users,
internal multimedia reader/writer and wireless networking solutions products for
any home and office (SOHO) users.

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

PRODUCTS

     Computer Components and Peripherals

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

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

     The  original  PC  motherboard  design  premiered  in  1982  as part of the
original  IBM PC. In this design,  the  motherboard  itself was a large  printed
circuit card that contained the Intel 8080 microprocessor,  a basic input/output
system  (BIOS),  sockets  for the  CPU's  RAM and a  collection  of  slots  that
auxiliary  cards could plug into.  If one wanted to add a floppy disk drive or a
parallel port or a joystick,  one bought a separate card and plugged it into one
of the slots.  Apple  pioneered  this  approach in the mass  market  through its
introduction of the Apple II machine.  By making it easy to add cards, Apple and
IBM allowed  users to  personalize  their  computer  systems  depending on their
applications  and needs.  In  addition,  they  opened the  computer  to creative
opportunities for third-party vendors.


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     Due  to  improvements  in  circuitry  and  packaging,   motherboards   have
essentially  stayed  the same size or  shrunk,  while  their  functionality  has
dramatically  increased.  Today,  the  circuitry  on a  typical  motherboard  is
imprinted  or  affixed to the  surface  of a firm  planar  surface  and  usually
manufactured  in a single  step.  The computer  components  included in the most
common  motherboard  designs are the  microprocessor,  coprocessors  (optional),
memory, BIOS, expansion slot and interconnecting circuitry.

     For more than a decade, the Company has been recognized as the manufacturer
of award-winning  motherboards,  such as the DRAGON(R).high-end  series, offered
for both the Intel(R) and AMD(R) platforms.

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

     Storage and MultiMedia Reader/Writer

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

     Flash memory is a specialized  type of memory  component used to store user
data and program code. It retains such  information  even when the power is off.
Although flash memory is currently used predominantly in mobile phones and PDAs,
it is also  found in common  consumer  products,  including  MP3 music  players,
handheld voice recorders and digital answering  machines,  as well as industrial
products.  SOYO Group, Inc. intends to introduce  various  capacities of USB 2.0
Flash Drives in 2005.

     The BayOne(R)  Flash Media  Reader/Writer  is a unique 6-in-1  breakout box
that can be installed in a 3.5" or 5.25" drive bay for easy front panel  access,
featuring  combination  reader/writer  for 6 flash media  standards  and two (2)
front  USB  2.0  ports.   The  BayOne(R)   internal   multimedia   reader/writer


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conveniently  fits into the front of the PC.  With the  BayOne(R),  SOYO  Group,
Inc.'s  customers  can now  connect  multiple  devices  to their  computers  and
download digital photos, video, MP3 music or hot sync their handheld devices all
at the same  time.  The  multiple  memory  reader/writer  slots also can be used
simultaneously,  enabling SOYO Group, Inc.'s customers to take full advantage of
this compact all-in-one  solution.  The BayOne(R) was designed to be universally
compatible with all systems and external devices,  making it easy to install and
also very user-friendly.

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

     SOYO Group,  Inc. is entering the LCD display market with the  introduction
of 17- and 19-inch LCD  monitors  which are  expected to be  available  in Q2 of
2005.

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

     SOYO Group, Inc. is entering the consumer electronics market in 2005 with a
strong line of entertainment  products that includes MP3 and MP4 players and MP3
docking station, LCD and plasma TVs, wireless headphones and USB speakers. These
products are expected to be introduced in Q3 and Q4 of 2005.

Communications
--------------

     Although Voice over IP (VoIP) has been in existence for many years,  it has
only  recently  begun  to take off as a viable  alternative  to the  traditional
Public Switched Telephone  Networks ("PSTN").  Interest and acceptance have been
driven by the  attractive  cost  efficiency  that  organizations  can achieve by
leveraging  a single IP  network to support  both data and voice.  Indeed,  VoIP
technology is gaining much  attention and is one of the hottest  segments of the
telephone industry.

     The  Telecommunications  Industry Association has forecast that spending on
VoIP systems will rise to $3.5 billion in 2005,  almost  triple the $1.2 billion
spent in 2001. Moreover,  in a report issued by the consulting firm of Deloitte,
it  states  that by 2006 more  than  two-thirds  of the  largest  "Global  2000"
companies  will  have  started  deployment  of Voice  over IP  solutions  to the
desktops of employees.  The research report goes on to say that "with VoIP, it's
no longer a question of if - it's a question of when and how".


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     In recent  years  voice  protocols  have  evolved  to offer a richer set of
features,  scalability and  standardization  than was available only a few years
ago. The pace of service integration with new and existing networks continues to
increase as VoIP products and services develop. The  cost-effectiveness  of VoIP
is  immediately  attractive  when  looking  into a  switchover.  It's clear that
organizations  can gain  efficiencies by only having to support a single network
infrastructure.  Moreover,  as pointed out by the Juniper  Network  study,  VoIP
offers to  deliver  many  nice new  features,  such as  advanced  call  routing,
computer integration, and encryption.  Finally, the study concludes, "due to the
cost effectiveness,  flexibility and promise that leveraging a single IP network
offers,  it is no  wonder  that  organizations  are  looking  hard  at the  VoIP
technology and trying to figure out how best to use it to their advantage".

     Our research  concludes that there is tremendous growth potential for those
companies  looking to  exploit  VoIP  markets.  Indeed,  according  to a Frost &
Sullivan study, by 2007 VoIP will account for  approximately  75% of world voice
services.  SOYO is seeking to capitalize on this growth by offering new products
and innovations in the VoIP market.

     In November  2004, we introduced  our  "Z-Connect"  family of Voice over IP
products and services.  The Z-Connect product line includes the Z-Connect phone,
Z-Connect  router,  and two versions of the Z-Connect  gateway,  delivering VoIP
capabilities  with zero set-up fees, zero monthly fees, zero service  contracts,
zero  configuration  and zero hidden  charges.  Users simply plug the  Z-Connect
phone into a broadband connection for instant VoIP service. The Z-Connect router
combines a voice gateway and a broadband  router,  enabling  users to plug their
traditional telephones for VoIP service, and up to four computers can also share
Internet  access.   Z-Connect  customers   immediately  begin  saving  money  on
long-distance  and  international  calls,  using the free call time of up to 150
minutes included with the phone or router. Additional call time can be purchased
on our web site. SOYO Group's VoIP service is based on a flexible  pay-as-you go
strategy,  enabling  users to prepay for  minutes,  and make  international  and
long-distance  calls  at  extremely  low  rates.  "Peer-to-peer"  calls  between
Z-Connect  telephones and routers within the Z-Connect  Network are always free,
anywhere in the world.

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

     The  Z-Connect  Dual Mode  Gateway  supports  any IP network  and the PSTN.
Featuring an intelligent  switching function that determines which network - the
IP or PSTN - to make for using  calls,  without  changing  the  user's  familiar
dialing  interaction  with the phone  system.  The Dual Mode Gateway  seamlessly


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integrates  into the office  environment,  easily  connecting to the PBX, and is
compatible  with a variety of  networks,  broadband  access  devices  and system
configurations. All local calls, as well as emergency and toll-free numbers, are
routed through the PSTN, while  long-distance and international calls are routed
through the IP, for maximum cost savings.

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

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


     PRODUCTION

     SOYO  Group  does  not  produce  the   components   that  it   distributes.
Approximately  60% of SOYO Group,  Inc.'s  products  are  supplied by  companies
located in Taiwan and China.  As of December  31,  2004,  no single  supplier is
supplying more than 20% of the products distributed by the SOYO Group, including
SOYO Taiwan.


     TRANSPORTATION AND DISTRIBUTION

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


     MARKETING AND SALES

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


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

     For the Latin American  market,  system builders and value-added  resellers
(VAR) are the primary targets.  To reach these customers,  SOYO Group, Inc. uses
an extensive network of international, national and regional distributors. There
are sales offices in Sao Paolo,  Brazil, which offer local technical support and
return  authorization to better service  customers in both Brazil and Argentina.
As of  December  31,  2004,  approximately  20% of the SOYO  Group's  sales  and
revenues were generated from the Latin American market.

     CUSTOMERS

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

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

     During the year ended  December 31, 2004, the Company had one customer (SYX
Distibution,  Inc., otherwise known as Tiger Direct) that accounted for revenues
of $8,591,711, equivalent to 26% of net revenues. During the year ended December
31, 2003, the same customer accounted for revenues of $9,943,855,  equivalent to
32% of net revenues.  During the year ended  December 31, 2002,  the Company had
two customers,  SYX Distibution,  Inc., and Fry's Electronics that accounted for
revenues of  $12,499,598  and  $5,965,324,  equivalent to 25.2% and 12.0% of net
revenues, respectively.

     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


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<PAGE>

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, 2004,  no more than 20% of the products  distributed  by
the SOYO Group are being  supplied by any one supplier,  including  SOYO Taiwan.
Notwithstanding the reduced emphasis on distributing SOYO Taiwan products,  SOYO
Group has a supply  Commitment  Agreement  with SOYO Taiwan which  provides that
SOYO  Taiwan will  continue  to supply  SOYO Group at current  levels on an open
account basis through 2005. As started in 2004, SOYO Group, Inc. is aggressively
establishing new partnership  with other OEM  manufacturers in the North America
and Asia Pacific Regions in order to provide innovative products for consumers.

     REGULATIONS

     SOYO Group, Inc. is subject,  to various laws and regulations  administered
by various state,  local and  international  government  bodies  relating to the
operation of its distribution  facilities.  SOYO Group, Inc. believes that it is
in compliance with all governmental laws and regulations related to its products
and facilities, and it does not expect to make any material expenditures in 2005
with respect to compliance with any such regulations.

     STRATEGY

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

     COMPETITION

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

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


     EMPLOYEES

As of March 31,  2005,  the  Company  employed  forty  three (43)  people at its
headquarters in Ontario, California.


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ITEM 2. PROPERTIES

     The  Company's  corporate  headquarter  is located at 1420 S.  Vintage Ave.
Ontario,  California.  The property is under a lease  agreement for 5 years with
terms and conditions as stipulated below :




------------- -------------------------- ----------- ---------- --------- ------
Facility      Address                    Rental      Rental     Monthly   Area
                                         Begin       Expire     Rental    (ft2)
                                                                (US$)
------------- -------------------------- ----------- ---------- --------- ------
Office and    1420 S. Vintage  Avenue,   September   November   $15,380   42,723
warehouse     OntarioCalifornia          1, 2003     30, 2008

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


     The Company also maintains a sales representation office in Brazil, located
at Rua Andre Ampere 153 andar 17 sala 171/172,  Brooklin  Novo,  Sao Paulo,  SP,
Brazil.


ITEM 3. LEGAL PROCEEDINGS.


