Edgar Filing: SOYO GROUP INC

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2003

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

For the transition period from _________________ to __________________

Commission File Number 333-42036

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

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

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

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

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

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

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

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

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

The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
June 30, 2003 was $___________, based on the closing bid price of $0.17 per
share On June 30, 2003.

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

SOYO GROUP, INC.
FORM 10-K
INDEX

Page
----

PART I

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

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

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

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

PART II

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

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

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

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

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

PART III

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

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

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

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

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

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

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

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

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

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

PART I

ITEM 1. BUSINESS.

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

Company History

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

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

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

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

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

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

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

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

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

Name Title
---- -----

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

The consideration for the Acquisition was determined through arms
length negotiations and a Form 8-K was filed on October 10, 2002, as amended by
a Form 8-K/A filed on December 20, 2002. On November 15, 2002, the Company
changed its name from Vermont Witch Hazel Company, Inc. to Soyo Group, Inc.

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

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

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

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

PRODUCTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PRODUCTION

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

TRANSPORTATION AND DISTRIBUTION

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

MARKETING AND SALES

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

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

For the Latin American market, system builders and value-added
resellers (VAR) are the primary targets. To reach these customers, Soyo Group,
Inc. uses an extensive network of international, national and regional
distributors. There are sales offices in Sao Paolo, Brazil, which offer local
technical support and return authorization to better service customers in both
Brazil and Argentina.

CUSTOMERS

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

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

SUPPLIERS

Approximately 80% of Soyo Group, Inc.'s products come from Soyo Taiwan.
Soyo Nevada has a supply Commitment Agreement with Soyo Taiwan which provides
that Soyo Taiwan will continue to supply Soyo Group, Inc. at current levels on
an open account basis through 2005. The general credit terms granted by Soyo
Taiwan is net 90 days. The Company believes that its relationship with Soyo
Taiwan is good, however, a change in the credit terms extended by Soyo Taiwan
could adversely affect the Company's business. In the meantime Soyo Group, Inc.
is Aggressively establishing new partnership with other OEM manufacturers in the
North America and Asia Pacific Regions in order to provide innovative products
for the Consumers.

REGULATIONS

Soyo Group, Inc. is subject, to various laws and regulations
administered by various state, local and international government bodies
relating to the operation of its distribution facilities. Soyo Group, Inc.
believes that it is in compliance with all governmental laws and regulations
related to its products and facilities, and it does not expect to make any
material expenditures in 2003 with respect to compliance with any such
regulations.

STRATEGY

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

COMPETITION

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

EMPLOYEES

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

ITEM 2. PROPERTIES

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

Rental Rental Monthly
Facility Address Begin Expire Rental (US$) Area (ft2)
-------- ------- ----- ------ ------------ ----------

Office and warehouse 1420 S. Vintage September November $15,380.28 42,723
Avenue, Ontario 1, 2003 31, 2008
California

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

ITEM 3. LEGAL PROCEEDINGS.

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

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

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

PART II

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

(a) Market Prices of Common Stock

The Company's common stock is traded on the Over the Counter Bulletin
Board under the symbol "SOYO." The high and low bid intra-day prices of the
common stock were not reported on the OTCBB for the time periods indicated on
the table below. Accordingly, the Company has set forth the high and low bid
closing prices of our common stock as reported on the OTCBB from the
commencement of trading on October 15, 2001. Further, the sales prices listed
below represent prices between dealers without adjustments for retail markups,
breakdown or commissions and they may not represent actual transactions.

Price Range
-----------
High Low
---- ---
Fiscal Year Ended December 31, 2002:
First Quarter $ 0.20 $ 0.15
Second Quarter 0.15 0.15
Third Quarter 0.15 0.15
Fourth Quarter 0.59 0.15

Fiscal Year Ended December 31, 2003:
First Quarter $ 1.05 $ 0.25
Second Quarter 0.35 0.15
Third Quarter 0.16 0.14
Fourth Quarter 0.16 0.10

(b) Shareholders

The Company's common shares are issued in registered form. Securities
Transfer Corporation, Dallas, Texas, is the registrar and transfer agent for the
Company's common stock. As of May 31, 2004, there were 40,000,000 shares of the
Company's common stock outstanding and the Company had approximately 86
shareholders of record.

