SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                    FORM 10-K


|X|      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
         OF 1934

         For the fiscal year ended December 31, 2003


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

         For the transition period from _________________ to __________________

                        Commission File Number 333-42036


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

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


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

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

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


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


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

         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. [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,  2003 was  $___________,  based on the  closing  bid price of $0.17 per
share On June 30, 2003.

         As of May 1,  2004,  there  were  40,000,000  shares  of  common  stock
outstanding.


<PAGE>




                                SOYO GROUP, INC.
                                    FORM 10-K
                                      INDEX

                                                                            Page
                                                                            ----

                                     PART I

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

Item 2.  Properties............................................................6

Item 3.  Legal Proceedings.....................................................6

Item 4.  Submission of Matters to a Vote of Security Holders...................6

                                     PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
          and Issuer Purchases of Equity Securities............................7

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

Item 7  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.............................................8

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

Item 8.  Financial Statements and Supplementary Data..........................16


                                    PART III

Item 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure..................................16

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


Item 10.  Directors and Executive Officers of the Registrant..................18

Item 11  Executive Compensation...............................................19

Item 12. Security Ownership of Certain Beneficial Owners and Management.......20

Item 13. Certain Relationships and Related Transactions.......................20

Item 14.  Principal Accounting Fees and Services................................

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......21

Signatures....................................................................22

Financial Statements.........................................................F-1





<PAGE>

                                     PART I

ITEM 1.  BUSINESS.

         When  used in this  Form  10-K,  the  words  "expects,"  "anticipates,"
"estimates"  and similar  expressions  are intended to identify  forward-looking
statements.  Such statements are subject to risks and  uncertainties,  including
those set forth below under "Risks and  Uncertainties,"  that could cause actual
results  to  differ  materially  from  those  projected.  These  forward-looking
statements  speak  only  as of the  date  hereof.  We  expressly  disclaims  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.

         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"),  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
         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.




                                        1

<PAGE>


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

         The  consideration  for the  Acquisition  was  determined  through arms
length  negotiations and a Form 8-K was filed on October 10, 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.

         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
operations 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
by Soyo  Taiwan.  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  Nevada'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

o        Motherboards
         ------------

         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.



                                        2

<PAGE>

         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.

         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.

         Soyo Group, Inc. markets a wide range of designer  motherboards to meet
the specific  needs of its diverse  customer base.  The  motherboards  that Soyo
Group, Inc. provides include the Intel Pentium 4, the Intel Tualatin,  the Intel
Pentium III, the AMD Athlon XP, the AMD  Thunderbird,  the AMD Duron and the VIA
C3. Soyo Nevada also  distributes  the DRAGON(R)  single-processor  motherboard,
which is a multimedia  and  entertainment  product,  for the Intel(R) and AMD(R)
platforms.  The motherboards are marketed and distributed to end-user consumers,
governments and enterprise customers at the wholesale and retail level.

Bare Bone Systems
------------------

         This product solution is the basis for any computer system. It contains
our  motherboard,   case,  power  supply,  keyboard,  mouse  and  speakers.  The
motherboard  features varies in each model. For example the All-in-One  solution
will  have  Audio,   Video  and  LAN  (Networking   device)  integrated  on  the
motherboard.  These  products  are  also  available  in AMD  as  well  as  Intel
platforms.  Consumer's  demand on this  product is very high since  Majority  of
components are integrated in the box. Whether building a desktop,  a game server
or a back up machine, SOYO Barebones can fulfill all kinds of needs!

o        Flash Memory Drives and Internal Multimedia Reader/Writer
         ---------------------------------------------------------

         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.

         Unlike  many  conventional  devices  that are  currently  flooding  the
market,  Soyo  Group,  Inc.'s  Cig@r  Pro  Flash  Memory  Drive is the  first to
introduce  1GB mobile  storage  capacity  that allows  consumers to store all of
their important documents.  Along with an innovative design and a convenient USB
interface that offers advanced e-mail and security  features,  this flash memory
drive allows consumers to Plug and Play without any driver installation. Because
retrieving files via an Internet connection can be a hassle, the Cig@r Pro Flash
Memory Drive is now the ideal  solution  for Soyo Group,  Inc.'s  corporate  and
mobile  clients who want their  files to stay  secure with them no matter  where
they go.

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


                                        3

<PAGE>

o        USB Adapters
         -------------

         Universal Serial Bus (USB) connectors let users attach  everything from
mice to  printers  to the  computer  quickly  and  easily.  USB gives the user a
single, standardized,  easy-to-use way to connect up to one hundred twenty-seven
(127)  devices to a  computer.  Each  device can  consume up to a maximum of six
megabits  per  second  (Mbps) of  bandwidth,  which is fast  enough for the vast
majority  of  peripheral  devices  that most  people  want to  connect  to their
machines.  Just  about  every  peripheral  made now  comes in a USB  version.  A
computer's  operating  system  supports USB as well, so the  installation of the
device drivers is also quick and easy.

         Soyo Group,  Inc.  offers a number of USB devices to its  customers  at
wholesale and retail prices.  These devices enable Soyo Group,  Inc.'s customers
to attach other  products,  such as our flash memory drives,  to their computers
with relative ease.

o        Wireless Networking Solutions
         -----------------------------

         Wireless  networking is one of several ways to connect computers in the
home. In a wireless  network,  all of the computers in the home broadcast  their
information  to one another  using radio  signals.  Using radio signals can make
networking extremely easy, especially if one has computers all over the house.

         The Aerielink wireless networking products represent a breakthrough for
home and SOHO users by offering universal  compatibility and upgradeability that
enable users to share broadband Internet access,  network office peripherals and
enjoy  multimedia  entertainment  among  multiple  desktop  computers  and other
Internet-ready  devices.  These  products also deliver  strong  performance  and
security options to home and SOHO users through routers, access points, adapters
and switches. For example, the Aerielink Router Kit and Wireless LAN USB Adaptor
has a small desktop router that sits between one's local Ethernet  network and a
remote  network  (e.g.,  the  Internet or a remote  office).  In addition to the
wireless LAN feature,  the Wireless  Router contains a WAN port connecting to an
external  xDSL/Cable  modem and a four port  10/100  Mbps  Ethernet  switch  for
connection to PCs on the user's network.

         PRODUCTION

         Soyo  Nevada  does not  produce  the  components  that it  distributes.
Approximately  60% of Soyo Group,  Inc.'s  products are supplied by Soyo Taiwan,
which is located in Taipei, Taiwan.

         TRANSPORTATION AND DISTRIBUTION

         Soyo  Group,  Inc. is an  exclusive  distributor  for  SOYO(R)  branded
products in the United States and Latin America.  Soyo Group, Inc. has a network
of national and regional distribution centers that distribute its products.  The
logistics  team  members  play a key  role in the  success  of the  distribution
system.  Through their efforts, Soyo Group, Inc. is able to achieve a high level
of  efficiency  and exceed  customer  expectations  by  maintaining  a swift and
reliable delivery system.

         MARKETING AND SALES

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


                                        4
<PAGE>

         Soyo  Group,   Inc.'s  principal  sales  strategy  targets  three  main
channels:  (1) end-user consumers;  (2) small business users; and (3) home/small
office users or SOHO's.  To reach target  customers,  Soyo Group, Inc. employs a
hybrid system.  Soyo Nevada uses 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.

         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 solid 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.

         SUPPLIERS

         Approximately 80% of Soyo Group, Inc.'s products come from Soyo Taiwan.
Soyo Nevada has a supply  Commitment  Agreement  with Soyo Taiwan which provides
that Soyo Taiwan will continue to supply Soyo Group,  Inc. at current  levels on
an open account  basis through  2005.  The general  credit terms granted by Soyo
Taiwan is net 90 days.  The Company  believes  that its  relationship  with Soyo
Taiwan is good,  however,  a change in the credit terms  extended by Soyo Taiwan
could adversely affect the Company's business.  In the meantime 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 the 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  2003  with  respect  to  compliance  with  any  such
regulations.

         STRATEGY

         Soyo Group,  Inc.'s strategy is to capitalize on its market position as
a leading  distributor  of computer and  networking  products by increasing  its
penetrations  of existing  markets through  acquisitions  and expanding into new
markets.


