Edgar Filing: SOYO GROUP INC

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2004

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

For the transition period from _________________ to __________________

Commission File Number 333-42036

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

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

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

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

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

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

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

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

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

The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of June
30, 2004 was $___________, based on the closing bid price of $0.13 per share On
June 30, 2004.

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

Documents Incorporated by Reference: None

SOYO GROUP, INC.
FORM 10-K
INDEX

Page
----

PART I

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

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

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

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

PART II

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

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

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

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

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

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

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

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

PART III

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

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

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

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

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

PART IV

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

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

PART I

ITEM 1. BUSINESS.

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

Company History

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

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

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

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

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

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

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

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

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

Name Title
---- -----

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

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

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

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

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

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

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

PRODUCTS

Computer Components and Peripherals

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

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

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

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

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

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

Storage and MultiMedia Reader/Writer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PRODUCTION

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

TRANSPORTATION AND DISTRIBUTION

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

MARKETING AND SALES

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

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

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

CUSTOMERS

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

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

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

SUPPLIERS

hardware and motherboards, which are much more mature markets. As a result, the
Company significantly reduced its reliance on SOYO Taiwan.

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

REGULATIONS

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

STRATEGY

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

COMPETITION

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

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

EMPLOYEES

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

ITEM 2. PROPERTIES

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

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

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

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

ITEM 3. LEGAL PROCEEDINGS.

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

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

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

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

PART II

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

(a) Market Prices of Common Stock

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

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

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

Fiscal Year Ended December 31, 2004:

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

(b) Shareholders

The Company's common shares are issued in registered form. Securities
Transfer Corporation, Dallas, Texas, is the registrar and transfer agent for the
Company's common stock. As of March 30, 2005 there were 40,530,000 shares of the
Company's common stock outstanding and the Company had 86 shareholders of
record.

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

During 2004 we declared dividends on the Class B Preferred Stock
outstanding.

(d) Penny Stock

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

quotations for the securities. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in an account and
information on the limited market in penny stocks. Consequently, these rules
restrict the ability of broker-dealers to trade and/or maintain a market in the
Company's common stock and may affect the ability of the Company's shareholders
to sell their shares.

(e) Recent Sales of Unregistered Securities

None

(f) Equity Compensation Plan Information

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

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data of the Company is
presented as of and for the years ended December 31, 2004, 2003, 2002, 2001 and
2000. The selected financial data should be read in conjunction with the
Company's audited consolidated financial statements and the notes thereto, and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".

Selected Consolidated Statements of Operations Data:

Year Ended December 31,

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

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

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

Selected Consolidated Balance Sheet Data:

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

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

------------------- ----------------- ----------------- ----------------- ----------------- ---------------
Cash dividends -- -- -- -- --
declared per
common share
------------------- ----------------- ----------------- ----------------- ----------------- ---------------

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

The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

This Annual Report on Form 10-K for the fiscal year ended December 31, 2004
contains "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, including statements that include the words
"believes", "expects", "anticipates", or similar expressions. These
forward-looking statements may include, among others, statements concerning the
Company's expectations regarding its business, growth prospects, revenue trends,
operating costs, working capital requirements, facility expansion plans,
competition, results of operations and other statements of expectations,
beliefs, future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. The
forward-looking statements in this Annual Report on Form 10-K for the fiscal
year ended December 31, 2004 involve known and unknown risks, uncertainties and
other factors that could cause actual results, performance or achievements of
the Company to differ materially from those expressed in or implied by the
forward-looking statements contained herein.

Each forward-looking statement should be read in context with, and with an
understanding of, the various disclosures concerning the Company and its
business made elsewhere in this Annual Report on Form 10-K for the fiscal year
ended December 31, 2004, as well as other public reports filed with the United
States Securities and Exchange Commission. You should not place undue reliance
on any forward-looking statement as a prediction of actual results or
developments. The Company does not intend to update or revise any
forward-looking statement contained in this Annual Report on Form 10-K for the
fiscal year ended December 31, 2004 to reflect new events or circumstances
except to the extent required by applicable law.