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

(d) Penny Stock

Until the Company's shares qualify for inclusion in the Nasdaq system, the
public trading, if any, of the Company's common stock will be on the OTC
Bulletin Board. As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, the common stock
offered. The Company's common stock is subject to provisions of Section 15(g)
and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), commonly referred to as the "penny stock rule." Section 15(g) sets forth
certain requirements for transactions in penny stocks, and Rule 15g-9(d)
incorporates the definition of "penny stock" that is found in Rule 3a51-1 of the
Exchange Act. The SEC generally defines a "penny stock" to be any equity
security that has a market price less than $5.00 per share, subject to certain
exceptions. If the Company's common stock is deemed to be a penny stock, trading
in the shares will be subject to additional sales practice requirements on
broker-dealers who sell penny stock to persons other than established customers
and accredited investors. "Accredited investors" are persons with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse. For transactions covered by these rules, broker-dealers must

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

(e) Recent Sales of Unregistered Securities

None

(f) Equity Compensation Plan Information

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

ITEM 6 SELECTED FINANCIAL DATA

The following selected consolidated financial data of the Company is presented
as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999. The
selected financial data should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto, and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations".

Selected Consolidated Statements of Operations Data:

Years Ended December 31,
----------------------------------------------------------------------------
1999 2000 2001 2002 2003
------------ ------------ ------------ ------------ ------------

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

Selected Consolidated Balance Sheet Data:

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

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

The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.

This Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003
contains "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, including statements that include the words
"believes", "expects", "anticipates", or similar expressions. These
forward-looking statements may include, among others, statements concerning the
Company's expectations regarding its business, growth prospects, revenue trends,
operating costs, working capital requirements, facility expansion plans,
competition, results of operations and other statements of expectations,
beliefs, future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. The
forward-looking statements in this Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2003 involve known and unknown risks, uncertainties and
other factors that could the cause actual results, performance or achievements
of the Company to differ materially from those expressed in or implied by the
forward-looking statements contained herein.

Each forward-looking statement should be read in context with, and with an
understanding of, the various disclosures concerning the Company and its
business made elsewhere in this Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2003, as well as other public reports filed with the United
States Securities and Exchange Commission. You should not place undue reliance
on any forward-looking statement as a prediction of actual results or
developments. The Company is not obligated to update or revise any
forward-looking statement contained in this Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2003 to reflect new events or circumstances
unless to the extent required by applicable law.

Background and Overview:

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

Effective October 24, 2002, Vermont Witch Hazel Company, Inc., a Nevada
corporation ("VWHC"), acquired Soyo, Inc., a Nevada corporation ("Soyo Nevada"),
from Soyo Computer, Inc., a Taiwan corporation ("Soyo Taiwan), in exchange for
the issuance of 1,000,000 shares of convertible preferred stock and 28,182,750
shares of common stock, and changed its name to Soyo Group, Inc. ("Soyo"). The
1,000,000 shares of preferred stock were issued to Soyo Taiwan and the
28,182,750 shares of common stock were issued to Soyo Nevada management. During
October 2002, the management of Soyo Nevada also separately purchased 6,026,798
shares of the 11,817,250 shares of common stock of VWHC outstanding prior to
VWHC's acquisition of Soyo Nevada, for $300,000 in personal funds. The 6,026,798
shares represented 51% of the outstanding shares of VWHC common stock.
Accordingly, Soyo Taiwan and Soyo Nevada management currently own 34,209,548
shares of the 40,000,000 shares of the Company's common stock outstanding at
December 31, 2003.

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

In conjunction with this transaction, Soyo Nevada transferred $12,000,000 of
accounts payable to Soyo Taiwan to long-term payable, without interest, due
December 31, 2005. (see "Liquidity and Capital Resources - December 31, 2003).

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

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

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

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

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

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

During the year ended December 31, 2003, the Company had one customer that
accounted for revenues of $9,943,855, equivalent to 32% of net revenues. During
the year ended December 31, 2002, the Company had two customers that accounted
for revenues of $12,499,598 and $5,965,324, equivalent to 25.2% and 12.0% of net
revenues, respectively. During the year ended December 31, 2001, the Company had
two customers that accounted for revenues of $7,122,235 and $7,319,665,
equivalent to 11.3% and 11.6% of net revenues, respectively.

Revenues by geographic segment are summarized as follows:

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

Financial Outlook:

During the years ended December 31, 2000 and 2001, the Company's sales were
$62,173,829 and $63,091,190, respectively, with gross margins of 4.8% and 6.9%,
respectively. During the year ended December 31, 2002, the Company's sales
decreased to $49,644,417, with a negative gross margin of 8.1%, due to various
factors, including the West Coast dock strike in September and early October
2002. The impact of the initial supply interruption, combined with the abrupt
release of large amounts of inventory, caused a caused a rapid drop in wholesale
prices for the Company's products in November and December 2002. The Company
incurred a net loss in 2001, 2002 and 2003.