     On August  2,  2004,  a lawsuit  was  filed in  California  Superior  Court
entitled  Gerry  Normandan.  et al, v. SOYO Inc.  Case No. RCV 082128.  The case
seeks  class  action  status  and  alleges  defects in  motherboards  which Soyo
distributes,  and that the Company  misrepresented  and omitted  material  facts
concerning the motherboards. The plaintiff seeks restitution and disgorgement of
all  amounts  obtained  by  defendant  as a result of alleged  misconduct,  plus
interest,  actual damages,  punitive damages and attorneys' fees. The Company is
vigorously  defending  the lawsuit and believes that it will be resolved with no
material adverse effect on the Company.

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


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

     During  the fiscal  year  ended  December  31,  2004,there  were no matters
submitted to the shareholders for approval.


14
<PAGE>

                                     PART II


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

(a)  Market Prices of Common Stock

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


                                                          Price Range
                                                          -----------
                                                    High               Low
                                                    ----               ----
     Fiscal Year Ended December 31, 2003:

     First Quarter                                 $ 1.05             $ 0.25
     Second Quarter                                  0.35               0.15
     Third Quarter                                   0.16               0.14
     Fourth Quarter                                  0.16               0.10

     Fiscal Year Ended December 31, 2004:

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


15
<PAGE>

(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 March 30, 2005 there were 40,530,000 shares of the
Company's  common  stock  outstanding  and the  Company had 86  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  2004  we  declared   dividends  on  the  Class  B  Preferred  Stock
outstanding.

(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


16
<PAGE>
<TABLE>
<CAPTION>

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

     None

(f)  Equity Compensation Plan Information

     Through December 31, 2004, the Company did not have any Equity Compensation
Plans. On March 7, 2005, the Company registered its 2005 Stock Compensation Plan
on Form S-8 with the Securities and Exchange  Commission,  registering on behalf
of our employees, officers, directors and advisors up to 5,000,000 shares of our
common stock  purchasable by them pursuant to common stock options granted under
our 2005 Stock Compensation Plan. The plan is subject to shareholder approval.


ITEM 6. SELECTED FINANCIAL DATA

     The  following  selected  consolidated  financial  data of the  Company  is
presented as of and for the years ended December 31, 2004,  2003, 2002, 2001 and
2000.  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,

------------------- ----------------- ----------------- ----------------- ----------------- ----------------
<S>                 <C>               <C>               <C>               <C>               <C>
                    2000              2001              2002              2003              2004
------------------- ----------------- ----------------- ----------------- ----------------- ----------------
Net revenue         $ 62,173,829      $ 63,091,190      $ 49,644,417      $ 31,034,239      $ 32,426,414

------------------- ----------------- ----------------- ----------------- ----------------- ----------------
Income (loss)       (658,581)         (342,073)         (10,892,574)      (980,347)         (3,913,683)
  from
  operations
------------------- ----------------- ----------------- ----------------- ----------------- ----------------
Net                 (522,429)         (390,404)         (10,733,458)      (984,588)         (3,920,245)
loss
------------------- ----------------- ----------------- ----------------- ----------------- ----------------
Net income          (0.02)            (0.01)            (0.35)            (0.03)            (0.10)
  (loss) per
  common share
------------------- ----------------- ----------------- ----------------- ----------------- ----------------


17
<PAGE>


Selected Consolidated Balance Sheet Data:

                                                 December 31,
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
                    2000              2001              2002              2003              2004

------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Total assets        $ 16,752,723      $ 26,309,797      $ 20,914,784      $ 12,729,453      $7,500,437
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Long-term                                               12,000,000        12,000,000        0
accounts
payable to
SOYO
Computer,Inc
------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Shareholders'       (28,333)          (418,737)         (11,152,195)      (12,136,783)      (4,057,028)
deficiency

------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Cash dividends      --                --                --                --                --
  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, 2004.

     This Annual Report on Form 10-K for the fiscal year ended December 31, 2004
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, 2004 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.


18
<PAGE>

     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, 2004, 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,  2004 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 computer products a substantial portion of which are manufactured
in Taiwan and China.  Through SOYO Group, Inc. the Company offers a full line of
designer   motherboards  and  related   peripherals  for  intensive   multimedia
applications,  corporate  alliances,  telecommunications  and  specialty  market
requirements.  The breadth of the product line also  includes Bare Bone systems,
flash memory as well as small hard disk drives for  corporate  and mobile users,
internal multimedia reader/writer and wireless networking solutions products for
any home and office (SOHO) users.

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

     Effective  October 24, 2002,  Vermont Witch Hazel  Company,  Inc., a Nevada
corporation ("VWHC"), acquired SOYO, Inc., a Nevada corporation ("SOYO Nevada"),
from SOYO Computer,  Inc., a Taiwan corporation ("SOYO Taiwan),  in exchange for
the issuance of 1,000,000  shares of convertible  preferred stock and 28,182,750
shares of common stock, and changed its name to SOYO Group, Inc.  ("SOYO").  The
1,000,000  shares  of  preferred  stock  were  issued  to  SOYO  Taiwan  and the
28,182,750 shares of common stock were issued to SOYO Nevada management.  During
October 2002, the management of SOYO Nevada also separately  purchased 6,026,798
shares of the  11,817,250  shares of common stock of VWHC  outstanding  prior to
VWHC's acquisition of SOYO Nevada, for $300,000 in personal funds. The 6,026,798
shares  represented  51%  of  the  outstanding  shares  of  VWHC  common  stock.
Accordingly,  SOYO Taiwan and SOYO Nevada  management  currently own  34,209,548
shares of the  40,000,000  shares of the Company's  common stock  outstanding at
December 31, 2004.

     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


19
<PAGE>
<TABLE>
<CAPTION>

major creditor.  In addition,  there was no change in the management of SOYO and
no new capital invested,  and there is a continuing family relationship  between
the  management of SOYO and SOYO Taiwan.  As a result,  for financial  reporting
purposes,  this  transaction  was  accounted for as a  recapitalization  of SOYO
Nevada,  pursuant  to  which  the  accounting  basis  of SOYO  Nevada  continued
unchanged subsequent to the transaction date.  Accordingly,  the pre-transaction
financial  statements of SOYO Nevada are now the historical financial statements
of the  Company,  and pro  forma  information  has not been  presented,  as this
transaction is not a business combination.

     In conjunction with this transaction,  SOYO Nevada transferred  $12,000,000
of accounts payable to SOYO Taiwan to long-term payable,  without interest,  due
December 31, 2005. (see "Liquidity and Capital Resources - December 31, 2004).

     SOYO  Taiwan  also  agreed  to  continue  to  provide  computer  parts  and
components to SOYO on an open account basis at the quantities  required and on a
timely  basis to enable SOYO to continue to conduct its business  operations  at
budgeted  2004  levels,  which  is not  less  than a level  consistent  with the
operations of SOYO Nevada's business in 2001 and 2000. This supply commitment is
effective through December 31, 2005.

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

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

     The Company sells to both distributors and retailers. Revenues through such
distribution  channels for the years ended December 31, 2002,  2003 and 2004 are
summarized as follows:

                                              Year Ended December 31,
                 -------------------------------------------------------------------------------
                           2004                        2003                       2002
                 -----------------------     -----------------------    ------------------------
                     Amount           %          Amount          %          Amount           %
                 --------------     -----    --------------    -----    --------------     -----
<S>              <C>                <C>      <C>               <C>      <C>                <C>
Revenues
  Distributors   $14,704,452        45.35    $13,055,046       42.1      7,376,500         14.9
  Retailers       17,721,962        54.65     17,979,193       57.9     42,267,917         85.1
                 ---------------    ------   ---------------   ------   --------------     -----
                 $32,426,414        100.0    $31,034,239       100.0    49,644,417         100.0
                 ===============    ======   ===============   ======   ==============     =====
</TABLE>


20
<PAGE>

During the year ended  December  31,  2004,  the Company had one  customer  that
accounted for revenues of $8,591,711,  equivalent to 26% of net revenues. During
the year ended  December 31, 2003,  the Company had one customer that  accounted
for revenues of $9,943,855,  equivalent to 32% of net revenues.  During the year
ended  December 31,  2002,  the Company had two  customers  that  accounted  for
revenues of  $12,499,598  and  $5,965,324,  equivalent to 25.2% and 12.0% of net
revenues, respectively.


Revenues by geographic segment are summarized as follows:

                                    Year Ended December 31,
                  ------------------------------------------------------------
                           2004                 2003                2002
                  ------------------   ------------------   ------------------
                     Amount      %        Amount      %        Amount       %
                  -----------  -----   -----------  -----   -----------  -----
Revenues
  North America   $25,936,978   80.0   $23,043,136   74.3   $42,033,632   84.7
  Central and
    South
    America         6,317,907   19.4     7,391,804   23.8     3,816,747    7.7
  Other
    locations         171,529    0.6       599,299    1.9     3,794,038    7.6
                  -----------  -----   -----------  -----   -----------  -----
                  $32,426,414  100.0   $31,034,239  100.0   $49,644,417  100.0
                  ===========  =====   ===========  =====   ===========  =====


Financial Outlook:

During the years ended  December  31, 2001 and 2002,  the  Company's  sales were
$63,091,190  and  $49,644,417,  respectively,  with  gross  margins  of 6.9% and
negative  8.1%  respectively.  The  large  fall  off in sales in 2002 was due to
various  factors,  including  the West Coast dock strike in September  and early
October 2002. The impact of the initial supply  interruption,  combined with the
abrupt  release of large amounts of inventory,  caused a rapid drop in wholesale
prices for the  Company's  products in November and December  2002.  The Company
incurred a net loss in 2001 and 2002.


                                       21
<PAGE>


During early 2003, as a result of the Company  changing its product mix to focus
on the sales of higher margin  products and the decrease in market  pressures on
the  Company's  gross  margin  resulting  from the West  Coast  dock  strike  in
September and early October 2002, the Company's gross margin  improved  compared
to 2002. The Company incurred a net loss in 2003 of $948,588.

In 2004,  the Company  increased  sales by 4.5 % over 2003 despite a significant
change in the core offerings for sale. The emphasis  switched from  motherboards
and hardware to peripherals, leading to a more diverse product offering. Also in
2004, the Company introduced its VoIP products,  which should result in improved
performance in 2005. The Company  incurred a net loss in 2004 of $4,143,978.  On
March 28, 2005 the Company  announced  that an accredited  investor,  Ever-Green
Technology (Hong Kong) Co., Ltd.,  purchased 500,000  unregistered shares of our
common  stock,  $0.001  par value per share  (the  "Shares")  and  common  stock
purchase  warrants to purchase 100,000 shares of our common stock exercisable at
$1.50 per share at any time until  March 22,  2008 (the  "Warrants").  The total
offering price was $500,000,  which was paid in cash. Through December 31, 2004,
the Company has been totally  reliant  upon the cash flows from its  operations.
Through 2004, the Company did not have any external sources of liquidity,  other
than advances from an officer, director and major shareholder, and loan from LGT
Computer, Inc..