Background and Overview:

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

Subsequent to this transaction, SOYO Taiwan maintained an equity interest
in SOYO, continued to be the primary supplier of inventory to SOYO, and was a

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

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

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

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

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

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

Year Ended December 31,
-------------------------------------------------------------------------------
2004 2003 2002
----------------------- ----------------------- ------------------------
Amount % Amount % Amount %
-------------- ----- -------------- ----- -------------- -----

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

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

Revenues by geographic segment are summarized as follows:

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

Financial Outlook:

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

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

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

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

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

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

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

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

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

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

Restatement:

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

Critical Accounting Policies:

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

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

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

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

Vendor Programs:

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

Accounts Receivable:

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

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

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

Inventories:

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

Income Taxes:

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

Results of Operations:

Years Ended December 31, 2004 and 2003-

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Years Ended December 31, 2003 and 2002 -

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net Operating Loss Carryforwards:

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

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

Liquidity and Capital Resources - December 31, 2004:

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

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

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

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

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

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

Based on the terms of the agreement between SOYO Taiwan and the third party, and
specifically the limitation on the purchaser collecting more than $1,630,000 of
the $12,000,000 from the Company without the prior consent of SOYO Taiwan, the
Company has determined that this transaction is in substance a capital
transaction. The Company recorded the issuance of the Class B preferred stock at
its fair market value on March 31, 2004 of $1,304,000, which was determined by
an independent investment banking firm. The $10,696,000 difference between the
$12,000,000 long term payable and the $1,304,000 fair market value of the Class
B preferred stock was credited to additional paid-in capital. The difference
between the fair market value and the liquidation value of the Class B preferred
stock is being recognized as an additional dividend to the Class B preferred
stockholder, and as an increase in the loss attributable to common stockholders,
and is being accreted from April 1, 2004 through December 31, 2008.

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

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

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

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

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

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

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

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

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

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

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

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

On March 29, 2004, LGT Computer, Inc. loaned the Company $213,750 pursuant to an
unsecured note payable due March 28, 2005, with interest at 4% per annum. On May
29, 2004, LGT Computer, Inc. loaned the Company an additional $700,000 pursuant
to an unsecured note payable due May 29, 2005, with interest at 4% per annum. On
March 28, 2005, by mutual agreement of the parties, the due date of the first
note was extended six months at the same interest rate. The new due date of the
first loan is September 28, 2005.

Principal Commitments:

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

----------------------------- ---------- ---------- ---------- ---------- -------------
Contractual Cash Obligations Total Less than Between Between Over 5
one year 2-3 years 4-5 years years
----------------------------- ---------- ---------- ---------- ---------- -------------

Operating Leases $ 722,873 $ 184,563 $ 369,127 $ 169,183 --
----------------------------- ---------- ---------- ---------- ---------- -------------
Advances from $ 240,000 $ 240,000 -- -- --
Officers/Shareholders
----------------------------- ---------- ---------- ---------- ---------- -------------
Notes Payable $ 913,750 $ 913,750 -- -- --
----------------------------- ---------- ---------- ---------- ---------- -------------
Total $1,876,623 $1,338,313 $ 369,127 $ 169,183 --
----------------------------- ---------- ---------- ---------- ---------- -------------

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a) Financial Statements

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

1. Report of Independent Auditors

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

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

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

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

6. Notes to Consolidated Financial Statements.

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

Page
---------

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

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

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

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

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

Vasquez & Company LLP

Los Angeles, California
March 11, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

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

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

Grobstein, Horwath & Company LLP

Sherman Oaks, California
May 12, 2004

SOYO Group, Inc. and Subsidiary
Consolidated Balance Sheets

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

respectively

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

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

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

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

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

165,066 41,395

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

SOYO Group, Inc. and Subsidiary
Consolidated Balance Sheets

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

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

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

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

SOYO Group, Inc. and Subsidiary
Consolidated Statements of Operations

Year Ended December 31,
-----------------------
------------------------------------------------- ------------ ------------ ------------
2004 2003 2002
------------------------------------------------- ------------ ------------ ------------

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

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

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

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

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

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

Additional Total
Common Stock Preferred Stock Paid In Accumulated Shareholders
Shares Par Value Shares Par Value Capital Deficit Deficiency

Balance, December 31, 2001 28,182,750 $ 28,183 1,000,000 $ 1,000 $ 470,817 $ (918,737) $ (418,737)
------------ ------------ ------------ ------------ ------------ ------------ ------------

Shares of common stock
retained by
shareholders
in October 2002
transaction 11,817,250 11,817 -- -- (11,817) -- --
Net loss for the year
ended December 31, 2002 -- -- -- -- -- (10,733,458) (10,733,458)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2002 40,000,000 40,000 1,000,000 1,000 459,000 (11,652,195) (11,152,195)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net loss for the year
ended December 31, 2003 -- -- -- -- -- (984,588) (984,588)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2003 40,000,000 40,000 1,000,000 1,000 459,000 (12,636,783) (12,136,783)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Issuance of Preferred
Stock for Long Term Debt -- -- 2,500,000 1,304,000 10,696,000 -- 12,000,000
Dividends 114,195 114,195 -- -- 114,195
Accretion of Discount 109,538 -- -- 109,538
Net loss for the year
ended December 31, 2004 -- -- -- -- -- (4,143,978) (4,143,978)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2004 40,000,000 40,000 3,614,195 1,528,733 11,155,000 (16,780,761) (4,057,028)
============ ============ ============ ============ ============ ============ ============

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

Years Ended December 31,
--------------------------------------------------- ------------ ------------ ------------
2004 2003 2002
--------------------------------------------------- ------------ ------------ ------------

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

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

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

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

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

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

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

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

--------------------------------------------------- ------------ ------------ ------------
Noncash Dividends 223,733
--------------------------------------------------- ------------ ------------ ------------

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

1. Organization and Business

a. Organization

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

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

An agreement was reached in the first quarter of 2004 whereby 2,500,000
shares of Class B preferred stock would be issued by the Company to an
unrelated third party in exchange for the long-term payable.