                                       5

<PAGE>

         COMPETITION

         The computer hardware industry is highly competitive.  Soyo Group, Inc.
competes against small as well as a well-established  companies that produce and
distribute motherboards, in addition to certain related peripherals although, we
are overcoming this competition by introducing  innovative  products,  excellent
customer services and aggressive  pricing.  Soyo Group,  Inc.'s  competitors are
Abit, Asus, Gigabyte, MSI and Intel to name a few.

         EMPLOYEES

As of March 31, 2004, the Company employed forty (40) people at its headquarters
in Ontario, California.



ITEM 2.       PROPERTIES

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

<TABLE>
<CAPTION>

                                            Rental     Rental       Monthly
        Facility        Address             Begin      Expire     Rental (US$)    Area (ft2)
        --------        -------             -----      ------     ------------    ----------
<S>                    <C>                  <C>        <C>         <C>            <C>
Office and warehouse   1420 S. Vintage    September    November    $15,380.28       42,723
                       Avenue, Ontario     1, 2003     31, 2008
                       California
</TABLE>


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.

         The  Company  is not a party  to any  pending  or,  to the  best of its
knowledge,  any threatened legal proceedings.  None of the Company's  directors,
officers or affiliates,  or owner of record or of more than five percent (5%) of
its  securities,  or any  associate  of any such  director,  officer or security
holder,  is a party adverse to the Company or has a material interest adverse to
the Company in reference to pending litigation.



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

         During the fourth  quarter of the fiscal year ended  December 31, 2003,
there were no matters submitted to the shareholders for approval.


                                        6
<PAGE>

                                     PART II



ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

(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 bid
closing  prices  of  our  common  stock  as  reported  on  the  OTCBB  from  the
commencement  of trading on October 15, 2001.  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, 2002:
         First Quarter                                     $  0.20       $  0.15
         Second Quarter                                       0.15          0.15
         Third Quarter                                        0.15          0.15
         Fourth Quarter                                       0.59          0.15

         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

(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 May 31, 2004, there were 40,000,000  shares of the
Company's  common  stock  outstanding  and  the  Company  had  approximately  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.

(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.  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



                                        7

<PAGE>

make a special  suitability  determination for the purchase of such security and
must  have the  purchaser's  written  consent  to the  transaction  prior to the
purchase.  Additionally,  for any  transaction  involving a penny stock,  unless
exempt,  the rules require the delivery,  prior to the first  transaction,  of a
risk  disclosure  document,  prepared  by the SEC,  relating  to the penny stock
market. A broker-dealer  also must disclose the commissions  payable to both the
broker-dealer and the registered representative,  and current quotations for the
securities.  Finally,  monthly  statements must be sent disclosing  recent price
information  for the penny  stocks  held in an account  and  information  on the
limited  market in penny  stocks.  Consequently,  these rules may  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

         The Company does not have any Equity  Compensation  Plans. There are no
outstanding warrants.

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, 2003,  2002, 2001, 2000 and 1999. 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:

<TABLE>
<CAPTION>

                                            Years Ended December 31,
                 ----------------------------------------------------------------------------
                     1999            2000            2001            2002            2003
                 ------------    ------------    ------------    ------------    ------------
<S>              <C>             <C>             <C>             <C>             <C>
Net revenues     $ 15,494,828    $ 62,173,829    $ 63,091,190    $ 49,644,417    $ 31,034,239
Income (loss)
  from
  operations           14,061        (658,581)       (342,073)    (10,892,574)       (980,347)
Net loss               (5,904)       (522,429)       (390,404)    (10,733,458)       (984,588)
Net income
  (loss) per
  common share           --             (0.02)          (0.01)          (0.35)          (0.02)




Selected Consolidated Balance Sheet Data:

                                                 December 31,
                 ----------------------------------------------------------------------------
                     1999            2000            2001            2002            2003
                 ------------    ------------    ------------    ------------    ------------
Total assets              n/a    $ 16,752,723    $ 26,309,797    $ 20,914,784    $ 12,729,453
Long-term
  accounts
  payable to
  Soyo
  Computer,
  Inc                    --               --              --        12,000,000      12,000,000
Shareholders'
  deficiency             n/a          (28,333)       (418,737)    (11,152,195)    (12,136,783)
Cash dividends
  declared per
  common share           --               --              --              --              --
</TABLE>


                                       8

<PAGE>

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-KSB for the fiscal year ended December 31, 2003.

This Annual  Report on Form 10-KSB for the fiscal year ended  December  31, 2003
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-KSB for the fiscal
year ended December 31, 2003 involve known and unknown risks,  uncertainties and
other factors that could the cause actual  results,  performance or achievements
of the Company to differ  materially  from those  expressed in or implied by the
forward-looking statements contained herein.

Each  forward-looking  statement  should be read in  context  with,  and with an
understanding  of,  the  various  disclosures  concerning  the  Company  and its
business made elsewhere in this Annual Report on Form 10-KSB for the fiscal year
ended  December 31, 2003, 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  is  not   obligated   to  update  or  revise  any
forward-looking statement contained in this Annual Report on Form 10-KSB for the
fiscal  year ended  December  31,  2003 to reflect  new events or  circumstances
unless to the extent required by applicable law.

Background and Overview:

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

Effective  October  24,  2002,  Vermont  Witch  Hazel  Company,  Inc.,  a Nevada
corporation ("VWHC"), acquired Soyo, Inc., a Nevada corporation ("Soyo Nevada"),
from Soyo Computer,  Inc., a Taiwan corporation ("Soyo Taiwan),  in exchange for
the issuance of 1,000,000  shares of convertible  preferred stock and 28,182,750
shares of common stock, and changed its name to Soyo Group, Inc.  ("Soyo").  The
1,000,000  shares  of  preferred  stock  were  issued  to  Soyo  Taiwan  and the
28,182,750 shares of common stock were issued to 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, 2003.

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 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, 2003).

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.

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.


                                       9

<PAGE>

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

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

The Company sells to both  distributors  and  retailers.  Revenues  through such
distribution  channels for the years ended December 31, 2001,  2002 and 2003 are
summarized as follows:

                                    Years Ended December 31,
                 ---------------------------------------------------------------
                         2001                  2002                 2003
                 -------------------   -------------------   -------------------
                    Amount       %        Amount       %       Amount        %
                 -----------   -----   -----------   -----   -----------   -----
Revenues
  Distributors   $13,035,994    20.7   $ 7,376,500    14.9   $13,055,046    42.1
  Retailers       50,055,196    79.3    42,267,917    85.1    17,979,193    57.9
                 -----------   -----   -----------   -----   -----------   -----
                 $63,091,190   100.0   $49,644,417   100.0   $31,034,239   100.0
                 ===========   =====   ===========   =====   ===========   =====


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. During the year ended December 31, 2001, the Company had
two  customers  that  accounted  for  revenues  of  $7,122,235  and  $7,319,665,
equivalent to 11.3% and 11.6% of net revenues, respectively.

Revenues by geographic segment are summarized as follows:

                                    Years Ended December 31,
                 ---------------------------------------------------------------
                         2001                  2002                 2003
                 -------------------   -------------------   -------------------
                    Amount       %        Amount       %       Amount        %
                 -----------   -----   -----------   -----   -----------   -----
Revenues
  North America  $54,041,229    85.7   $42,033,632    84.7   $23,043,136    74.3
  Central and
    South
    America        7,886,606    12.5     3,816,747     7.7     7,391,804    23.8
  Other
    locations      1,163,355     1.8     3,794,038     7.6       599,299     1.9
                 -----------   -----   -----------   -----   -----------   -----
                 $63,091,190   100.0   $49,644,417   100.0   $31,034,239   100.0
                 ===========   =====   ===========   =====   ===========   =====


Financial Outlook:

During the years ended  December  31, 2000 and 2001,  the  Company's  sales were
$62,173,829 and $63,091,190,  respectively, with gross margins of 4.8% and 6.9%,
respectively.  During the year ended  December 31,  2002,  the  Company's  sales
decreased to  $49,644,417,  with a negative gross margin of 8.1%, 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 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, 2002 and 2003.

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.

As of December  31,  2003,  the Company is reliant  upon the cash flows from its
operations.  The Company does not have any external sources of liquidity,  other
than advances from an officer, director and major shareholder.

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.



                                       10
<PAGE>

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

- The Company is attempting to arrange  additional  supply sources and to reduce
its reliance on inventory purchases from Soyo Taiwan.

- The Company is 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.

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  resources.
The  Company may also have to  consider a formal or  informal  restructuring  or
reorganization.