     Since  October 24, 2002,  the date that SOYO Nevada  became a  wholly-owned
subsidiary of VWHC, SOYO has attempted to implement various measures designed to
improve its operating results, cash flows and financial position,  including the
following:

- The Company has  reviewed  its product  mix, and has revised its sales plan to
focus on higher margin products.

- The  Company is  attempting  to expand  the  number and credit  quality of its
customer accounts.

- The Company has arranged additional supply sources and reduced its reliance on
inventory purchases from SOYO Taiwan.

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

- The Company is attempting to increase its operating liquidity by exploring the
availability of outside debt and equity financing, to the extent such funding is
available under reasonable terms and conditions.


                                       22
<PAGE>


There can be no assurances  that these measures will result in an improvement in
the  Company's  operations  or  liquidity.  To the  extent  that  the  Company's
operations  and  liquidity do not  improve,  the Company may be forced to reduce
operations to a level consistent with its available  working capital  resources.
The  Company may also have to  consider a formal or  informal  restructuring  or
reorganization.  The equity  financing  deal closed  during the first quarter of
2005 is expected to provide the Company with sufficient  proceeds to operate the
business at least  through  the end of 2005,  as the  Company  continues  to cut
expenses and expand revenue streams.


Restatement:

In conjunction with the audit of the Company's consolidated financial statements
for the fiscal year ended December 31, 2003,  the Company  conducted a review of
the 2002 and 2003 interim financial statements, as a result of which the Company
restated the results of operations  for certain  interim  periods (see "ITEM 9A.
CONTROLS AND  PROCEDURES").  The Company's  restated  results of operations  for
interim periods in 2003 are summarized at Note 13 to the Consolidated  Financial
Statements.


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
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.


                                       23
<PAGE>


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

Accounts Receivable:

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

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

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

Inventories:

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


                                       24
<PAGE>


Income Taxes:

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


Results of Operations:

Years Ended December 31, 2004 and 2003-

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

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

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

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

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  by  $727,592  or  25.7 %, to  $3,560,710  in  2004,  as  compared  to
$2,833,118  in 2003.  There were several  reasons for the increase.  First,  the
Company had  accounting  and legal fees increase by over $400,000 as a result of
the  problems  with the 2003  audit.  The  Company  also paid over  $300,000  to
contractors  who were  hired to  assist  with the 2003  audit  and  resolve  the
internal control problems  highlighted in the audit. The Company does not expect
those costs to recur in 2005.


                                       25
<PAGE>


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

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


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

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

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

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

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

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

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




Years Ended December 31, 2003 and 2002 -

Net Revenues.  Net revenues decreased by $18,610,178 or 37.5%, to $31,034,239 in
2003, as compared to  $49,644,417  in 2002. The decrease in net revenues in 2003
as  compared to 2002 was a result of a general  slow-down  in the market and the
Company's  decision to de-emphasize sales volume and focus on the sale of higher
margin products.

During the years ended  December 31, 2003 and 2002,  the Company  offered  price
protection to certain customers under specific programs aggregating $766,904 and
$1,054,735,  respectively,  which  reduced net revenues and accounts  receivable
accordingly.


                                       26
<PAGE>



Gross Margin (Deficit). Gross margin was $3,073,862 or 9.9% in 2003, as compared
to $(4,003,972) or (8.1)% in 2002. Gross margin increased in 2003 as compared to
2002 as a result of the  change in product  mix to higher  margin  products  and
substantially  reduced  inventory  write-downs.  The Company recorded  inventory
write-downs of $429,230 and $2,123,307 in 2003 and 2002, respectively.

Sales and  Marketing  Expenses.  Selling and  marketing  expenses  decreased  by
$520,223  or 39.0% to  $814,847 in 2003,  as  compared  to  $1,335,070  in 2002,
reflecting  reduced vendor support  programs funded by the Company,  since these
programs are generally  based on a percentage of revenues.  The Company has also
reduced sales and marketing expenses in response to the general slow-down in the
market. Co-operative marketing program expense was $728,488 in 2003, as compared
to $907,505 in 2002, a decrease of $179,017 or 19.7%.

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased by $308,220 or 9.8%,  to $2,833,118 in 2003, as compared to $3,141,338
in  2002,  primarily  as  a  result  of  a  reduction  in  various  general  and
administration categories.

Provision for Doubtful  Accounts.  The provision for doubtful accounts decreased
to $390,555 in 2003, as compared to $2,009,218 in 2002, primarily as a result of
reduced sales and improved credit management.  As a percentage of revenues,  the
provision for doubtful accounts was 1.3% in 2003, as compared to 4.0% in 2002.

Depreciation  and  Amortization.  Depreciation  and amortization of property and
equipment was $15,689 in 2003, as compared to $13,669 in 2002.

Impairment of Goodwill.  Goodwill  related to the value of a company acquired in
1999, and was being amortized on a straight-line basis over a three year period.
At December 31, 2001, goodwill was $1,251,325,  less accumulated amortization of
$862,018.  At December 31, 2002,  goodwill was reviewed for  impairment  and the
remaining balance of $389,307 was charged to operations.

Loss from  Operations.  The loss from operations was $980,347 for the year ended
December 31, 2003, as compared to  $10,892,574  for the year ended  December 31,
2002.

Interest Expense.  Interest expense decreased to $26,248 in 2003, as compared to
$47,627 in 2002, as a result of reduced  interest  rates and the revolving  note
payable being  outstanding for three quarters of the year in 2003 as compared to
the full year in 2002.


                                       27
<PAGE>


Interest Income.  Interest income was $26,252 in 2003, as compared to $43,469 in
2002, due to lower interest rates and reduced interest-bearing cash balances.

Other  Income.  Other expense was $3,445 in 2003, as compared to other income of
$117,074 in 2002.

Provision (Benefit) for Income Taxes. The provision for income taxes was $800 in
2003, as compared to a benefit from income taxes of $(46,200) in 2002.

Net Loss.  The net loss was  $984,588 for the year ended  December 31, 2003,  as
compared to $10,733,458 for the year ended December 31, 2002.



Net Operating Loss Carryforwards:

As of December 31, 2004,  the Company had federal and state net  operating  loss
carryforwards of approximately $4,580,000 and $140,000 respectively, expiring in
various years through 2024,  which can be used to offset future taxable  income,
if any. The Company's net operating  losses were reduced by $10,500,000  for the
forgiveness  of debt  for tax  purposes.  No  deferred  tax  benefit  for  these
operating  losses has been recognized in the consolidated  financial  statements
due to the uncertainty as to their realizability in future periods.

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, 2004:

Transactions  involving  SOYO  Taiwan.  Since the  formation  of SOYO  Nevada in
October 1998,  the Company has relied on the financial  support from SOYO Taiwan
for  inventory  and  capital  to  provide  the  resources  necessary  to conduct
operations.  Through October 24, 2002, SOYO Nevada was a wholly-owned subsidiary
of SOYO  Taiwan.  Subsequent  to that date,  SOYO  Taiwan  continues  to provide
inventory to SOYO, and has agreed to continue to provide inventory to SOYO on an
open account basis through December 31, 2005.

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


                                       28
<PAGE>


During the years ended December 31, 2004,  2003 and 2002, the Company  purchased
inventory from SOYO Taiwan aggregating $14,004,259, $20,188,354, and $42,219,164
respectively. At December 31, 2004 and 2003, the Company had short-term accounts
payable  to  SOYO  Taiwan  of  $1,314,910  and  $6,557,253  respectively,  and a
long-term payable to SOYO Taiwan of $0 and $12,000,000 respectively.

During the years ended  December 31, 2004 and 2003,  the Company  received price
protection  from SOYO Taiwan  aggregating  $0 and $651,215  respectively,  which
reduced inventories and accounts payable to SOYO Taiwan accordingly. The Company
does not have any  formal  price  protection  agreement  with SOYO  Taiwan.  The
Company  periodically  negotiates price protection  adjustments with SOYO Taiwan
based on current market conditions.

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


                                       29
<PAGE>


Based on the terms of the agreement between SOYO Taiwan and the third party, and
specifically the limitation on the purchaser  collecting more than $1,630,000 of
the $12,000,000  from the Company without the prior consent of SOYO Taiwan,  the
Company  has  determined  that  this  transaction  is  in  substance  a  capital
transaction. 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, 2004, the Company recorded  aggregate  dividends
of $223,733,  consisting  of dividends  based on the stated value of the Class B
convertible  preferred  stock of  $114,195,  which were  declared  and  expensed
through the  issuance of an  additional  114,195  shares of Class B  Convertible
Preferred  Stock,  and  dividends  based on the accretion of the discount on the
Class B Convertible Preferred Stock of $109,538. Through March 31, 2005, none of
the preferred stock had been converted to common stock,  and the Company had not
repurchased any of the shares of preferred stock.

Operating  Activities.  The Company  utilized  cash of $183,925  from  operating
activities  during the year ended  December 31, 2004,  as opposed to  generating
cash of $58,489 from  operating  activities  during the year ended  December 31,
2003, and compared to providing cash of $489,898 in operating  activities during
the year ended December 31, 2002.

The  primary  reasons  for the  usage of cash in 2004 were the  Company's  large
operating loss and the paydown of the balance due to SOYO Taiwan.  The reduction
in  operating  cash flow in 2003 as compared  to 2002 was  primarily a result of
increased  payments to SOYO Taiwan for inventory  purchases.  The improvement in
operating  cash flow in 2002 as  compared  to 2001 was  primarily  a result of a
reduction in cash utilized to support accounts receivable and inventories.

At December 31, 2004, the Company's cash and cash  equivalents  had increased by
$571,155, to $1,288,351, as compared to $717,196 at December 31, 2003.

The Company had a working capital deficit of $4,256,905 at December 31, 2004, as
compared  to a working  capital  deficit  of  $203,213  at  December  31,  2003,
resulting  in current  ratios of .63:1 and .98:1 at December  31, 2004 and 2003,
respectively.

Accounts receivable decreased to $3,151,432 at December 31, 2004, as compared to
$7,675,115 at December 31, 2003, a decrease of $4,523,683.


                                       30
<PAGE>


Inventories  decreased  to  $3,862,911  at  December  31,  2004,  as compared to
$5,036,125 at December 31, 2003, a decrease of $1,173,214 or 23.3%, primarily as
a result of the Company's efforts to reduce inventories as a percentage of sales
and increase inventory turnover.

Accounts  payable  decreased by $2,458,580 to $9,574,672 at December 31, 2004 as
compared to  $12,033,252  at Deecember 31, 2003.  The reason for the decrease is
the reduced inventory balance that the Company is carrying.