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

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

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

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

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

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

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

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

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

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

Restatement:

In conjunction with the audit of the Company's consolidated financial statements
for the year ended December 31, 2003, the Company conducted a review of the 2002
and 2003 interim financial statements, as a result of which the Company restated
the results of operations for certain interim periods (see "ITEM 9A. CONTROLS
AND PROCEDURES"). The Company's restated results of operations for interim
periods in 2002 and 2003 are summarized at Note 12 to the Consolidated Financial
Statements.

Critical Accounting Policies:

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

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

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

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

Vendor Programs:

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

Accounts Receivable:

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

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

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

Inventories:

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

Income Taxes:

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

Results of Operations:

Years Ended December 31, 2003 and 2002 -

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Years Ended December 31, 2002 and 2001 -

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

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

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

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

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

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

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

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

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

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

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

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

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

Net Operating Loss Carryforwards:

As of December 31, 2003, the Company had federal and state net operating loss
carryforwards of approximately $12,398,000 and $7,101,000, respectively,
expiring in various years through 2023, which can be used to offset future
taxable income, if any. Due to the restrictions imposed by the Internal Revenue
Code regarding substantial changes in ownership of companies with loss
carryforwards, the utilization of a portion of the Company's federal and state
net operating loss carryforwards may be limited as a result of changes in stock
ownership during October 2002. No deferred tax benefit for these operating
losses has been recognized in the consolidated financial statements due to the
uncertainty as to their realizability in future periods.

Net deferred tax assets of $5,244,000 at December 31, 2003 resulting from net
operating losses and other temporary differences have been offset by a 100%
valuation allowance since management cannot determine whether it is more likely
than not that such assets will be realized.

Liquidity and Capital Resources - December 31, 2003:

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

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

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

During the years ended December 31, 2003 and 2002, the Company received price
protection from Soyo Taiwan aggregating $651,215 and $394,071, respectively,
which reduced inventories and accounts payable to Soyo Taiwan accordingly. The
Company did not record any price protection adjustments from Soyo Taiwan in
2001. The Company does not have any formal price protection agreement with Soyo
Taiwan. The Company periodically negotiates price protection adjustments with
Soyo Taiwan based on current market conditions.

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

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

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

Going Concern. The Company is implementing various measures to attempt to
improve its operations and liquidity as described above at "Financial Outlook".
To the extent that the Company's operations and liquidity does not improve, the
Company may be forced to reduce operations to a level consistent with its
available working capital resources. The Company may also have to consider a
formal or informal restructuring or reorganization.

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

The reduction in operating cash flow in 2003 as compared to 2002 was primarily a
result of increased payments to Soyo Taiwan for inventory purchases. The
improvement in operating cash flow in 2002 as compared to 2001 was primarily a
result of a reduction in cash utilized to support accounts receivable and
inventories.

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

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

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

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

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

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

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

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

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

During March 2003, Nancy Chu, the Company's Chief Financial Officer, director
and major shareholder, made short-term advances to the Company of $360,000 for
working capital purposes, of which $120,000 was repaid during September 2003.
The Company expects to repay the remainder during 2004.

Principal Commitments:

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

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

Contractual Less than Between Between After
Cash Obligations Total 1 year 2-3 years 4-5 years 5 years
---------------- ---------- ---------- ---------- ---------- ----------

Operating leases $ 935,635 $ 184,560 $ 377,670 $ 373,405 $ --

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

Obligations $1,175,635 $ 424,560 $ 377,670 $ 373,405 $ --
========== ========== ========== ========== ==========

At December 31, 2003, the Company did not have any material commitments for
capital expenditures or have any transactions, obligations or relationships that
could be considered off-balance sheet arrangements.

Recent Accounting Pronouncements:

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

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

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

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

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

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies under what circumstances a contract with initial investments meets the
characteristics of a derivative and when a derivative contains a financing
component. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. The adoption of SFAS No. 149 did not have a significant
effect on the Company's financial statement presentation or disclosures.

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

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a) Financial Statements

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

1. Report of Independent Auditors

2. Consolidated Balance Sheet as of December 31, 2003

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

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

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

6. Notes to Consolidated Financial Statements.

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

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

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

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

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

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

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

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.