As a  result  of these  factors,  the  Company's  independent  accountants  have
expressed  substantial  doubt about the Company's ability to continue as a going
concern. The accompanying  consolidated  financial statements have been prepared
assuming that the Company will continue as a going concern,  which  contemplates
the  realization  of assets and the  satisfaction  of  liabilities in the normal
course of business.  The carrying amounts of assets and liabilities presented in
the consolidated financial statements do not purport to represent the realizable
or settlement  values, and do not include any adjustments that might result from
the outcome of this uncertainty.


Restatement:

In conjunction with the audit of the Company's consolidated financial statements
for the 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 2002 and 2003 are summarized at Note 12 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.

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.



                                       11
<PAGE>

Accounts Receivable:

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

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

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

Inventories:

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

Income Taxes:

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


Results of Operations:

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.

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.



                                       12
<PAGE>

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.

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.


Years Ended December 31, 2002 and 2001 -

Net Revenues.  Net revenues decreased by $13,446,773 or 21.3%, to $49,644,417 in
2002,  as compared to  $63,091,190  in 2001.  The  decrease in net  revenues was
primarily  attributable  to a change in product  mix, the West Coast dock strike
and a weakening economy.

During the years ended  December 31, 2002 and 2001,  the Company  offered  price
protection to certain customers under specific programs  aggregating  $1,054,735
and $316,424,  respectively,  which reduced net revenues and accounts receivable
accordingly.

Gross Margin  (Deficit).  Gross margin was  $(4,003,972)  or (8.1)% in 2002,  as
compared  to  $4,376,642  or 6.9% in 2001.  Gross  margin  decreased  in 2002 as
compared to 2001,  both on an absolute and  percentage  of revenue  basis,  as a
result of reduced sales and the price war during the fourth  quarter of 2002, as
described at "Financial  Outlook" above,  as well as an inventory  write-down of
$2,123,307  in 2002.  The Company did not record any  inventory  write-downs  in
2001.

Sales and  Marketing  Expenses.  Selling and  marketing  expenses  increased  by
$540,874  or 68.1%,  to  $1,335,070  in 2002,  as  compared to $794,196 in 2001,
primarily  as a result of  increased  co-operative  marketing  programs in North
America.  Co-operative  marketing  program  expense  was  $907,505  in 2002,  as
compared to $445,729 in 2001, an increase of $461,776.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased by $424,560 or 15.6%, to $3,141,338 in 2002, as compared to $2,716,778
in 2001, primarily as a result of an increase in personnel-related expenses.

Provision for Doubtful  Accounts.  The provision for doubtful accounts increased
to $2,009,218 in 2002, as compared to $781,791 in 2001, primarily as a result of
an increase in the customer  default rate, which the Company believes was caused
by intense  competitive  pressures and a weakening  economy.  As a percentage of
revenues,  the provision for doubtful  accounts was 4.0% in 2002, as compared to
1.2% in 2001.

Depreciation  and  Amortization.  Depreciation  and amortization of property and
equipment  was $13,669 in 2002, as compared to $8,844 in 2001.  Amortization  of
goodwill was $417,106 in 2001.

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  $10,892,574  for the year
ended  December 31, 2002, as compared to a loss from  operations of $342,073 for
the year ended December 31, 2001.


                                       13
<PAGE>

Interest Expense.  Interest expense increased to $47,627 in 2002, as compared to
$25,190 in 2001, as a result of the revolving note payable being outstanding for
the full year in 2002 as compared to approximately one-half of the year in 2001.

Interest Income.  Interest income was $43,469 in 2002, as compared to $37,576 in
2001.

Other Income. Other income was $117,074 in 2002, as compared to $13,846 in 2001.

Provision  (Benefit) for Income Taxes. The benefit from income taxes was $46,200
in 2002, as compared to a provision for income taxes of $74,563 in 2001.

Net Loss. The net loss was  $10,733,458 for the year ended December 31, 2002, as
compared to a net loss of $390,404 for the year ended December 31, 2001.

Net Operating Loss Carryforwards:

As of December 31, 2003,  the Company had federal and state net  operating  loss
carryforwards  of  approximately   $12,398,000  and  $7,101,000,   respectively,
expiring  in various  years  through  2023,  which can be used to offset  future
taxable income, if any. Due to the restrictions  imposed by the Internal Revenue
Code  regarding   substantial  changes  in  ownership  of  companies  with  loss
carryforwards,  the utilization of a portion of the Company's  federal and state
net operating loss  carryforwards may be limited as a result of changes in stock
ownership  during  October  2002.  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  $5,244,000 at December 31, 2003  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, 2003:

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  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.

During the years ended December 31, 2003,  2002 and 2001, the Company  purchased
inventory from Soyo Taiwan aggregating $20,188,354, $42,219,164 and $41,633,352,
respectively. At December 31, 2003 and 2002, the Company had short-term accounts
payable  to Soyo  Taiwan of  $6,557,253  and  $12,803,935,  respectively,  and a
long-term payable to Soyo Taiwan of $12,000,000.

During the years ended  December 31, 2003 and 2002,  the Company  received price
protection  from Soyo Taiwan  aggregating  $651,215 and $394,071,  respectively,
which reduced inventories and accounts payable to Soyo Taiwan  accordingly.  The
Company  did not record any price  protection  adjustments  from Soyo  Taiwan in
2001. 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.



                                       14
<PAGE>

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

Going  Concern.  The  Company is  implementing  various  measures  to attempt to
improve its operations and liquidity as described above at "Financial  Outlook".
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  resources.  The Company may also have to consider a
formal or informal restructuring or reorganization.

As a  result  of these  factors,  the  Company's  independent  accountants  have
expressed  substantial  doubt about the Company's ability to continue as a going
concern. The accompanying  consolidated  financial statements have been prepared
assuming that the Company will continue as a going concern,  which  contemplates
the  realization  of assets and the  satisfaction  of  liabilities in the normal
course of business.  The carrying amounts of assets and liabilities presented in
the consolidated financial statements do not purport to represent the realizable
or settlement  values, and do not include any adjustments that might result from
the outcome of this uncertainty.

Operating  Activities.  The Company  generated  cash of $58,489  from  operating
activities  during the year ended  December 31, 2003, as compared to $489,898 in
operating activities during the year ended December 31, 2002, and as compared to
utilizing cash of $290,678 during the year ended December 31, 2001.



                                       15
<PAGE>

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, 2003, the Company's cash and cash  equivalents  had increased by
$93,900, to $717,196, as compared to $623,296 at December 31, 2002.

The Company had a working  capital of $78,182 at December 31, 2003,  as compared
to working capital of $737,711 at December 31, 2002, resulting in current ratios
of 1.01:1 and 1.04:1 at December 31, 2003 and 2002, respectively.

Accounts receivable increased to $7,675,115 at December 31, 2003, as compared to
$7,346,030 at December 31, 2002, an increase of $329,085 or 4.5%.

Inventories  decreased  to  $5,036,125  at  December  31,  2003,  as compared to
$12,358,255  at December 31, 2002, a decrease of $7,322,130 or 59.2%,  primarily
as a result of the Company's  efforts to reduce  inventories  as a percentage of
sales and increase inventory turnover.  At December 31, 2003,  $3,426,342 of the
$5,036,125 or 68.0% of inventories were purchased from Soyo Taiwan.  At December
31, 2002,  $9,359,190 of the $12,358,255 or 75.7% of inventories  were purchased
from Soyo Taiwan.

Accounts  payable - Soyo  Computer,  Inc.,  excluding  $12,000,000  of  accounts
payable for which payment has been deferred until  December 31, 2005,  decreased
to $6,557,253 at December 31, 2003, as compared to  $12,803,935  at December 31,
2002,  a decrease  of  $6,246,682  or 48.8%,  as a result of  reduced  inventory
purchases, reflecting reduced sales and attempts to improve inventory turnover.

Accounts  payable - other  increased to  $5,475,999  at December  31,  2003,  as
compared to $4,554,820 at December 31, 2002, an increase of $921,179 or 20.2%.

Accrued  liabilities  decreased to $592,984 at December 31, 2003, as compared to
$1,508,224 at December 31, 2002, a decrease of $915,240 or 60.7%.

Investing Activities.  The Company expended $4,589,  $35,052 and $1,740 in 2003,
2002 and 2001, respectively, for the purchase of property and equipment.

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.
The Company expects to repay the remainder during 2004.