Accrued  liabilities  increased to $829,043 at December 31, 2004, as compared to
$592,984 at December 31, 2003, an increase of $236,059 or 39.8%.

Investing  Activities.  The Company expended  $158,670,  $4,589,  and $35,053 in
2004,  2003 and 2002  respectively,  for the purchase of property and equipment.
The  large  number  in 2004 is due to the move to  Ontario,  California  and the
resulting leasehold improvements.

Financing  Activities.  The  Company  had a  revolving  loan  agreement  with  a
financial  institution  providing  for  borrowings  of  up to  $1,200,000,  with
interest at 3.75% per annum.  Borrowings under the revolving loan agreement were
secured by a $1,000,000  certificate of deposit,  with SOYO Taiwan  guaranteeing
the remaining  $200,000.  The Company did not renew the revolving loan agreement
when it expired in September 2003. The proceeds from the $1,000,000  certificate
of deposit  were used to repay the balance  outstanding  on the  revolving  loan
agreement.

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.

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 date of the first
note was extended six months at the same interest  rate. The new due date of the
first loan is September 28, 2005.


Principal Commitments:

A summary of the Company's contractual cash obligations as of December 31, 2004,
is as follows:


                                       31
<PAGE>
<TABLE>
<CAPTION>

-----------------------------   ---------- ---------- ---------- ---------- -------------
Contractual Cash Obligations       Total    Less than  Between    Between      Over 5
                                            one year   2-3 years  4-5 years    years
-----------------------------   ---------- ---------- ---------- ---------- -------------
<S>                             <C>        <C>        <C>        <C>        <C>
Operating Leases                $  722,873 $  184,563 $  369,127 $  169,183          --
-----------------------------   ---------- ---------- ---------- ---------- -------------
Advances from                   $  240,000 $  240,000       --         --            --
Officers/Shareholders
-----------------------------   ---------- ---------- ---------- ---------- -------------
Notes Payable                   $  913,750 $  913,750       --         --            --
-----------------------------   ---------- ---------- ---------- ---------- -------------
Total                           $1,876,623 $1,338,313 $  369,127 $  169,183          --
-----------------------------   ---------- ---------- ---------- ---------- -------------
</TABLE>

At December 31,  2004,  the Company did not have any  material  commitments  for
capital expenditures or have any transactions, obligations or relationships that
could be considered off-balance sheet arrangements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

As the Company's debt  obligations at December 31, 2004 and 2003  (excluding the
$12,000,000  of  long-term  accounts  payable at December  31,  2003,  which was
non-interest bearing and was converted into convertible preferred stock in 2004)
are primarily  short-term in nature and non-interest  bearing,  the Company does
not have any risk from an  increase in interest  rates.  However,  to the extent
that the Company  arranges new  interest-bearing  borrowings  in the future,  an
increase in current  interest rates would cause a  commensurate  increase in the
interest expense related to such borrowings.

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a)  Financial Statements

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

     1.   Report of Independent Auditors

     2.   Consolidated Balance Sheet as of December 31, 2004 and 2003

     3.   Consolidated Statements of Operations for the years ended December 31,
          2004, 2003 and 2002

     4.   Consolidated  Statements  of  Shareholders'  Deficiency  for the years
          ended December 31, 2004, 2003 and 2002

     5.   Consolidated Statements of Cash Flows for the years ended December 31,
          2004, 2003 and 2002

     6.   Notes to Consolidated Financial Statements.


                                       32
<PAGE>


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




                                                                         Page
                                                                       ---------

Report of Independent Public Accountants
  - Vasquez & Company LLP                                                 F-2
  - Grobstein, Horwath & Company LLP                                      F-3

Consolidated Balance Sheets - December 31, 2004 and 2003               F-4 - F-5

Consolidated Statements of Operations -
  Years Ended December 31, 2004, 2003 and 2002                            F-6

Consolidated Statements of Shareholders' Deficiency -
  Years Ended December 31, 2004, 2003 and 2002                            F-7

Consolidated Statements of Cash Flows -
  Years Ended December 31, 2004, 2003 and 2002                         F-8 - F-9

Notes to Consolidated Financial Statements -
  Years Ended December 31, 2004, 2003 and 2002                       F-10 - F-33






















                                       33
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

     We have audited the accompanying  consolidated balance sheet of Soyo Group,
Inc. and  Subsidiary  (the  "Company") as of December 31, 2004,  and the related
consolidated statements of operations,  shareholders'  deficiency and cash flows
for the  year  then  ended.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

     We conducted our audit in accordance  with  standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audit provides a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Soyo Group,  Inc. and Subsidiary as of December 31, 2004,  and the  consolidated
results of their  operations  and their cash flows for the year then  ended,  in
conformity with accounting principles generally accepted in the United States of
America.



Vasquez & Company LLP

Los Angeles, California
March 11, 2005





                                       34
<PAGE>




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

     We have audited the accompanying consolidated balance sheets of Soyo Group,
Inc. and  Subsidiary  (the  "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of operations, shareholders' deficiency and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Soyo  Group,  Inc.  and  Subsidiary  as of December  31, 2003 and 2002,  and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

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

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

Grobstein, Horwath & Company LLP

Sherman Oaks, California
May 12, 2004



                         SOYO Group, Inc. and Subsidiary
                           Consolidated Balance Sheets


                                  December 31,
                                  -----------
-----------------------------------------------   ------------    ------------
                                                          2004            2003
-----------------------------------------------   ------------    ------------
ASSETS
-----------------------------------------------   ------------    ------------
CURRENT
-----------------------------------------------   ------------    ------------
Cash and cash                                     $  1,288,351    $    717,196
equivalents
-----------------------------------------------   ------------    ------------
Accounts receivable, net of allowance                2,076,882       6,818,729
    for doubtful accounts of $1,074,550 and
$856,386 at December 31, 2004
    and 2003,
respectively
-----------------------------------------------   ------------    ------------
  Inventories, including $1,893,442                  3,862,911       5,036,125
  and $3,426,342 purchased from SOYO
    Computer, Inc. in 2004 and 2003,

respectively

-----------------------------------------------   ------------    ------------
  Prepaid                                               25,416          43,973
expenses

-----------------------------------------------   ------------    ------------
  Income tax refund                                     47,000          47,000
receivable

-----------------------------------------------   ------------    ------------
Total Current Assets                                 7,300,560      12,663,023
-----------------------------------------------   ------------    ------------
Property and                                           245,153          86,483
equipment

-----------------------------------------------   ------------    ------------
Less:  accumulated depreciation and                    (80,087)        (45,088)
amortization

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

                                                       165,066          41,395

-----------------------------------------------   ------------    ------------
Deposits                                                34,811          25,035
-----------------------------------------------   ------------    ------------
Total Assets                                      $  7,500,437    $ 12,729,453
-----------------------------------------------   ------------    ------------





                                       35
<PAGE>
<TABLE>
<CAPTION>



                         SOYO Group, Inc. and Subsidiary
                           Consolidated Balance Sheets





                                  December 31,
                                  ------------

----------------------------------------------   ------------    ------------
                                                       2004            2003
----------------------------------------------   ------------    ------------
LIABILITIES
----------------------------------------------   ------------    ------------
CURRENT
----------------------------------------------   ------------    ------------
Accounts payable -                               $  1,314,910    $  6,557,253
    SOYO Computer, Inc
----------------------------------------------   ------------    ------------
Other                                               8,259,762       5,475,999
----------------------------------------------   ------------    ------------
Accrued                                               829,043         592,984
liabilities
----------------------------------------------   ------------    ------------
Advances from officer,                                240,000         240,000
    director and major

shareholder
----------------------------------------------   ------------    ------------
Business Loan                                         913,750
----------------------------------------------   ------------    ------------
                                                   11,557,465      12,866,236
----------------------------------------------   ------------    ------------
NON-CURRENT
----------------------------------------------   ------------    ------------
  Long-term payable - SOYO Computer, Inc.                   0      12,000,000
----------------------------------------------   ------------    ------------
SHAREHOLDERS' DEFICIENCY
----------------------------------------------   ------------    ------------
  Class A Preferred stock, $0.001 par value             1,000           1,000
  Issued and outstanding -
      1,000,000 shares
----------------------------------------------   ------------    ------------
  Class B Preferred stock, $0.001 par value         1,527,733               0
Issued and outstanding -
      2,614,195 shares
----------------------------------------------   ------------    ------------
Common stock, $0.001 par value                         40,000          40,000
    Authorized - 75,000,000 shares
    Issued and outstanding -
                                                                   40,000,000
shares
----------------------------------------------   ------------    ------------
Additional paid-in                                 11,155,000         459,000
capital
----------------------------------------------   ------------    ------------
Accumulated deficit                               (16,780,761)    (12,636,783)
----------------------------------------------   ------------    ------------
                                                   (4,057,028)    (12,136,783)

----------------------------------------------   ------------    ------------
Total Liabilities plus Shareholders' Deficit     $  7,500,437    $ 12,729,453
----------------------------------------------   ------------    ------------




                         SOYO Group, Inc. and Subsidiary
                      Consolidated Statements of Operations


                             Year Ended December 31,
                             -----------------------
-------------------------------------------------   ------------    ------------    ------------
                                                            2004            2003            2002
-------------------------------------------------   ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
Net revenues                                        $ 32,426,414    $ 31,034,239    $ 49,644,417
-------------------------------------------------   ------------    ------------    ------------
Cost of revenues, including                           30,210,042      27,960,377      53,648,389
  inventory purchased from
  SOYO Computer, Inc. of $14,004,259,
$20,188,354 and  $42,219,164 in 2004, 2003 and
2002 respectively
-------------------------------------------------   ------------    ------------    ------------
Gross margin (deficit)                                 2,216,372       3,073,862      (4,003,972)
-------------------------------------------------   ------------    ------------    ------------
Costs and expenses:

-------------------------------------------------   ------------    ------------    ------------
Sales and marketing                                    1,577,609         814,847       1,335,070
-------------------------------------------------   ------------    ------------    ------------
General and administrative                             3,560,710       2,833,118       3,141,338
-------------------------------------------------   ------------    ------------    ------------
Provision for doubtful accounts                          956,738         390,555       2,009,218
-------------------------------------------------   ------------    ------------    ------------
Depreciation and amortization:
-------------------------------------------------   ------------    ------------    ------------
Property and equipment                                    34,998          15,689          13,669
-------------------------------------------------   ------------    ------------    ------------
Impairment of Goodwill                                   389,307
-------------------------------------------------   ------------    ------------    ------------
    Total costs and expenses                           6,130,055       4,054,209       6,888,602
-------------------------------------------------   ------------    ------------    ------------
Loss from operations                                  (3,913,683)       (980,347)    (10,892,574)
-------------------------------------------------   ------------    ------------    ------------
Other income (expense):