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

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

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

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

b. Business and Outlook

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

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

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

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

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

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

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

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

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

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

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

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

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

2. Basis of Presentation and Summary of Significant Accounting Policies

a. Presentation

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

b. Use of Estimates

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

c. Cash and Cash Equivalents

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

d. Inventories

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

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

e. Property and Equipment

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

f. Impairment or Disposal of Long-Lived Assets

Effective January 1, 2002, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". The Company assesses potential impairments to
its long-lived assets when events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. If required, an
impairment loss is recognized as the difference between the carrying value and
the fair value of the assets. No impairment losses associated with the Company's
long-lived assets were recognized during the years ended December 31, 2004 and
2003.

g. Revenue Recognition

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

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

h. Vendor Programs

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

i. Warranties

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

j. Concentration of Cash and Credit Risk

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

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

k. Advertising

Advertising costs are charged to expense as incurred. The Company has not
incurred direct advertising costs. However, the Company may participate in
cooperative advertising programs with certain of its customers by paying a
stipulated percentage of the sales invoice price. Cooperative advertising costs
paid for the years ended December 31, 2004, 2003 and 2002 were $1,481,441,
$728,488 and $907,505 respectively, and are presented under sales and marketing
costs in the accompanying consolidated statements of operations.

l. Income Taxes

The Company accounts for income taxes using the asset and liability method
whereby deferred income taxes are recognized for the tax consequences of
temporary differences by applying statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of certain assets and liabilities. Changes in deferred tax assets and
liabilities include the impact of any tax rate changes enacted during the year.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.

m. Loss Per Common Share

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

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

n. Comprehensive Income

The Company displays comprehensive income or loss, its components and
accumulated balances in its consolidated financial statements. Comprehensive
income or loss includes all changes in equity except those resulting from
investments by owners and distributions to owners. The Company did not have any
items of comprehensive income or loss for the years ended December 31, 2004,
2003 and 2002.

o. Fair Value of Financial Instruments

The Company believes that the carrying value of its cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities as of
December 31, 2004 approximate their respective fair values due to the short-term
nature of those instruments.

p. Stock-Based Compensation

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

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

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

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

q. Significant Risks and Uncertainties

r. Recent Accounting Pronouncements

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

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

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

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

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

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

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

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

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

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

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

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

3. Accounts Receivable

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

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

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

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

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

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

4. Property and Equipment

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

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

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

5. Goodwill

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

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

6. Revolving Note Payable

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

7. Advances from Officer, Director and Major Shareholder

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

8. Business Loan

On March 29, 2004, LGT Computer, Inc. loaned the Company $213,750 pursuant
to an unsecured note payable due March 28, 2005, with interest at 4% per annum.
On May 28, 2004, LGT Computer, Inc. loaned the Company an additional $700,000
pursuant to an unsecured note payable due May 27, 2005, with interest at 4% per
annum. On March 28, 2005, by mutual agreement of the parties, the due date of
the first note was extended six months at the same interest rate. The new due
date of the first loan is September 28, 2005.

9. Commitments and Contingencies

a. Operating Lease

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

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

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

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

b. Legal Proceedings

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

10. Income Taxes

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

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

11. Significant Concentrations

a. Customers

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

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

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

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

b. Geographic Segments

Revenues by geographic segment are summarized as follows:

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

c. Suppliers

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

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

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

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

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

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

12. Shareholders' Deficiency

a. Common Stock

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

Effective October 24, 2002, the Company issued 28,182,750 shares of common
stock to Ming Tung Chok and Nancy Chu, who are members of SOYO Nevada management
(see Note 1). The shares of common stock were valued at par value, since the
transaction was deemed to be a recapitalization of SOYO Nevada. During October
2002, the management of SOYO Nevada also separately purchased 6,026,798 shares
of the 11,817,250 shares of common stock of VWHC outstanding prior to VWHC's
acquisition of SOYO Nevada, for $300,000 in personal funds. The 6,026,798 shares
represented 51% of the outstanding shares of common stock. Accordingly,
management currently owns 34,209,538 shares of the 40,030,000 shares of common
stock outstanding at March 31, 2005.

b. Preferred Stock

As of December 31, 2004, the Company had authorized 10,000,000 shares of
preferred stock with a par value $0.001 per share.