                                       16
<PAGE>

Principal Commitments:

A summary of the Company's contractual cash obligations as of December 31, 2003,
excluding the $12,000,000 of long-term accounts payable to Soyo Computer,  Inc.,
which was converted into preferred stock in 2004, is as follows:
<TABLE>
<CAPTION>


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

Contractual                           Less than      Between      Between       After
Cash Obligations            Total       1 year      2-3 years    4-5 years     5 years
----------------         ----------   ----------   ----------   ----------   ----------
<S>                      <C>          <C>          <C>          <C>          <C>
Operating leases         $  935,635   $  184,560   $  377,670   $  373,405   $     --

Advances from officer,
  director and major
  shareholder               240,000      240,000         --           --           --
                         ----------   ----------   ----------   ----------   ----------
Total contractual cash

  Obligations            $1,175,635   $  424,560   $  377,670   $  373,405   $     --
                         ==========   ==========   ==========   ==========   ==========
</TABLE>


At December 31,  2003,  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.


Recent Accounting Pronouncements:

In August  2001,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of  Financial  Accounting  Standards  No. 143,  "Accounting  for Asset
Retirement  Obligations"  ("SFAS No.  143").  SFAS No. 143 addresses the diverse
accounting practices for obligations  associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company adopted
SFAS No. 143  effective  January 1, 2003.  The  adoption of SFAS No. 143 did not
have a significant effect on the Company's financial  statement  presentation 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.

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 December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation--Transition and Disclosure--an amendment of SFAS No. 123". SFAS No.
148 provides  alternative  methods of transition  for a voluntary  change to the
fair value based method of accounting  for  stock-based  employee  compensation.
SFAS No. 148 also  amends the  disclosure  requirements  of SFAS No. 123 and APB
Opinion No. 28, "Interim Financial Reporting",  to require prominent disclosures
in both annual and interim  financial  statements about the method of accounting
for  stock-based  employee  compensation  and the effect of the  method  used on
reported results.  The Company  implemented SFAS No. 148 effective  December 31,
2002.  The  Company  has  determined  that  it  will  continue  to  account  for
stock-based employee compensation in accordance with APB No. 25.



                                       17
<PAGE>

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  149  amends  and
clarifies under what circumstances a contract with initial investments meets the
characteristics  of a  derivative  and when a  derivative  contains a  financing
component.  SFAS No. 149 is  effective  for  contracts  entered into or modified
after June 30,  2003.  The  adoption of SFAS No. 149 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.

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.

In February 2003, the Financial Accounting Standards Board issued Interpretation
No.  46,  "Consolidation  of  Variable  Interest  Entities"  ("FIN  46"),  which
addresses  the  consolidation  by  business  enterprises  of  variable  interest
entities,  which  have  one or both of the  following  characteristics:  (1) the
equity  investment at risk is not sufficient to permit the entity to finance its
activities without additional  financial support from other parties,  or (2) the
equity investors lack one or more of the following essential  characteristics of
a controlling  financial  interest:  (a) the direct or indirect  ability to make
decisions about the entity's  activities  through voting or similar rights,  (b)
the obligation to absorb the expected losses of the entity if they occur, or (c)
the right to receive the expected  residual returns of the entity if they occur.
In addition,  FIN 46 contains detailed disclosure  requirements.  FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date.  It applies in the first fiscal year or interim  period ending after March
15, 2004, to variable  interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003.  Early adoption is permitted.
The Company  adopted FIN 46 as of December 31, 2003.  The adoption of FIN 46 did
not have a significant effect on the Company's financial statement  presentation
or disclosures.


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,  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.


                                       18
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a)      Financial Statements

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

         1.       Report of Independent Auditors

         2.       Consolidated Balance Sheet as of December 31, 2003

         3.       Consolidated  Statements  of  Operations  for the years  ended
                  December 31, 2003 and December 31, 2001

         4.       Consolidated  Statements of  Shareholders'  Deficiency for the
                  years ended December 31, 2003 and December 31, 2001.

         5.       Consolidated  Statements  of Cash  Flows for the  years  ended
                  December 31, 2003 and December 31, 2001

         6.       Notes to Consolidated Financial Statements.




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

         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,
("GH&C")  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 GH&C were approved by the Company's
Board of Directors.

         Prior to GH&C  becoming the  independent  accountants  for the Company,
neither the Company,  nor anyone on its behalf,  consulted  with GH&C  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 GH&C  were
approved by the Company's Board of Directors.

         Prior to GH&C  becoming the  independent  accountants  for the Company,
neither the Company,  nor anyone on its behalf,  consulted  with GH&C  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.



                                       19
<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.
































                                       20
<PAGE>

                                    PART III

ITEM 9A.  CONTROL PROCEDURES

(a) Evaluation of disclosure controls and procedures:

As of December 31, 2003,  the end of the period  covered by this annual  report,
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 are not adequate.

The Company's  chief executive  officer and chief  financial  officer arrived at
this conclusion based on a number of factors,  including the following:  (1) Our
system of internal  control during 2003 did not properly record accounts payable
to vendors for purchases of inventory,  (2) did not properly record  adjustments
of inventory per the general ledger to physical inventory balances,  (3) did not
properly  record  inventory  adjustments  to the lower cost or market  using the
average  inventory  method,  (4) did not  reconcile  our main bank  account from
August,  2003 through December 31, 2003 (5) had inadequate controls over interim
physical inventory  procedures (6) and the Company systems and procedures do not
generate timely and accurate financial  information to allow for the preparation
of timely  and  complete  financial  statements.  The  Company  does 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;  significant
turnover in the  Company's  financial  staff . In addition to the  foregoing,  a
former employee withheld financial  information from the auditors.  Accordingly,
the Company's chief executive officer and chief financial officer have 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 covered by this report.

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

The Company's automated  financial reporting systems are overly complex,  poorly
integrated and  inconsistently  implemented.  As a result, the Company is in the
process of implementing a new software application.

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

The Company has  experienced a substantial  turnover in finance  personnel.  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.  The Company has hired a controller  and currently is seeking to hire a
financial analyst to focus on financial reporting and analysis.

The Company  estimates  that it may take  several  months to fully  rectify this
situation.

(b) Changes in internal control over financial reporting:

In light of the  foregoing,  management  is  taking  the  actions  that it deems
necessary to rectify the current deficiencies as described above.



                                       21
<PAGE>

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,  2004.  The  Company's  Board of Directors is comprised of only one
class.  All of the  directors  will  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           42      President, Chief Executive Officer and Director
Nancy Chu                46      Chief Financial Officer, Secretary and Director


         Ming Tung Chok has served as the President, Chief Executive Officer and
Director of the Company  since the  October 25,  2002.  Prior to serving in this
capacity, Mr. Chok was the Vice President of Engineering of Soyo Group, Inc. for
the  past  5  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 the  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.

         For the period ended December 31, 2003,  certain corporate actions were
conducted by unanimous written consent of the Board of Directors,  including the
Acquisition.

         Directors   receive  no  compensation  for  serving  on  the  Board  of
Directors,  but are reimbursed for any out-of-pocket  expenses, if any, 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.






















                                       22
<PAGE>

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 any 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, 2001, 2002 and 2003 to the Company's Chief Executive  Officer
and Chief Financial Officer.















                                       23
<PAGE>
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE


--------------------------------------------------------------------------------------------------------------------
                           Annual Compensation                               Long-Term Compensation
----------------------------------------------------------------- -------------------------------------- -----------
                                                                             Awards            Payouts
--------------------- --------- --------- ---------- ------------ -------------------------- ----------- -----------
                                                        Other                   Securities
                                                       Annual     Restricted    Underlying               All Other
                                                       Compen-      Stock        Options/       LTIP       Compen-
Name and Principal       Year     Salary     Bonus     sation      Award(s)        SARs       Payouts      sation
Position                           ($)        ($)        ($)         ($)           (#)           ($)         ($)
--------------------- --------- --------- ---------- ----------- ------------ -------------- ----------- -----------
<S>                   <C>       <C>       <C>        <C>         <C>          <C>            <C>         <C>
                         2003    $144,000
Ming Tung Chok           2002    $138,000      0          0            0             0             0          0
President and CEO        2001    $ 72,000
--------------------- --------- --------- ---------- ----------- ------------ -------------- ----------- -----------
                         2003    $119,987
Nancy Chu                2002    $116,500      0          0            0             0             0          0
Chief Financial          2001    $ 78,000
Officer
--------------------- --------- --------- ---------- ----------- ------------ -------------- ----------- -----------
</TABLE>



         The Company  does  maintain,  nor has it  maintained  in the past,  any
employee benefit plans. No executive officer has been granted any stock options.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table sets  forth the number of shares of common  stock
beneficially  owned as of March 31, 2004 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, 2003; 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.