-------------------------------------------------   ------------    ------------    ------------
  Interest income                                              0          26,252          43,469
-------------------------------------------------   ------------    ------------    ------------
Interest expense                                         (23,371)        (47,627)
                                                                                         (26,248)
-------------------------------------------------   ------------    ------------    ------------
Other income (expense), net                               17,609          (3,445)        117,074
-------------------------------------------------   ------------    ------------    ------------
Other income (expense), net                               (5,762)         (3,441)        112,916
-------------------------------------------------   ------------    ------------    ------------
Loss before provision (benefit)                       (3,919,445)       (983,788)    (10,779,658)
for income taxes
-------------------------------------------------   ------------    ------------    ------------
Provision (benefit) for income                               800             800         (46,200)
  taxes
-------------------------------------------------   ------------    ------------    ------------
Net loss                                            $ (3,920,245)   $   (984,588)   $(10,733,458)
-------------------------------------------------   ------------    ------------    ------------
Less: Dividends on Class B Convertible                      --              --
Preferred Stock                                         (223,733)
-------------------------------------------------   ------------    ------------    ------------
Net loss attributable to common shareholders        $   (984,588)   $(10,733,458)
                                                                                    $ (4,143,978)
-------------------------------------------------   ------------    ------------    ------------

-------------------------------------------------   ------------    ------------    ------------
Net loss per common share -                         $      (0.10)   $      (0.03)   $      (0.35)
Basic and diluted
-------------------------------------------------   ------------    ------------    ------------

-------------------------------------------------   ------------    ------------    ------------
Weighted average number of shares                     40,000,000      40,000,000      30,384,320
  of common stock outstanding -
  Basic and diluted
-------------------------------------------------   ------------    ------------    ------------
</TABLE>

                                       36
<PAGE>
<TABLE>
<CAPTION>

                         SOYO Group, Inc. and Subsidiary
               Consolidated Statements of Shareholders' Deficiency
                  Years Ended December 31, 2004, 2003 and 2002


                                                                                                         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)
                             ============   ============   ============   ============   ============   ============   ============
</TABLE>










                                       37
<PAGE>
<TABLE>
<CAPTION>



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


                                               Years Ended December 31,
---------------------------------------------------  ------------    ------------    ------------
                                                           2004            2003            2002
---------------------------------------------------  ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>
OPERATING ACTIVITIES
---------------------------------------------------  ------------    ------------    ------------
Net loss                                             $ (3,920,245)   $   (984,588)   $(10,733,458)
---------------------------------------------------  ------------    ------------    ------------
Adjustments to reconcile
  net loss to net cash
  provided by (used in)
  operating activities:
---------------------------------------------------  ------------    ------------    ------------
Depreciation and                                           34,998          15,689          13,669
        amortization
---------------------------------------------------  ------------    ------------    ------------
Provision for doubtful                                    956,738         390,555       2,009,218
        accounts
---------------------------------------------------  ------------    ------------    ------------
Impairment of goodwill                                       --           389,307
---------------------------------------------------  ------------    ------------    ------------
      Loss on disposition of                                 --             7,600
        fixed assets
---------------------------------------------------  ------------    ------------    ------------
      Changes in operating assets and liabilities:
---------------------------------------------------  ------------    ------------    ------------
        (Increase) decrease in:
---------------------------------------------------  ------------    ------------    ------------
Accounts receivable                                     3,785,110        (483,860)      1,243,005
---------------------------------------------------  ------------    ------------    ------------
  Inventories                                           1,173,214       7,322,130       2,243,166
---------------------------------------------------  ------------    ------------    ------------
          Prepaid expenses                                 18,557           6,741         (25,453)
---------------------------------------------------  ------------    ------------    ------------
Income taxes receivable                                      --              --           (47,000)
---------------------------------------------------  ------------    ------------    ------------
Deposits                                                   (9,776)         24,965          59,000
---------------------------------------------------  ------------    ------------    ------------
        Increase (decrease) in:
---------------------------------------------------  ------------    ------------    ------------
Accounts payable -                                     (5,242,343)      3,612,641
            SOYO Computer, Inc.                        (6,246,682)
---------------------------------------------------  ------------    ------------    ------------
Accounts payable -                                      2,783,763         921,179         350,477
            other
---------------------------------------------------  ------------    ------------    ------------
Accrued liabilities                                       236,059        (915,240)      1,450,371
---------------------------------------------------  ------------    ------------    ------------
          Income taxes payable                               --              --           (75,044)
---------------------------------------------------  ------------    ------------    ------------
  Net cash provided by (used in)                         (183,925)         58,489         489,899
    operating activities
---------------------------------------------------  ------------    ------------    ------------

---------------------------------------------------  ------------    ------------    ------------
INVESTING ACTIVITIES
---------------------------------------------------  ------------    ------------    ------------
Purchase of property and                                 (158,670)         (4,589)        (35,053)
    equipment
---------------------------------------------------  ------------    ------------    ------------
  Net cash used in                                       (158,670)         (4,589)        (35,053)
    investing activities
---------------------------------------------------  ------------    ------------    ------------

---------------------------------------------------  ------------    ------------    ------------
FINANCING ACTIVITIES
---------------------------------------------------  ------------    ------------    ------------
Net increase (decrease) in                                      0      (1,200,000)           --
    revolving note payable
---------------------------------------------------  ------------    ------------    ------------
(Increase) decrease in                                  1,000,000            --
    restricted cash
---------------------------------------------------  ------------    ------------    ------------
Advances from officer, director                              --           360,000            --
    and major shareholder
---------------------------------------------------  ------------    ------------    ------------
Business Loan                                             913,750
---------------------------------------------------  ------------    ------------    ------------
  Repayment of advances to                                   --          (120,000)           --
    officer, director and
    major shareholder
---------------------------------------------------  ------------    ------------    ------------
  Net cash provided by                                    913,750          40,000            --
    financing activities
---------------------------------------------------  ------------    ------------    ------------

---------------------------------------------------  ------------    ------------    ------------
CASH AND CASH EQUIVALENTS:
---------------------------------------------------  ------------    ------------    ------------
Net increase (decrease)                                   571,155          93,900         454,856
---------------------------------------------------  ------------    ------------    ------------
At beginning of year                                      717,196         623,296         168,450
---------------------------------------------------  ------------    ------------    ------------
At end of year                                          1,288,351    $    717,196    $    623,296
---------------------------------------------------  ------------    ------------    ------------

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

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

---------------------------------------------------  ------------    ------------    ------------
Cash paid for interest                                     23,371    $     26,248    $     44,096
---------------------------------------------------  ------------    ------------    ------------

---------------------------------------------------  ------------    ------------    ------------
Cash paid for income taxes                                    800    $      1,000
---------------------------------------------------  ------------    ------------    ------------

---------------------------------------------------  ------------    ------------    ------------
Noncash Dividends                                         223,733
---------------------------------------------------  ------------    ------------    ------------
</TABLE>


                   SOYO Group, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 2004, 2003 and 2002


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.

          In  conjunction  with  this  transaction,   SOYO  Nevada   transferred
     $12,000,000  of  accounts  payable  to SOYO  Taiwan to  long-term  payable,
     without interest, due December 31, 2005.

     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 an
     unrelated third party in exchange for the long-term payable.


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


                                       38
<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.   Business and Outlook

     SOYO  Group,  Inc. is a  distributor  of  computer  products a  substantial
portion of which are manufactured in Taiwan and China.  Through SOYO Group, Inc.
the Company offers a full line of designer  motherboards and related peripherals
for intensive multimedia applications,  corporate alliances,  telecommunications
and specialty market requirements. The breadth of the product line also includes
Bare Bone systems,  flash memory as well as small hard disk drives for corporate
and mobile users,  internal  multimedia  reader/writer  and wireless  networking
solutions products for any home and office (SOHO) users.

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

     During the years  ended  December  31,  2000 and 2001,  and the period from
January 1, 2002  through  October  24,  2002,  SOYO  Nevada  was a  wholly-owned
subsidiary of SOYO Taiwan.

     During the years ended December 31, 2001 and 2002, the Company's sales were
$63,091,190 and $49,644,417,  respectively, with gross margins of 6.9% and 8.1%,
respectively.  The large fall off in sales in 2002 was due primarily to the West
Coast dock strike in September and early October 2002. The impact of the initial
supply  interruption,  combined  with the  abrupt  release  of large  amounts of
inventory, caused a rapid drop in wholesale prices for the Company's products in
November and December 2002. The Company incurred a net loss in 2001 and 2002.

<PAGE>


     During early 2003,  as a result of the Company  changing its product mix to
focus on the sale of higher margin products and the decrease in market pressures
on the  Company's  gross  margin  resulting  from the West Coast dock  strike in
September and early October 2002, the Company's gross margin  improved  compared
to 2002.

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

     However,  the gross margin was drastically reduced in 2004. Stale inventory
was sold at reduced  prices,  and the Company  cut margins on other  products to
enter new markets, particularly in Latin America.

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

     Since  October 24, 2002,  the date that SOYO Nevada  became a  wholly-owned
subsidiary of VWHC, SOYO has attempted to implement various measures designed to
improve its operating results, cash flows and financial position,  including the
following:

     - The Company has  reviewed its product mix, and has revised its sales plan
     to focus on higher margin products.

     - The Company is attempting to expand the number and credit  quality of its
     customer accounts.

     - The  Company  has  arranged  additional  supply  sources  and reduced its
     reliance on inventory purchases from SOYO Taiwan.

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

     - The Company is always  attempting  to increase  its  operating  liquidity
     through  outside debt and equity  financing,  to the extent such funding is
     available under reasonable terms and conditions.

     There  can  be  no  assurances  that  these  measures  will  result  in  an
improvement  in the Company's  operations  or liquidity.  To the extent that the
Company's  operations and liquidity does not improve,  the Company may be forced
to reduce  operations to a level  consistent with its available  working capital

<PAGE>

resources.  The  Company  may  also  have  to  consider  a  formal  or  informal
restructuring  or  reorganization.  The equity  financing deal closed during the
first  quarter of 2005 will  provide the  Company  with  sufficient  proceeds to
operate the business at least through the end of 2005, as the Company  continues
to cut expenses and expand revenue streams.


2.   Basis of Presentation and Summary of Significant Accounting Policies

     a.   Presentation

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

     b.   Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities,  disclosure of contingent  assets and liabilities at the
date of the  financial  statements,  and the  reported  amounts of revenues  and
expenses during the reporting period.  Significant estimates primarily relate to
the realizable  value of accounts  receivable,  vendor programs and inventories.
Actual results could differ from those estimates.

     c.   Cash and Cash Equivalents

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

     d.   Inventories

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

<PAGE>


     During the years  ended  December  31,  2004,  2003 and 2002,  the  Company
wrote-down  the value of its  inventory  by $47,084,  $429,230  and  $2,123,307,
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
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, 2004 and
2003.

     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.