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

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

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

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

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

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

c. Stock Options and Warrants

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

13. Quarterly Results (Unaudited)

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

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

Three Months Ended
------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, Total
2004 2004 2004 2004
----------------- ------------ ------------ ------------ ------------ ------------

Net revenues $ 8,594,302 $ 10,194,388 $ 9,347,427 $ 4,290,297 $ 32,426,414

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

Three Months Ended
------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, Total
2003 2003 2003 2003 2003
----------------- ------------ ------------ ------------ ------------ ------------

Net revenues $ 9,497,565 $ 6,901,834 $ 6,759,316 $ 7,875,524 31,034,239

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures:

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

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

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

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

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

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

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

o Each month, the Company's Accounting Manager supervises the reconciliation
of the accounts payable subsidiary ledgers with the general ledger, and
approves adjustments to inventory based on reconciliation of the general
ledger to physical inventory counts. Each quarter, the Accounting Manager
records inventory adjustments to the lower of cost or market.

o Every month, the controller reconciles the bank accounts and compares the
bank reconciliation with the balance per general ledger and the daily cash
report, reviews the recording of accounts payable to vendors for purchases
of inventory, and prepares financial statements with a complete set of
adjustments.

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

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

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

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

(b) Changes in internal control over financial reporting:

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

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

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

ITEM 9B. OTHER INFORMATION- NONE

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table and text sets forth the names and ages of all the
Company's directors and executive officers and the key management personnel as
of March 31, 2005. The Company's Board of Directors is comprised of only one
class. All of the directors serve until the next annual meeting of stockholders
and until their successors are elected and qualified, or until their earlier
death, retirement, resignation or removal. Executive officers serve at the
discretion of the Board of Directors, and are appointed to serve until the first
Board of Directors meeting following the annual meeting of stockholders. Also
provided is a brief description of the business experience of each director and
executive officer and the key management personnel during the past five years
and an indication of directorships held by each director in other companies
subject to the reporting requirements under the Federal securities laws.

--------------- -------- -------------------------------------------------------
Name Age Position Held
--------------- -------- -------------------------------------------------------
Ming Tung Chok 44 Chief Executive Officer and Director
--------------- -------- -------------------------------------------------------
Nancy Chu 47 Chief Financial Officer, Secretary and Director
--------------- -------- -------------------------------------------------------

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

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

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

Family Relationships.

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

Involvement in Legal Proceedings.

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

Section 16(a) Beneficial Ownership Compliance.

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

Audit Committee

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

Communications with the Board

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

Code of Ethics

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

ITEM 11. EXECUTIVE COMPENSATION

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

SUMMARY COMPENSATION TABLE

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

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

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

The following table sets forth the number of shares of common stock
beneficially owned as of March 31, 2005 by (i) those persons or groups known to
the Company who beneficially own more than 5% of the Company's common stock;
(ii) each director and director nominee; (iii) each executive officer whose
compensation exceeded $100,000 in the fiscal year ended December 31, 2004; and,
(iv) all directors and executive officers as a group. The information is
determined in accordance with Rule 13(d)-3 promulgated under the Exchange Act
based upon information furnished by persons listed or contained in filings made
by them with the Securities and Exchange Commission by information provided by
such persons directly to the Company. Except as indicated below, the
stockholders listed possess sole voting and investment power with respect to
their shares.

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

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

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

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

(3) Since Ming Tung Chok and Nancy Chu are husband and wife, they are
considered beneficial owners of each others common stock. Collectively, they own
34,209,548 shares and are each considered beneficial owners of 34,209,548
shares.

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

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

As the result of an agreement between SOYO Taiwan and an unrelated third
party in 2004 2,500,000 shares of Class B preferred stock were issued by the
Company to the unrelated third party in exchange for the forgiveness of a
$12,000,000 long term payable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

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

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

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independent Accountant Fees

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

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

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

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

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits.

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

Exhibit Description
Number

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

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

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

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

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

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

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

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

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

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

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

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

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

99.1 Sarbanes-Oxley Act Section 906 Certification*

*Filed herein

(b) Reports on Form 8-K

SIGNATURES

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

SOYO GROUP, INC.

Dated: March 31, 2005 By /s/ Ming Tung Chok
---------------------------------------------
Name: Ming Tung Chok
Title: President and Chief Executive Officer

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

Dated: March 31, 2005 By /s/ Ming Tung Chok
---------------------------------------------
Name: Ming Tung Chok
Title: President, Chief Executive Officer and
Director

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