                                           Total Number           Percentage
Name/Title/Address(1)                    of Shares Owned         Ownership(2)
---------------------                    ---------------         ------------
Ming Tung Chok, President, CEO and
Director (3)                                12,000,000              30.0%

Nancy Chu, Chief Financial Officer,
and Director (3)                            14,209,548              35.5%

All officers and directors as a group       26,209,548              65.5%

Soyo Computer, Inc. (4)                      5,882,353              12.8%
No. 21 Wu-kung 5 Road
Hsing Chuang City
Taipu Hsien
Taiwan, ROC
--------------------
         (1) Unless otherwise  provided,  the addresses of these holders is 1420
S. Vintage Ave. Ontario California 91761.

         (2)  The  percentage   ownership  is  based  upon   40,000,000   shares
outstanding on March 31, 2003.

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

         (4) 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 $0.17 per share on April 11,  2003,  Soyo
Taiwan would have received 5,882,353 shares of the Company's common stock.

[Update for Series B]

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.








                                       24
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES


Independent Accountant Fees

         The  following  table sets forth the  aggregate  fees for  professional
audit services rendered by Grobstein, Horwath & Company LLP for the audit of the
Company's  annual  financial  statements for the fiscal years 2003 and 2002, and
fees billed for other services  provided by Grobstein,  Horwath for fiscal years
2003 and 2002.  Certain amounts from fiscal year 2002 have been  reclassified to
conform to new presentation requirements.

                                                        Fiscal Year Ended
                                                        2003         2002
                                                        ----         ----
Audit Fees                                            $205,640     $ 38,926
Audit-Related Fees (1)                                    --           --
Tax Fees (2)                                              --          1,000
All Other Fees                                            --           --
Total Fees Paid                                        $205,600    $ 39,926
---------------------------
(1) Includes accounting and reporting  consultations related to acquisitions and
internal (2) control  procedures.  (3) Includes fees for service  related to tax
compliance  services,  preparation  and  filing  (4)  of  tax  returns  and  tax
consulting services.


ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K.

(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*

10.2     Accounts Payable Deferral Agreement dated October 24,2002*

10.3     Exclusive Distribution Agreement dated October 24, 2002*

21.1     Subsidiaries of the Company*

99.1     Sarbanes-Oxley Act Section 906 Certification*

*Filed herein


(b) Reports on Form 8-K

NONE.










                                       25
<PAGE>

                                   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:  May 14, 2004            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:  May 14, 2004            By  /s/ Ming Tung Chok
                                   ---------------------------------------------
                                   Name: Ming Tung Chok
                                   Title: President, Chief Executive Officer and
                                   Director


Dated:  May 14, 2004            By  /s/ Nancy Chu
                                   ---------------------------------------------
                                   Name: Nancy Chu
                                   Title: Chief Financial Officer, Secretary and
                                   Director




























                                       26



<PAGE>

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




                                                                            Page
                                                                            ----

Report of Independent Public Accountants
  - Grobstein, Horwath & Company LLP                                         F-2
  - Malone & Bailey, PLLC                                                    F-3

Consolidated Balance Sheets - December 31, 2003 and 2002               F-4 - F-5

Consolidated Statements of Operations -
  Years Ended December 31, 2003, 2002 and 2001                               F-6

Consolidated Statements of Shareholders' Deficiency -
  Years Ended December 31, 2003, 2002 and 2001                               F-7

Consolidated Statements of Cash Flows -
  Years Ended December 31, 2003, 2002 and 2001                         F-8 - F-9

Notes to Consolidated Financial Statements -
  Years Ended December 31, 2003, 2002 and 2001                       F-10 - F-23






























                                      F-1


<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




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 auditing standards generally
accepted in the United States of America.  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







                                       F-2

<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




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

         We  have   audited   the   accompanying   statements   of   operations,
shareholders'   deficiency  and  cash  flows  of  Soyo  Group,  Inc.,  a  Nevada
corporation,  the successor to Soyo, Inc., a Nevada corporation (the "Company"),
for the year  ended  December  31,  2001.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

         We conducted our audit in accordance with auditing standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit 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  audit  provides  a
reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the results of operations and cash flows of
Soyo Group,  Inc.  for the year ended  December  31, 2001,  in  conformity  with
accounting principles generally accepted in the United States of America.




Malone & Bailey, PLLC
Houston, Texas
October 24, 2002

















                                       F-3
<PAGE>

                         Soyo Group, Inc. and Subsidiary
                           Consolidated Balance Sheets


                                                           December 31,
                                                   ----------------------------
                                                       2003            2002
                                                   ------------    ------------


ASSETS

CURRENT
  Cash and cash equivalents                        $    717,196    $    623,296
  Certificate of deposit, restricted                       --         1,000,000
  Accounts receivable, net of allowance
    for doubtful accounts of $856,386
    and $620,605 at December 31, 2003
    and 2002, respectively                            6,818,729       6,725,425
  Inventories, including $3,426,342
    and $9,359,190 purchased from Soyo
    Computer, Inc. in 2003 and 2002,
    respectively                                      5,036,125      12,358,255
  Prepaid expenses                                       43,973          50,714
  Income tax refund receivable                           47,000          47,000
                                                   ------------    ------------
                                                     12,663,023      20,804,690
                                                   ------------    ------------

Property and equipment                                   86,483          91,394
Less:  accumulated depreciation and
  amortization                                          (45,088)        (31,300)
                                                   ------------    ------------
                                                         41,395          60,094
                                                   ------------    ------------

Deposits                                                 25,035          50,000
                                                   ------------    ------------
                                                   $ 12,729,453    $ 20,914,784
                                                   ============    ============


















                                   (continued)

<PAGE>

                         Soyo Group, Inc. and Subsidiary
                           Consolidated Balance Sheets


                                                           December 31,
                                                   ----------------------------
                                                       2003            2002
                                                   ------------    ------------


LIABILITIES

CURRENT
  Accounts payable -
    Soyo Computer, Inc.                            $  6,557,253    $ 12,803,935
    Other                                             5,475,999       4,554,820
  Accrued liabilities                                   592,984       1,508,224
  Advances from officer,
    director and major
    shareholder                                         240,000            --
  Revolving note payable                                   --         1,200,000
                                                   ------------    ------------
                                                     12,663,023      20,066,979
                                                   ------------    ------------

NON-CURRENT
  Long-term payable - Soyo Computer,
    Inc                                              12,000,000      12,000,000
                                                   ------------    ------------

SHAREHOLDERS' DEFICIENCY
  Preferred stock, $0.001 par value
    Authorized - 10,000,000 shares
    Issued and outstanding -
      1,000,000 shares of Class A
      Convertible Preferred Stock,
      $1.00 per share stated
      liquidation value
      ($1,000,000 aggregate
      liquidation value)                                  1,000           1,000
  Common stock, $0.001 par value
    Authorized - 75,000,000 shares
    Issued and outstanding -
      40,000,000 shares                                  40,000          40,000
  Additional paid-in capital                            459,000         459,000
  Accumulated deficit                               (12,636,783)    (11,652,195)
                                                   ------------    ------------
                                                    (12,136,783)    (11,152,195)
                                                   ------------    ------------
                                                   $ 12,729,453    $ 20,914,784
                                                   ============    ============












       See accompanying report of independent public accountants and notes
                      to consolidated financial statements.