<PAGE>


     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
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,  2004,  2003 and 2002 were  $1,481,441,
$728,488 and $907,505 respectively,  and are presented under sales and marketing
costs in the accompanying consolidated statements of operations.

<PAGE>



     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.   Loss Per Common Share

     Statement of Financial  Accounting Standards No. 128, "Earnings Per Share",
requires  presentation  of basic  earnings per share  ("Basic  EPS") and diluted
earnings per share ("Diluted EPS"). Basic income (loss) per share is computed by
dividing  net income  (loss)  available to common  shareholders  by the weighted
average number of common shares  outstanding  during the period.  Diluted income
per share gives  effect to all  dilutive  potential  common  shares  outstanding
during the period.  Potentially  dilutive  securities consist of the outstanding
shares of  preferred  stock.  These  potentially  dilutive  securities  were not
included in the  calculation  of loss per share for the years ended December 31,
2004,  2003and 2002 because the Company  incurred a loss during such periods and
their effect would have been anti-dilutive.  Accordingly, basic and diluted loss
per share is the same for the years ended December 31, 2004, 2003 and 2002.

     As of December  31,  2004,  potentially  dilutive  securities  consisted of
1,000,000  shares  of  Class  A  convertible   preferred  stock  with  a  stated
liquidation  value of $1.00 per share that are convertible  into common stock at
the fair market value of the underlying  common stock,  and 2,614,195  shares of
Class B convertible preferred stock with a stated liquidation value of $1.00 per
share At December 31, 2004,  2,702,702 shares of common stock were issuable upon
conversion  of the Class A  convertible  preferred  stock,  based on the trading
price of the common stock on December 31, 2004 of $0.37 per share, and 7,065,392
shares of common stock were issuable upon  conversion of the Class B convertible
preferred stock, based on the trading price of the common stock.

<PAGE>


     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, 2004,
2003 and 2002.

     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, 2004 approximate their respective fair values due to the short-term
nature of those instruments.

     p.   Stock-Based Compensation

     The Company has adopted  Statement of Financial  Accounting  Standards  No.
123,   "Accounting  for  Stock-Based   Compensation"  ("SFAS  No.  123"),  which
establishes  a fair value  method of  accounting  for  stock-based  compensation
plans,  as amended by  Statement  of  Financial  Accounting  Standard  No.  148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No.
148").

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

     In  accordance  with SFAS No. 123, as amended by SFAS No. 148,  the Company
will provide prominent footnote disclosure with respect to stock-based  employee
compensation,  and the effect of the method used on reported results.  The value
of a stock-based award will be determined using the Black-Scholes option-pricing
model, whereby compensation cost is the fair value of the award as determined by
the pricing  model at the grant date or other  measurement  date.  The resulting
amount will be charged to expense on the straight-line  basis over the period in
which the Company  expects to receive  benefit,  which is generally  the vesting
period. Stock options issued to non-employee directors at fair market value will
be accounted for under the intrinsic value method.

<PAGE>


     The Company has not issued any stock-based compensation to date.

     q.   Significant Risks and Uncertainties

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

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


     r.   Recent Accounting Pronouncements

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

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

     SFAS 153 is effective  on January 1, 2006.  The adoption of SFAS 153 is not
expected to have an impact on the Company's consolidated financial statements or
disclosures.

<PAGE>


     On December 16, 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"
("SFAS 123R") which is a revision of SFAS No. 123,  "Accounting  for Stock-Based
Compensation"  ("SFAS  123").  Statement  123R  supersedes  APB  Opinion No. 25,
"Accounting for Stock Issued to Employees,"  and amends SFAS No. 95,  "Statement
of Cash Flows." Generally,  the approach in SFAS 123R is similar to the approach
described in SFAS 123. SFAS 123R requires all share-based  payments to employees
to be recognized in the income  statement  based on their grant date fair values
over the  corresponding  service  period  and also  requires  an  estimation  of
forfeitures when calculating  compensation  expense. The Company must adopt SFAS
123R no later than January 1, 2006. SFAS 123R permits public  companies to adopt
its requirements using one of three methods: the "modified  prospective" method,
the  "modified  retrospective"  method to  January  1,  2005,  or the  "modified
retrospective"  method to all prior years for which SFAS 123 was effective.  The
Company  has not yet  determined  which  adoption  method it will  utilize.  The
Company has not yet decided whether it will adopt the provisions of SFAS 123R on
January 1, 2006 as required, or earlier, as allowed.

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

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

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets",   which  addresses  financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
While SFAS No. 144 supersedes  SFAS No. 121,  "Accounting  for the Impairment of
Long-Lived  Assets and for Long-Lived Assets to be Disposed Of", it retains many
of the fundamental  provisions of that  statement.  The Company adopted SFAS No.
144  effective  January 1,  2002.  The  adoption  of SFAS No. 144 did not have a
significant  effect  on  the  Company's  financial  statement   presentation  or
disclosures.

<PAGE>



     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections".  SFAS No. 145 rescinds SFAS 4, which required all gains and losses
from extinguishment of debt to be aggregated and, if material,  classified as an
extraordinary  item, net of related income tax effect. Upon adoption of SFAS No.
145,  the Company  will be required to apply the criteria in APB Opinion No. 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"  (Opinion No. 30), in determining the classification of
gains and losses resulting from the extinguishment of debt.  Additionally,  SFAS
No. 145 amends SFAS No. 13 to require that certain lease modifications that have
economic effects similar to  sale-leaseback  transactions to be accounted for in
the same manner as sale-leaseback transactions. The Company adopted SFAS No. 145
effective  January 1, 2003. The adoption of SFAS No. 145 for  long-lived  assets
held  for use did not  have a  significant  effect  on the  Company's  financial
statement presentation or disclosures.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit and Disposal  Activities".  SFAS No. 146 nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain  Costs  Incurred  in a  Restructuring)".  Under EITF Issue No.  94-3,  a
liability for an exit cost is  recognized at the date of an entity's  commitment
to an exit plan. Under SFAS No. 146, the liabilities  associated with an exit or
disposal  activity  will be  measured  at fair  value  and  recognized  when the
liability  is incurred  and meets the  definition  of a liability  in the FASB's
conceptual framework.  SFAS No. 146 is effective for exit or disposal activities
initiated  after  December  31,  2002.  The  adoption of SFAS 146 did not have a
significant  effect  on  the  Company's  financial  statement   presentation  or
disclosures.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes  standards for how an issuer  classifies and measures in its
statement   of   financial   position   certain   financial   instruments   with
characteristics  of both  liabilities and equity.  SFAS No. 150 requires that an
issuer  classify a financial  instrument that is within its scope as a liability
(or an asset in some circumstances)  because that financial  instrument embodies
an obligation of the issuer. SFAS No. 150 is effective for financial instruments
entered  into or modified  after May 31, 2003 and  otherwise is effective at the
beginning of the first interim period  beginning  after June 15, 2003.  SFAS No.
150 is to be  implemented  by  reporting  the  cumulative  effect of a change in
accounting principle for financial  instruments created before the issuance date
of SFAS No. 150 and still  existing at the  beginning  of the interim  period of
adoption.  Restatement  is not  permitted.  The adoption of SFAS No. 150 did not
have a significant effect on the Company's financial  statement  presentation or
disclosures.

<PAGE>


     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  to Others" ("FIN 45"),  an  interpretation  of FASB
Statements  Nos. 5, 57 and 107 and a rescission of FASB  Interpretation  No. 34.
FIN 45  elaborates on the  disclosures  to be made by a guarantor in its interim
and annual financial  statements about its obligations under guarantees  issued.
FIN 45 also clarifies that a guarantor is required to recognize, at inception of
a guarantee,  a liability for the fair value of the obligation  undertaken.  The
initial  recognition  and  measurement  provisions  of FIN 45 are  applicable to
guarantees   issued  or  modified   after  December  31,  2002.  The  disclosure
requirements  of FIN 45 are effective  for  financial  statements of interim and
annual  periods  ended after  December 15, 2002.  The adoption of FIN 45 did not
have a significant effect on the Company's financial  statement  presentation or
disclosures.

     In November 2002,  the FASB's  Emerging  Issues Task Force ("EITF")  issued
EITF No. 00-21 "Revenue Arrangements with Multiple Deliverables". EITF No. 00-21
addresses  certain aspects of the accounting by a vendor for arrangements  under
which it will perform multiple revenue-generating activities. Specifically, EITF
No. 00-21 addresses how to determine whether an arrangement  involving  multiple
deliverables  contains  more than one unit of  accounting.  In applying EITF No.
00-21,  separate  contracts  with the same  entity or related  parties  that are
entered into at or near the same time are presumed to have been  negotiated as a
package  and  should,  therefore,  be  evaluated  as  a  single  arrangement  in
considering whether there are one or more units of accounting.  That presumption
may be overcome if there is sufficient evidence to the contrary.  EITF No. 00-21
also addresses how arrangement consideration should be measured and allocated to
the separate  units of accounting in the  arrangement.  The guidance in EITF No.
00-21 is  effective  for revenue  arrangements  entered  into in fiscal  periods
beginning after June 15, 2003. The Company adopted EITF No. 00-21 effective July
1, 2003. The adoption of EITF No. 00-21 did not have a significant effect on the
Company's financial statement presentation or disclosures.



3.   Accounts Receivable

The Company's  accounts  receivable at December 31, 2004 and 2003 are summarized
as follows:


                                                       December 31,
                                              -------------------------------
                                                  2004                2003
                                              -----------         -----------

Accounts receivable                           $ 3,151,432         $ 7,675,115
Less:  allowance for doubtful accounts         (1,074,550)           (856,386)
                                              -----------         -----------
                                              $ 2,076,882         $ 6,818,729

<PAGE>




     Changes in the allowance for doubtful accounts for the years ended December
31, 2004 and 2003 are summarized as follows:



                                                    Years Ended December 31,
------------------------------------------------   --------------------------
                                                        2004           2003
------------------------------------------------   -----------    -----------
Balance, beginning of year                         $   856,386    $   620,605
------------------------------------------------   -----------    -----------
Add:  Amounts provided during the year                 956,738        390,555
------------------------------------------------   -----------    -----------
Less:  Amounts written off during the year            (738,574)      (154,774)
------------------------------------------------   -----------    -----------
Balance, end of year                               $ 1,074,550    $   856,386
------------------------------------------------   -----------    -----------

The Company's management believes that the balance of the allowance for doubtful
accounts at December 31, 2004 and 2003 were sufficient to cover any past due
accounts whose collection is considered doubtful at such dates.


4.   Property and Equipment

     At December 31, 2004 and 2003, property and equipment consisted of the
following:


                                                           December 31,
--------------------------------------------------   ----------------------
                                                          2004         2003
--------------------------------------------------   ---------    ---------
Computer and equipment                               $  62,255    $  58,455
--------------------------------------------------   ---------    ---------
Furniture and fixtures                                  24,333       17,773
--------------------------------------------------   ---------    ---------
Leasehold improvements                                 149,890        1,580
--------------------------------------------------   ---------    ---------
Automobile                                               8,675        8,675
--------------------------------------------------   ---------    ---------
Less:  accumulated                                     (80,087)     (45,088)
  depreciation and
  amortization
--------------------------------------------------   ---------    ---------
                                                     $ 165,066    $  41,395
--------------------------------------------------   ---------    ---------


<PAGE>




     For the years ended  December 31,  2004,  2003 and 2002,  depreciation  and
amortization expense related to property and equipment was $34,998, $15,689, and
$13,669 respectively.


5.   Goodwill

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

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


6.   Revolving Note Payable

     On June 4, 2002, the Company entered into a revolving loan agreement with a
financial  institution for $1,200,000.  Borrowings under the loan agreement bore
interest  at 3.75% per annum and were  secured by a  $1,000,000  certificate  of
deposit, with SOYO Taiwan guaranteeing the remaining $200,000 of borrowings. The
Company did not renew the revolving  loan agreement when it expired in September
2003. The proceeds from the $1,000,000 certificate of deposit were used to repay
the principal balance outstanding on the revolving loan agreement.




7.   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.

8.   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 date of
the first note was extended six months at the same  interest  rate.  The new due
date of the first loan is September 28, 2005.

<PAGE>




9.   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,
     -------------------------

     2005             $220,438
     2006              210,983
     2007              212,692
     2008              194,967

     Rent  expense  for the years ended  December  31,  2004,  2003 and 2002 was
$229,718, $276,044 and $361,140 respectively.

     b.   Legal Proceedings

     On August  2,  2004,  a lawsuit  was  filed in  California  Superior  Court
entitled  Gerry  Normandan.  et al, v. Soyo Inc.  Case No. RCV 082128.  The case
seeks  class  action  status  and  alleges  defects in  motherboards  which Soyo
distributes,  and that the Company  misrepresented  and omitted  material  facts
concerning the motherboards. The plaintiff seeks restitution and disgorgement of
all  amounts  obtained  by  defendant  as a result of alleged  misconduct,  plus
interest,  actual damages,  punitive damages and attorneys' fees. The Company is
vigorously  defending  the lawsuit and believes that it will be resolved with no
material adverse effect on the Company.

     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.



<PAGE>

10.   Income Taxes


     For the years ended December 31, 2004, 2003 and 2002, the Company  incurred
net losses and  accordingly,  had no tax  liability,  other than  minimum  state
franchise taxes.

     As of December  31, 2004,  the Company had federal and state net  operating
loss  carryforwards  of  approximately  $4,580,000  and  $140,000  respectively,
expiring  in various  years  through  2024,  which can be used to offset  future
taxable  income,  if any. The  Company's  net  operating  losses were reduced by
$10,500,000  for the  forgiveness  of debt for tax  purposes.  No  deferred  tax
benefit  for these  operating  losses has been  recognized  in the  consolidated
financial  statements due to the uncertainty as to their realizability in future
periods.

<PAGE>

11.  Significant Concentrations

     a.   Customers

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

                                    Years Ended December 31,
                 --------------------------------------------------------------
                           2004                  2003                 2002
                 -------------------   ------------------   -------------------
                   Amount        %       Amount       %       Amount       %
                 -----------  ------   -----------  -----   -----------  ------
Revenues
  Distributors   $14,704,452   45.35   $13,055,046   42.1     7,376,500    14.9
  Retailers       17,721,962   54.65    17,979,193   57.9    42,267,917    85.1
                 -----------  ------   -----------  -----   -----------  ------
                 $32,426,414   100.0   $31,034,239  100.0    49,644,417  100.00
                 ===========  ======   ===========  =====   ===========  ======

     During the years  ended  December  31,  2004,  2003 and 2002,  the  Company
offered  price   protection  to  certain   customers  under  specific   programs
aggregating $295,999, $2,129,046, and $1,054,735 respectively, which reduced net
revenues and accounts receivable accordingly.

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

     During the year ended  December 31, 2004, the Company had one customer (SYX
Distibution,  Inc., otherwise known as Tiger Direct) that accounted for revenues
of $8,591,711, equivalent to 26% of net revenues. During the year ended December
31, 2003, the same customer accounted for revenues of $9,943,855,  equivalent to
32% of net revenues.  During the year ended  December 31, 2002,  the Company had
two customers,  SYX Distibution,  Inc., and Fry's Electronics that accounted for
revenues of  $12,499,598  and  $5,965,324,  equivalent to 25.2% and 12.0% of net
revenues, respectively.



     b.   Geographic Segments

          Revenues by geographic segment are summarized as follows:

                                    Years Ended December 31,
                   ------------------------------------------------------------
                            2004                2003                 2002
                   ------------------   ------------------   ------------------
                      Amount      %       Amount       %       Amount       %
                   -----------  -----   -----------  -----   -----------  -----
Revenues
  North America    $25,936,978   80.0   $23,043,136   74.3   $42,033,632   84.7
  Central and
    South
    America          6,317,907   19.4     7,391,804   23.8     3,816,747    7.7
  Other
    locations          171,529    0.6       599,299    1.9     3,794,038    7.6
                   -----------  -----   -----------  -----   -----------  -----
                   $32,426,414  100.0   $31,034,239  100.0   $49,644,417  100.0
                   ===========  =====   ===========  =====   ===========  =====


<PAGE>

     c.   Suppliers

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

     As of December 31, 2004,  no more than 20% of the products  distributed  by
the  SOYO  Group  are  supplied  by any one  supplier,  including  SOYO  Taiwan.
Notwithstanding the reduced emphasis on distributing SOYO Taiwan products,  SOYO
Group has a supply  Commitment  Agreement  with SOYO Taiwan which  provides that
SOYO  Taiwan will  continue  to supply  SOYO Group at current  levels on an open
account basis through 2005. As started in 2004, SOYO Group, Inc. is aggressively
establishing new partnership  with other OEM  manufacturers in the North America
and Asia Pacific Regions in order to provide innovative products for consumers.

     The following is a summary of the Company's  transactions and balances with
SOYO Taiwan as of and for the years ended December 31, 2004, 2003 and 2002:






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



Years Ended December 31,
----------------------------------   -----------   -----------   -----------
                                          2004          2003          2002
----------------------------------   -----------   -----------   -----------
Purchases from SOYO Taiwan           $14,004,259   $20,188,354   $42,219,164
----------------------------------   -----------   -----------   -----------
Payments to SOYO Taiwan              $19,154,603   $18,842,244   $35,946,037
----------------------------------   -----------   -----------   -----------

<PAGE>



     During the years  ended  December  31,  2004,  2003 and 2002,  the  Company
received  price  protection  from SOYO  Taiwan  of $0,  $651,215,  and  $394,071
respectively, which reduced inventory and accounts payable accordingly.




12.  Shareholders' Deficiency

     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.  Accordingly,
management  currently owns 34,209,538  shares of the 40,030,000 shares of common
stock outstanding at March 31, 2005.

     b.   Preferred Stock

     As of December 31, 2004,  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,  any  unconverted  shares of Class A
preferred  stock  automatically  convert into shares of common stock on the same
conversion terms.

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

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

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

     For the year ended  December  31,  2004,  the  Company  recorded  aggregate
dividends of $223,733,  consisting of dividends based on the stated value of the
Class B  convertible  preferred  stock of  $114,195,  which  were  declared  and
expensed  through  the  issuance  of an  additional  114,195  shares  of Class B
Convertible  Preferred  Stock,  and  dividends  based  on the  accretion  of the
discount on the Class B Convertible  Preferred Stock of $109,538.  Through March
31, 2005,  none of the preferred  stock had been converted to common stock,  and
the Company had not repurchased any of the shares of preferred stock.

     c.   Stock Options and Warrants

     As of December  31,  2004,  the  Company did not have any stock  options or
warrants outstanding, and had not adopted a stock option plan.


13.  Quarterly Results (Unaudited)

     Presented below is a summary of the quarterly results of operations for the
years ended December 31, 2004 and 2003.


     The Company  restated the results of operations  for the three months ended
March 31,  2003,  June 30,  2003 and  September  30,  2003,  to reflect  various
adjustments,  primarily to correct the  intra-period  allocation of net revenues
and cost of revenues. The results for the full year 2003 did not change.




<PAGE>
<TABLE>
<CAPTION>





                               Three Months Ended
------------------------------------------------------------------------------------------
                     March 31,     June 30,     September 30,  December 31,      Total
                         2004          2004           2004          2004
-----------------  ------------  ------------   ------------   ------------   ------------
<S>                <C>           <C>            <C>            <C>            <C>
Net revenues       $  8,594,302  $ 10,194,388   $  9,347,427   $  4,290,297   $ 32,426,414

Gross margin          1,113,168       398,972        307,513        396,719      2,216,372
  (deficit)
-----------------  ------------  ------------   ------------   ------------   ------------
Income (loss)            94,705      (924,036)      (809,416)    (2,274,936)    (3,913,683)
  from
  operations
-----------------  ------------  ------------   ------------   ------------   ------------
Income (loss)            94,705      (928,781)      (814,161)    (2,271,208)    (3,919,445)
  before
  income taxes
-----------------  ------------  ------------   ------------   ------------   ------------
Income taxes               --            --             --             --                0
-----------------  ------------  ------------   ------------   ------------   ------------
Net income               94,705      (928,781)      (814,161)    (2,272,008)    (3,920,245)
 (loss)
-----------------  ------------  ------------   ------------   ------------   ------------
Net income
  (loss) per
  common share -
Basic              $       --    $       (.02)  $       (.02)  $       (.06)  $       (.10)
Diluted            $       --    $       (.02)  $       (.02)  $       (.06)  $       (.10)
-----------------  ------------  ------------   ------------   ------------   ------------
Weighted
  average
  number of
  common
  shares
  outstanding -
Basic                40,000,000    40,000,000     40,000,000     40,000,000     40,000,000
Diluted              46,666,667    40,000,000     40,000,000     40,000,000     40,000,000
-----------------  ------------  ------------   ------------   ------------   ------------
</TABLE>






<PAGE>
<TABLE>
<CAPTION>






                                           Three Months Ended
------------------------------------------------------------------------------------------
                      March 31,     June 30,    September 30,  December 31,       Total
                          2003          2003          2003           2003           2003
-----------------   ------------  ------------  ------------   ------------   ------------
<S>                 <C>           <C>           <C>            <C>              <C>
Net revenues        $  9,497,565  $  6,901,834  $  6,759,316   $  7,875,524     31,034,239