                                       F-4


<PAGE>

                         Soyo Group, Inc. and Subsidiary
                      Consolidated Statements of Operations


                                              Years Ended December 31,
                                   --------------------------------------------
                                       2003            2002            2001
                                   ------------    ------------    ------------

Net revenues                       $ 31,034,239    $ 49,644,417    $ 63,091,190

Cost of revenues, including
  inventory purchased from
  Soyo Computer, Inc. of
  $18,595,960, $42,219,164
  and $41,633,352 in 2003, 2002
  and 2001, respectively             27,960,377      53,648,389      58,714,548
                                   ------------    ------------    ------------
Gross margin (deficit)                3,073,862      (4,003,972)      4,376,642
                                   ------------    ------------    ------------

Costs and expenses:
  Sales and marketing                   814,847       1,335,070         794,196
  General and administrative          2,833,118       3,141,338       2,716,778
  Provision for doubtful accounts       390,555       2,009,218         781,791
  Depreciation and amortization -
    Property and equipment               15,689          13,669           8,844
    Goodwill                               --              --           417,106
  Impairment of goodwill                   --           389,307            --
                                   ------------    ------------    ------------
    Total costs and expenses          4,054,209       6,888,602       4,718,715
                                   ------------    ------------    ------------
Loss from operations                   (980,347)    (10,892,574)       (342,073)
                                   ------------    ------------    ------------

Other income (expense):
  Interest income                        26,252          43,469          37,576
  Interest expense                      (26,248)        (47,627)        (25,190)
  Other income (expense), net            (3,445)        117,074          13,846
                                   ------------    ------------    ------------
Other income (expense), net              (3,441)        112,916          26,232
                                   ------------    ------------    ------------
Loss before provision (benefit)
  for income taxes                     (983,788)    (10,779,658)       (315,841)

Provision (benefit) for income
  taxes                                     800         (46,200)         74,563
                                   ------------    ------------    ------------
Net loss                           $   (984,588)   $(10,733,458)   $   (390,404)
                                   ============    ============    ============


Net loss per common share -
  Basic and diluted                $      (0.03)   $      (0.35)   $      (0.01)
                                   ============    ============    ============


Weighted average number of shares
  of common stock outstanding -
  Basic and diluted                  40,000,000      30,384,320      28,182,750
                                   ============    ============    ============






       See accompanying report of independent public accountants and notes
                      to consolidated financial statements.

                                       F-5


<PAGE>
<TABLE>
<CAPTION>

                         Soyo Group, Inc. and Subsidiary
               Consolidated Statements of Shareholders' Deficiency
                  Years Ended December 31, 2003, 2002 and 2001



                                     Common Stock                 Preferred Stock          Additional        Total
                             ---------------------------   ---------------------------      Paid-in      Accumulated   Shareholders'
                                Shares        Par Value       Shares        Par Value       Capital        Deficit      Deficiency
                             ------------   ------------   ------------   ------------   ------------   ------------   ------------
<S>                          <C>            <C>            <C>            <C>            <C>            <C>            <C>
Balance, January 1, 2001       28,182,750   $     28,183      1,000,000   $      1,000   $    470,817   $   (528,333)  $    (28,333)

Net loss for the year
  ended December 31, 2001        (390,404)      (390,404)
                             ------------   ------------   ------------   ------------   ------------   ------------   ------------
Balance, December 31, 2001     28,182,750         28,183      1,000,000          1,000        470,817       (918,737)      (418,737)

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


























       See accompanying report of independent public accountants and notes
                      to consolidated financial statements.

                                       F-6


<PAGE>

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


                                               Years Ended December 31,
                                   --------------------------------------------
                                       2003            2002            2001
                                   ------------    ------------    ------------

OPERATING ACTIVITIES
Net loss                           $   (984,588)   $(10,733,458)   $   (390,404)
  Adjustments to reconcile
    net loss to net cash
    provided by (used in)
    operating activities:
      Depreciation and
        amortization                     15,689          13,669           8,844
      Amortization of goodwill             --              --           417,106
      Provision for doubtful
        accounts                        390,555       2,009,218         781,791
      Impairment of goodwill               --           389,307            --
      Loss on disposition of
        fixed assets                      7,600            --              --
      Changes in operating
        assets and liabilities:
        (Increase) decrease in:
          Accounts receivable          (483,860)      1,243,005      (1,508,671)
          Inventories                 7,322,130       2,243,166      (9,125,039)
          Prepaid expenses                6,741         (25,453)           (816)
          Note receivable                  --              --           734,911
          Income taxes receivable          --           (47,000)         63,000
          Deposits                       24,965          59,000         (18,878)
        Increase (decrease) in:
          Accounts payable -
            Soyo Computer, Inc.      (6,246,682)      3,612,641       6,217,342
          Accounts payable -
            other                       921,179         350,477       2,457,361
          Accrued liabilities          (915,240)      1,450,371          (2,269)
          Income taxes payable             --           (75,044)         75,044
                                   ------------    ------------    ------------
  Net cash provided by (used in)
    operating activities                 58,489         489,899        (290,678)
                                   ------------    ------------    ------------


INVESTING ACTIVITIES
  Purchase of property and
    equipment                            (4,589)        (35,053)         (1,740)
                                   ------------    ------------    ------------
  Net cash used in
    investing activities                 (4,589)        (35,053)         (1,740)
                                   ------------    ------------    ------------







                                  (continued)

                                      F-7


<PAGE>

                         Soyo Group, Inc. and Subsidiary
                Consolidated Statements of Cash Flows (continued)


                                               Years Ended December 31,
                                    -------------------------------------------
                                        2003            2002           2001
                                    ------------    ------------   ------------

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

CASH AND CASH EQUIVALENTS:
  Net increase (decrease)                 93,900         454,846        (92,418)
  At beginning of year                   623,296         168,450        260,868
                                    ------------    ------------   ------------
  At end of year                    $    717,196    $    623,296   $    168,450
                                    ============    ============   ============



SUPPLEMENTAL DISCLOSURE OF
  CASH FLOW INFORMATION:

Cash paid for interest              $     26,248    $     44,096   $     25,190
                                    ============    ============   ============

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



SUPPLEMENTAL DISCLOSURE OF
  NON-CASH INVESTING AND
  FINANCING ACTIVITIES:


Shares of common stock
  retained by shareholders
  in October 2002 transaction                       $     11,817

Reclassification of accounts
  payable - Soyo Computer, Inc.
  to long-term payable - Soyo
  Computer, Inc.                                    $ 12,000,000
















       See accompanying report of independent public accountants and notes
                      to consolidated financial statements.


                                       F-8




<PAGE>

                         Soyo Group, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 2003, 2002 and 2001


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. During the first quarter of 2004,
     the Company agreed with a third party to convert long-term accounts payable
     into convertible  preferred stock. The Company plans to issue the preferred
     stock during the second quarter of 2004.(see Note 11).

          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.

          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

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


                                      F-8

<PAGE>

          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, 2000 and 2001, the Company's sales
     were $62,173,829 and $63,091,190,  respectively, with gross margins of 4.8%
     and 6.9%,  respectively.  During  the year ended  December  31,  2002,  the
     Company's sales  decreased to $49,644,417,  with a negative gross margin of
     8.1%,  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, 2002 and 2003.

          At December 31, 2002, the Company reviewed the  collectibility  of its
     accounts  receivable,  particularly  in light of the  deterioration  in its
     business  operations  during the three months ended  December 31, 2002, and
     increased the provision for doubtful accounts by $1,939,694,  to $2,009,218
     for the year ended  December 31, 2002, as compared to $69,524 as originally
     reported for the nine months ended  September 30, 2002. With respect to the
     $2,009,218,  the Company  determined  that $1,225,001 was applicable to the
     nine months ended  September 30, 2002,  and $784,217 was  applicable to the
     three months ended December 31, 2002.

          At December 31, 2002, the Company also reviewed the  realizability  of
     its  inventory,  and reduced the carrying  amount by  $2,123,307,  of which
     $1,700,001 was applicable to the nine months ended  September 30, 2002, and
     $423,306 was  applicable  to the three months ended  December 31, 2002.  At
     December 31,  2003,  the Company also  reclassified  $1,126,393  of cost of
     revenues from the three months ended  December 31, 2002 to the three months
     ended September 30, 2002 (see Note 12).

          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.

          As of December  31,  2003,  the Company is reliant upon the cash flows
     from its  operations.  The Company  does not have any  external  sources of
     liquidity,  other  than  advances  from  an  officer,  director  and  major
     shareholder.

          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 is attempting  to arrange  additional  supply  sources and to
     reduce 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.

          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  resources.  The Company may also have to consider a formal
     or informal restructuring or reorganization.

          As a result of these factors,  the Company's  independent  accountants
     have expressed substantial doubt about the Company's ability to continue as
     a going concern.  The accompanying  consolidated  financial statements have
     been prepared  assuming that the Company will continue as a going  concern,
     which  contemplates  the  realization  of assets  and the  satisfaction  of
     liabilities  in the normal  course of  business.  The  carrying  amounts of
     assets and liabilities  presented in the consolidated  financial statements
     do not purport to represent the realizable or settlement values, and do not
     include  any  adjustments  that  might  result  from  the  outcome  of this
     uncertainty.



                                      F-10

<PAGE>

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.  Inventories  consist primarily of
     computer parts and components purchased from Soyo Taiwan.

          During  the  years  ended  December  31,  2003 and 2002,  the  Company
     wrote-down  the  value  of  its  inventory  by  $429,230  and   $2,123,307,
     respectively.  The  Company  did not  record  write-down  the  value of its
     inventory during the year ended December 31, 2001.

     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
     (excluding  goodwill) were  recognized  during the years ended December 31,
     2003 and 2002.


                                      F-11

<PAGE>

     g.   Revenue Recognition

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

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

     h.   Vendor Programs

          Funds  received from vendors for price  protection,  product  rebates,
     marketing  and  training,   product  returns  and  promotion  programs  are
     generally  recorded as adjustments  to product costs,  revenue or sales and
     marketing expenses according to the nature of the program.

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

     i.   Warranties

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

     j.   Concentration of Cash and Credit Risk

          The Company  maintains its cash in bank accounts which, at times,  may
     exceed federally insured limits. The Company has not experienced any losses
     in such  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 creditors,  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,  2003,  2002 and 2001 were
     $728,488,  $907,505 and $445,729,  respectively,  and are  presented  under
     sales and marketing costs in the  accompanying  consolidated  statements of
     operations.


                                      F-12

<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, 2001, 2002 and 2003 because
     the Company incurred a loss during such periods and their effect would have
     been  anti-dilutive.  Accordingly,  basic and diluted loss per share is the
     same for the years ended December 31, 2003, 2002 and 2001.

          The loss per common share calculation for the years ended December 31,
     2001  and  2002  reflects  the  retroactive  restatement  of  shareholders'
     deficiency to reflect the effect of the October 2002  recapitalization.  As
     of  December  31,  2003,   potentially  dilutive  securities  consisted  of
     1,000,000 shares of 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.  For the year ended December
     31, 2003, 9,090,909 shares of common stock were issuable upon conversion of
     the convertible  preferred stock,  based on the trading price of the common
     stock on December 31, 2003 of $0.11 per share.

     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, 2003, 2002 and 2001.

     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, 2003 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.


                                      F-13

<PAGE>

          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.

          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 August 2001,  the Financial  Accounting  Standards  Board  ("FASB")
     issued Statement of Financial Accounting Standards No. 143, "Accounting for
     Asset Retirement  Obligations" ("SFAS No. 143"). SFAS No. 143 addresses the
     diverse accounting practices for obligations associated with the retirement
     of tangible  long-lived  assets and the associated asset retirement  costs.
     The Company adopted SFAS No. 143 effective January 1, 2003. The adoption of
     SFAS No. 143 did not have a significant  effect on the Company's  financial
     statement presentation 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.


                                      F-14

<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  December  2002,  the FASB issued  SFAS No.  148,  "Accounting  for
     Stock-Based  Compensation--Transition  and Disclosure--an amendment of SFAS
     No. 123".  SFAS No. 148 provides  alternative  methods of transition  for a
     voluntary  change  to  the  fair  value  based  method  of  accounting  for
     stock-based employee compensation.  SFAS No. 148 also amends the disclosure
     requirements  of SFAS No. 123 and APB  Opinion No. 28,  "Interim  Financial
     Reporting",  to require  prominent  disclosures  in both annual and interim
     financial  statements  about  the  method  of  accounting  for  stock-based
     employee  compensation  and the  effect  of the  method  used  on  reported
     results.  The Company implemented SFAS No. 148 effective December 31, 2002.
     The Company has determined that it will continue to account for stock-based
     employee compensation in accordance with APB No. 25.

          In April 2003,  the FASB issued SFAS No. 149,  "Amendment of Statement
     133 on Derivative Instruments and Hedging Activities".  SFAS No. 149 amends
     and clarifies under what circumstances a contract with initial  investments
     meets the  characteristics of a derivative and when a derivative contains a
     financing  component.  SFAS No. 149 is effective for contracts entered into
     or modified  after June 30, 2003. The adoption of SFAS No. 149 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.

          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.


                                      F-15

<PAGE>

          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.

          In February  2003,  the Financial  Accounting  Standards  Board issued
     Interpretation No. 46,  "Consolidation of Variable Interest Entities" ("FIN
     46"), which addresses the consolidation by business enterprises of variable
     interest entities, which have one or both of the following characteristics:
     (1) the equity investment at risk is not sufficient to permit the entity to
     finance its  activities  without  additional  financial  support from other
     parties,  or (2) the  equity  investors  lack one or more of the  following
     essential  characteristics  of a controlling  financial  interest:  (a) the
     direct or indirect ability to make decisions about the entity's  activities
     through voting or similar rights, (b) the obligation to absorb the expected
     losses  of the  entity  if they  occur,  or (c) the  right to  receive  the
     expected residual returns of the entity if they occur. In addition,  FIN 46
     contains detailed  disclosure  requirements.  FIN 46 applies immediately to
     variable  interest entities created after January 31, 2003, and to variable
     interest  entities in which an  enterprise  obtains an interest  after that
     date.  It applies in the first fiscal year or interim  period  ending after
     March 15, 2004, to variable  interest entities in which an enterprise holds
     a variable  interest  that it  acquired  before  February  1,  2003.  Early
     adoption is permitted.  The Company adopted FIN 46 as of December 31, 2003.
     The adoption of FIN 46 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, 2003 and 2002 are summarized
as follows:


                                                          December 31,
                                                    --------------------------
                                                        2003           2002
                                                    -----------    -----------

Accounts receivable                                 $ 7,675,115    $ 7,346,030
Less:  allowance for doubtful accounts                 (856,386)      (620,605)
                                                    -----------    -----------
                                                    $ 6,818,729    $ 6,725,425
                                                    ===========    ===========


     Changes in the allowance for doubtful accounts for the years ended December
31, 2003, 2002 and 2001 are summarized as follows:

<TABLE>
<CAPTION>


                                                      Years Ended December 31,
                                             -----------------------------------------
                                                2003           2002           2001
                                             -----------    -----------    -----------
<S>                                          <C>            <C>            <C>
Balance, beginning of year                   $   620,605    $   653,259    $   364,199
Add:  Amounts provided during the year           390,555      2,009,218        472,881
Less:  Amounts written off during the year      (154,774)    (2,041,872)      (183,821)
                                             -----------    -----------    -----------
Balance, end of year                         $   856,386    $   620,605    $   653,259
                                             ===========    ===========    ===========
</TABLE>


                                      F-16

<PAGE>

     During  the year ended  December  31,  2001,  the total  amount  charged to
operations  with  respect  to  uncollectible   accounts  receivable   aggregated
$781,791,  consisting  of additions to the  allowance  for doubtful  accounts of
$472,881 and accounts receivable charged off directly to operations of $308,910.

     The  Company's  management  believes  that the balance of the allowance for
doubtful accounts at December 31, 2003 and 2002 was sufficient to cover any past
due accounts whose collection is considered doubtful at such dates.


4.   Property and Equipment

     At December  31, 2003 and 2002,  property  and  equipment  consisted of the
following:


                                                               December 31,
                                                           --------------------
                                                             2003        2002
                                                           --------    --------

Computer and equipment                                     $ 58,455    $ 56,378
Furniture and fixtures                                       17,773      16,841
Leasehold improvements                                        1,580       9,500
Automobile                                                    8,675       8,675
                                                           --------    --------
                                                             86,483      91,394
Less:  accumulated
  depreciation and
  amortization                                              (45,088)    (31,300)
                                                           --------    --------
                                                           $ 41,395    $ 60,094
                                                           ========    ========


     For the years ended  December 31,  2003,  2002 and 2001,  depreciation  and
amortization expense related to property and equipment was $15,689,  $13,669 and
$8,844, 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.



                                      F-17

<PAGE>

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. The Company expects to repay the remainder during 2004.


8.   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 31, 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,
     -------------------------

     2004             $184,560
     2005              184,560
     2006              193,110
     2007              194,820
     2008              178,585

          Rent expense for the years ended December 31, 2003,  2002 and 2001 was
     $276,044, $361,140 and $308,422, respectively.

     b.   Legal Proceedings

          The  Company is not  currently  a party to any  threatened  or pending
     legal proceedings, other than incidental litigation arising in the ordinary
     course of business. In the opinion of management,  the ultimate disposition
     of these matters will not have a material  adverse  effect on the Company's
     consolidated financial position, results of operations or cash flows.