-----------------   ------------  ------------  ------------   ------------   ------------
Gross margin           1,170,866     1,410,174      (435,457        928,279      3,073,862
  (deficit)
-----------------   ------------  ------------  ------------   ------------   ------------
Income (loss)            139,845       166,179    (1,353,758         67,387       (980,347)
  from
  operations
-----------------   ------------  ------------  ------------   ------------   ------------
Income (loss)            130,451       181,372    (1,355,398         59,787       (983,788)
  before
  income taxes
-----------------   ------------  ------------  ------------   ------------   ------------
Income taxes              36,250        28,750        25,680        (89,880)           800
-----------------   ------------  ------------  ------------   ------------   ------------
Net income          $     94,201  $    152,622  $ (1,381,078   $    149,667   $   (984,588)
 (loss)
-----------------   ------------  ------------  ------------   ------------   ------------
Net income
  (loss) per
  common share -
Basic               $       --    $       --    $      (0.03   $       --     $      (0.03)
Diluted             $       --    $       --    $      (0.03   $       --     $      (0.03)
-----------------   ------------  ------------  ------------   ------------   ------------
Weighted
  average
  number of
  common
  shares
  outstanding -
Basic                 40,000,000    40,000,000    40,000,000     40,000,000     40,000,000
Diluted               42,272,727    45,555,556    40,000,000     49,090,909     40,000,000
-----------------   ------------  ------------  ------------   ------------   ------------
</TABLE>




<PAGE>



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

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

     During the years  ended  December  31,  2002 and 2003,  and the  subsequent
interim period from January 1, 2004 through July 26, 2004,  neither the Company,
nor anyone on its  behalf,  consulted  with  Vasquez  regarding;  (i) either the
application  of  accounting  principles  to  a  specified  transaction,   either
completed  or proposed;  or the type of audit  opinion that might be rendered on
the  Company's  financial  statements  and no written  report or oral advice was
provided  that Vasquez  concluded  was an  important  factor  considered  by the
Company in  reaching a decision  as to the  accounting,  auditing  or  financial
reporting  issue;  or  (ii)  any  matter  that  was  either  the  subject  of  a
disagreement as defined at Item  304(a)(1)(iv)  or a reportable event as defined
at Item 304 (a)(1)(iv) of Regulation S-K.

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

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

<PAGE>


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

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

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

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

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

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

<PAGE>


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

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



ITEM 9A.  CONTROLS AND PROCEDURES

     (a)  Evaluation of Disclosure Controls and Procedures:

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

     The Company's Chief Executive  Officer and Chief Financial  Officer arrived
at this  conclusion  based on a number of factors,  including that the Company's
system of internal  control  during 2003 did not: (1) properly  record  accounts
payable to vendors for  purchases  of  inventory,  (2) did not  properly  record
adjustments to inventory per the general ledger to physical inventory  balances,
(3) did not properly record inventory adjustments to the lower of cost or market
using the average  inventory  method,  (4) did not  periodically  reconcile  the
Company's  main bank account  between August 2003 and December 2003, (5) did not
have adequate controls over interim physical inventory  procedures,  and (6) did

<PAGE>

not  generate  timely  and  accurate  financial  information  to  allow  for the
preparation  of timely and complete  financial  statements.  The Company did not
have an  adequate  financial  reporting  process  because of the  aforementioned
material weaknesses,  including the difficulty in identifying and assembling all
relevant  contemporaneous  documentation for ongoing business transactions,  and
significant  turnover  in the  Company's  financial  staff.  In  addition to the
foregoing,  a former employee  withheld  information from the auditor during the
2003  audit.  Accordingly,  the  Company's  Chief  Executive  Officer  and Chief
Financial Officer concluded that there were significant deficiencies,  including
material  weaknesses,  in the  Company's  internal  controls  over its financial
reporting at the end of the fiscal period ended December 31, 2003.

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

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


To address  these  weaknesses,  the Company has taken the  following  corrective
actions:

o    The Company has hired a new Accounting  Manager and currently is seeking to
     hire  additional  personnel to focus on financial  accounting and reporting
     issues.

o    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.

o    Every month,  the controller  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.

o    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.

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

<PAGE>



In conjunction with the audit of the Company's financial statements for the year
ended December 31, 2004, the Company's Chief Executive Officer and its Chief
Financial Officer reviewed and evaluated the corrective actions listed above.
Such officers believe that such corrective actions minimize the risk of material
misstatement, but the corrective actions continue to have significant
deficiencies. The Company is currently evaluating new accounting software that
it believes will address the Company's automated financial reporting system
requirements. The Company expects the new accounting software to be in place and
operational during the second quarter of fiscal year 2005.

As of  December  31,  2004,  The  Company's  finance  operations  continue to be
understaffed  and its  personnel  lack  comprehensive  accounting  policies  and
procedures to follow.  In addition,  the Company's  personnel need to be further
trained with respect to procedures and systems.


     (b)  Changes in internal control over financial reporting:

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

o    Management  has  hired  experts  to  assist  with the  financial  reporting
     required as of December  31, 2004 and train  Company  employees  to perform
     such tasks in the future.

o    Management has hired experts to assist in the evaluation and implementation
     of new accounting software during fiscal 2005.

ITEM 9B. OTHER INFORMATION- NONE


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  following  table  and text  sets  forth  the names and ages of all the
Company's  directors and executive officers and the key management  personnel as
of March 31,  2005.  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  44       Chief Executive Officer and Director
--------------- -------- -------------------------------------------------------
Nancy Chu       47       Chief Financial Officer, Secretary and Director
--------------- -------- -------------------------------------------------------


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

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

     Directors  receive no  compensation  for serving on the Board of Directors,
but are reimbursed for any  out-of-pocket  expenses  incurred in attending board
meetings.

     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

         Because there are only two members of the Board of Directors, we do not
have any committees.

     Communications with the Board

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

     Code of Ethics

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

ITEM 11.      EXECUTIVE COMPENSATION

     The  following  table sets forth the  compensation  paid during fiscal year
ended December 31, 2004, 2003 and 2002 to the Company's Chief Executive  Officer
and Chief Financial Officer.


                           SUMMARY COMPENSATION TABLE


------------------------   ----   --------   -----   ------------------
Name                       Year   Salary     Bonus   Other Compensation
------------------------   ----   --------   -----   ------------------
Ming Tung Chok             2004   $144,000    N/A          N/A
President and CEO          2003   $144,000
                           2002   $138,000
------------------------   ----   --------   -----   ------------------
Nancy Chu                  2004   $120,000
Chief Financial Officer    2003   $120,000
                           2002   $116,500
------------------------   ----   --------   -----   ------------------


     Through  December  31,  2004,  the Company did not  maintain  any  employee
benefit  plans.  On  March 7,  2005,  the  Company  registered  its  2005  Stock
Compensation  Plan on Form S-8  with the  Securities  and  Exchange  Commission,
registering on behalf of our employees,  officers,  directors and advisors up to
5,000,000  shares of our common  stock  purchasable  by them  pursuant to common
stock  options  granted  under our 2005  Stock  Compensation  Plan.  The plan is
subject to shareholder approval.

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, 2005 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, 2004; 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.


<PAGE>



--------------------------------  ---------------------- -----------------------
Name/Title/Address(1)             Total Number of Shares Percentage Ownership(2)
                                  Owned
--------------------------------  ---------------------- -----------------------
Ming Tung Chok                    20,000,000             45.48%
--------------------------------  ---------------------- -----------------------
Nancy Chu                         14,209,548             32.31%
--------------------------------  ---------------------- -----------------------
All officers and directors as a   34,209,548             77.79%
group (3)
--------------------------------  ---------------------- -----------------------
SOYO Computer, Inc.(4)            2,702,702              6.1%
No. 21 Wu-kung 5 Road
Hsing Chuang City
Taipu Hsien
Taiwan, ROC

--------------------------------  -------------------- -------------------------
Urmston Capital (5)               7,065,392            16.07%
--------------------------------  -------------------- -------------------------

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

     (2) The percentage ownership is based upon 40,030,000 shares outstanding on
March 30, 2005.

     (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
34,209,548  shares  and are each  considered  beneficial  owners  of  34,209,548
shares.

     (4) Andy  Chu,  through  his  majority  ownership  of SOYO  Taiwan,  is the
beneficial  holder of 1,000,000 shares of Series A Convertible  Preferred Stock,
which has a floating rate  conversion  ratio which,  if the Preferred Stock were
converted at the closing bid price of $0.37 per share on December 31, 2004, SOYO
Taiwan would have received 2,702,702 shares of the Company's common stock.

     (5) 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 $0.37  per share on  December  31,  2004,  the  holder  would  have
7,065,392 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, 2004, 2003 and 2002:


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



Years Ended December 31,
---------------------------------   -----------   -----------   -----------
                                         2004          2003          2002
---------------------------------   -----------   -----------   -----------
Purchases from SOYO Taiwan          $14,004,259   $20,188,354   $42,219,164
---------------------------------   -----------   -----------   -----------
Payments to SOYO Taiwan             $19,154,603   $18,842,244   $35,946,037
---------------------------------   -----------   -----------   -----------


     During the years  ended  December  31,  2004,  2003 and 2002,  the  Company
received  price  protection  from SOYO  Taiwan  of $0,  $651,215,  and  $394,071
respectively, which reduced inventory and accounts payable accordingly.



ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES


     Independent Accountant Fees

     The following  table sets forth the fees for  professional  audit  services
rendered  by  Vasquez  &  Company  LLP for the  audit  of the  Company's  annual
financial  statements  for the fiscal  year  2004,  and the  aggregate  fees for
professional audit services rendered by Grobstein, Horwath & Company LLP for the
audit of the annual financial statements for the fiscal year 2003.


<PAGE>


-------------------------------------   ---------   ---------
                                             2004        2003
-------------------------------------   ---------   ---------
Audit Fees                              $ 130,000   $ 205,640
                                                           (1)
-------------------------------------   ---------   ---------
Audit-Related Fees (2)                     30,000
-------------------------------------   ---------   ---------
Tax Fees                                   10,000
-------------------------------------   ---------   ---------
All Other
Fees
-------------------------------------   ---------   ---------
Total                                   $ 170,000   $ 205,640
Fees
-------------------------------------   ---------   ---------

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

(1)  Includes  annual  audit fees and fees for  preissuance  review of quarterly
filings.
(2) Non recurring fee.


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits.

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

Exhibit                              Description
Number

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

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

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

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

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

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

<PAGE>


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

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

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

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

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

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

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





99.1 Sarbanes-Oxley Act Section 906 Certification*

*Filed herein


(b) Reports on Form 8-K



                                   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, 2005             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, 2005            By  /s/ Ming Tung Chok
                                   ---------------------------------------------
                                   Name: Ming Tung Chok
                                   Title: President, Chief Executive Officer and
                                   Director


Dated:  March 31, 2005            By  /s/ Nancy Chu
                                   ---------------------------------------------
                                   Name: Nancy Chu
                                   Title: Chief Financial Officer, Secretary and
                                   Director