9.   Income Taxes

     Prior to 2002,  Soyo Taiwan and Soyo Nevada did not file  consolidated  tax
returns.  For the years ended  December  31,  2003,  2002 and 2001,  the Company
incurred net losses and  accordingly,  had no tax liability,  other than minimum
state franchise taxes.

     As of December  31, 2003,  the Company had federal and state net  operating
loss  carryforwards of approximately  $12,290,000 and $7,101,000,  respectively,
expiring  in various  years  through  2023,  which can be used to offset  future
taxable income, if any. Due to the restrictions  imposed by the Internal Revenue
Code  regarding   substantial  changes  in  ownership  of  companies  with  loss
carryforwards,  the utilization of a portion of the Company's  federal and state
net operating loss  carryforwards may be limited as a result of changes in stock
ownership  during  October  2002.  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.

     Deferred income taxes consisted of the following at December 31, 2003:

     Deferred tax assets:
       Net operating loss carryforwards                             $ 4,841,000
       Allowance for doubtful accounts                                  393,000
       Other                                                             10,000
                                                                    -----------
                                                                      5,244,000
       Less:  Valuation allowance                                    (5,244,000)
                                                                    -----------
                                                                    $      --
                                                                    ===========



                                      F-18

<PAGE>

     The provision  (benefit) for federal income taxes consists of the following
for the years ended December 31, 2003, 2002 and 2001:

                                                    Years Ended December 31,
                                                --------------------------------
                                                  2003        2002        2001
                                                --------    --------    --------

     Current provision                          $    800    $    800    $ 74,563
     Recognition of income tax refund
       receivable resulting from net
       operating loss carryback                     --       (47,000)       --
                                                --------    --------    --------
                                                $    800    $(46,200)   $ 74,563
                                                ========    ========    ========


     The provision for income taxes using the statutory  federal income tax rate
as compared to the Company's effective tax rate is summarized as follows:

                                                Years Ended December 31,
                                       ----------------------------------------
                                          2003            2002          2001
                                       ----------      ----------    ----------

     Provision for income taxes at
       federal statutory rate                (34)%           (34)%         (34)%
     Depreciation recorded in excess
       of tax depreciation                      -               -            24
     Effect of IRS Section 263a                 -               -            16
     Effect of utilization of net
       operating loss                           -               -            20
     Other items, net                           -               -            (2)
     Valuation allowance                       34              34             -
                                       ----------      ----------    ----------
     Income tax provision                      - %             - %          24 %
                                       ==========      ==========    ==========


10.  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,
                                         ---------------------------------------
                                             2003          2002          2001
                                         -----------   -----------   -----------
     Revenues
       Distributors                      $13,055,046   $ 7,376,500   $13,035,994
       Retailers                          17,979,193    42,267,917    50,055,196
                                         -----------   -----------   -----------
                                         $31,034,239   $49,644,417   $63,091,190
                                         ===========   ===========   ===========

          During the years ended  December 31, 2003,  2002 and 2001, the Company
     offered  price  protection to certain  customers  under  specific  programs
     aggregating  $2,129,046,   $1,054,735  and  $316,424,  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, 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.

          During the year ended December 31, 2001, the Company had two customers
     that  accounted for revenues of $7,122,235  and  $7,319,665,  equivalent to
     11.3% and 11.6% of net revenues, respectively.



                                      F-19

<PAGE>

     b.   Geographic Segments

          Revenues by geographic segment are summarized as follows:

                                                  Years Ended December 31,
                                         ---------------------------------------
                                             2003          2002          2001
                                         -----------   -----------   -----------

     Revenues
       North America                     $23,043,136   $42,033,632   $54,041,229
       Central and South America           7,391,804     3,816,747     7,886,606
       Other locations                       599,299     3,794,038     1,163,355
                                         -----------   -----------   -----------
                                         $31,034,239   $49,644,417   $63,091,190
                                         ===========   ===========   ===========

     c.   Suppliers

          A substantial  majority of the Company's  inventories are manufactured
     by Soyo Taiwan and are  purchased  from Soyo Taiwan or an affiliate of Soyo
     Taiwan on an open account basis.

          Through October 24, 2002, Soyo Nevada was a wholly-owned subsidiary of
     Soyo Taiwan (see Note 1).  Subsequent to that date,  Soyo Taiwan has agreed
     to continue to provide  inventory to Soyo on an open account  basis through
     December 31, 2005.

          The following is a summary of the Company's  transactions and balances
     with Soyo Taiwan as of and for the years ended December 31, 2003,  2002 and
     2001:

                                                            December 31,
                                                    ----------------------------
                                                        2003             2002
                                                    -----------      -----------

          Accounts payable to Soyo Taiwan           $ 6,557,253      $12,803,935
          Long-term payable to Soyo Taiwan           12,000,000       12,000,000


                                                Years Ended December 31,
                                         ---------------------------------------
                                            2003           2002          2001
                                         ----------    -----------   -----------

          Purchases from Soyo Taiwan     $20,188,354   $42,219,164   $41,633,352
          Payments to Soyo Taiwan         18,842,244    35,946,037    35,416,010


          During the years ended  December 31, 2003,  2002 and 2001, the Company
     received price  protection  from Soyo Taiwan of $651,215,  $394,071 and $0,
     respectively, which reduced inventory and accounts payable accordingly.



                                      F-20

<PAGE>

11.  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
     26,209,548  shares of the 40,000,000  shares of common stock outstanding at
     December 31, 2003.

     b.   Preferred Stock

          As of December 31, 2003, 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 based on the $1.00 stated value, 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.

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


                                      F-21

<PAGE>

     c.   Stock Options and Warrants

          As of December 31, 2003, the Company did not have any stock options or
     warrants outstanding, and had not adopted a stock option plan.


12.  Quarterly Results (Unaudited)

     Presented below is a summary of the quarterly results of operations for the
years ended December 31, 2003 and 2002.

     The quarterly  results of operations  for the three months ended  September
30, 2002 and December 31, 2002 have been  restated to  reclassify  $1,126,393 of
cost of revenues  from the three  months  ended  December  31, 2003 to the three
months ended December 31, 2002,  although the results of operations for the full
year 2002 did not change.

     The Company also  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.

<TABLE>
<CAPTION>

                                           Three Months Ended
                   --------------------------------------------------------------
                     March 31,        June 30,     September 30,    December 31,
                        2003            2003            2003             2003            Total
                   -------------   -------------   -------------    -------------    -------------
<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
  (deficit)            1,170,866       1,410,174        (435,457)         928,279        3,073,862
Income (loss)
  from
  operations             139,845         166,179      (1,353,758)          67,387         (980,347)
Income (loss)
  before
  income taxes           130,451         181,372      (1,355,398)          59,787         (983,788)
Income taxes              36,250          28,750          25,680          (89,880)             800
Net income
 (loss)            $      94,201   $     152,622   $  (1,381,078)   $     149,667    $    (984,588)

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





                                      F-22

<PAGE>

                                           Three Months Ended
                   --------------------------------------------------------------
                     March 31,        June 30,     September 30,    December 31,
                        2002            2002            2002             2002            Total
                   -------------   -------------   -------------    -------------    -------------

Net revenues       $  15,338,684   $  10,960,636   $  13,625,372    $   9,719,725    $  49,644,417
Gross margin
  (deficit)             (456,937)        269,485        (986,322)      (2,830,198)      (4,003,972)
Loss from
  operations          (2,305,283)       (765,099)     (2,617,518)      (5,204,674)     (10,892,574)
Loss before
  income
  taxes               (2,308,175)       (694,190)     (2,625,977)      (5,151,317)     (10,779,658)
Income taxes                --           (61,679)           --             15,479          (46,200)
Net loss           $  (2,308,175)  $    (632,511)  $  (2,625,977)   $  (5,166,796)   $ (10,733,458)

Net loss per
  common share -
    Basic          $       (0.08)  $       (0.02)  $       (0.09)   $       (0.18)   $       (0.35)
    Diluted        $       (0.08)  $       (0.02)  $       (0.09)   $       (0.18)   $       (0.35)

Weighted
  average
  number of
  common
  shares
  outstanding -
    Basic             28,182,750      28,182,750      28,182,750       28,182,750       30,384,320
    Diluted           28,182,750      28,182,750      28,182,750       28,182,750       30,384,320
</TABLE>






























                                      F-23