PART III

ITEM 9A. CONTROL PROCEDURES

(a) Evaluation of disclosure controls and procedures:

As of December 31, 2003, the end of the period covered by this annual report,
the Company's chief executive officer and its chief financial officer reviewed
and evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)), which are
designed to ensure that material information the Company must disclose in its
reports filed or submitted under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), is recorded, processed, summarized and reported on a
timely basis, and have concluded, based on that evaluation, that as of such
date, the Company's disclosure controls and procedures are not adequate.

The Company's chief executive officer and chief financial officer arrived at
this conclusion based on a number of factors, including the following: (1) Our
system of internal control during 2003 did not properly record accounts payable
to vendors for purchases of inventory, (2) did not properly record adjustments
of inventory per the general ledger to physical inventory balances, (3) did not
properly record inventory adjustments to the lower cost or market using the
average inventory method, (4) did not reconcile our main bank account from
August, 2003 through December 31, 2003 (5) had inadequate controls over interim
physical inventory procedures (6) and the Company systems and procedures do not
generate timely and accurate financial information to allow for the preparation
of timely and complete financial statements. The Company does not have an
adequate financial reporting process because of the aforementioned material
weaknesses including the difficulty in identifying and assembling all relevant
contemporaneous documentation for ongoing business transactions; significant
turnover in the Company's financial staff . In addition to the foregoing, a
former employee withheld financial information from the auditors. Accordingly,
the Company's chief executive officer and chief financial officer have concluded
that there were significant deficiencies, including material weaknesses, in the
Company's internal controls over its financial reporting at the end of the
fiscal period covered by this report.

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

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

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

The Company has experienced a substantial turnover in finance personnel. The
Company's finance operations continue to be understaffed and its personnel lack
comprehensive accounting policies and procedures to follow. In addition, the
Company's personnel need to be further trained with respect to procedures and
systems. The Company has hired a controller and currently is seeking to hire a
financial analyst to focus on financial reporting and analysis.

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

(b) Changes in internal control over financial reporting:

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

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table and text sets forth the names and ages of all the
Company's directors and executive officers and the key management personnel as
of March 31, 2004. The Company's Board of Directors is comprised of only one
class. All of the directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
stockholders. Also provided is a brief description of the business experience of
each director and executive officer and the key management personnel during the
past five years and an indication of directorships held by each director in
other companies subject to the reporting requirements under the Federal
securities laws.

Name Age Position Held
---- --- -------------

Ming Tung Chok 42 President, Chief Executive Officer and Director
Nancy Chu 46 Chief Financial Officer, Secretary and Director

Ming Tung Chok has served as the President, Chief Executive Officer and
Director of the Company since the October 25, 2002. Prior to serving in this
capacity, Mr. Chok was the Vice President of Engineering of Soyo Group, Inc. for
the past 5 years. Mr. Chok received his Bachelor Degree in Electrical
Enginnering from the California State University, Long Beach. Mr. Chok is
married to Ms. Nancy Chu who is a Director, the Chief Financial Officer and the
Secretary of the Company.

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

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

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

Family Relationships.

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

Involvement in Legal Proceedings.

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

Section 16(a) Beneficial Ownership Compliance.

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

Audit Committee

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

Communications with the Board **

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

Code of Ethics

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

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid during fiscal year
ended December 31, 2001, 2002 and 2003 to the Company's Chief Executive Officer
and Chief Financial Officer.

SUMMARY COMPENSATION TABLE

--------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
----------------------------------------------------------------- -------------------------------------- -----------
Awards Payouts
--------------------- --------- --------- ---------- ------------ -------------------------- ----------- -----------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Year Salary Bonus sation Award(s) SARs Payouts sation
Position ($) ($) ($) ($) (#) ($) ($)
--------------------- --------- --------- ---------- ----------- ------------ -------------- ----------- -----------

2003 $144,000
Ming Tung Chok 2002 $138,000 0 0 0 0 0 0
President and CEO 2001 $ 72,000
--------------------- --------- --------- ---------- ----------- ------------ -------------- ----------- -----------
2003 $119,987
Nancy Chu 2002 $116,500 0 0 0 0 0 0
Chief Financial 2001 $ 78,000
Officer
--------------------- --------- --------- ---------- ----------- ------------ -------------- ----------- -----------

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of common stock
beneficially owned as of March 31, 2004 by (i) those persons or groups known to
the Company who beneficially own more than 5% of the Company's common stock;
(ii) each director and director nominee; (iii) each executive officer whose
compensation exceeded $100,000 in the fiscal year ended December 31, 2003; and,
(iv) all directors and executive officers as a group. The information is
determined in accordance with Rule 13(d)-3 promulgated under the Exchange Act
based upon information furnished by persons listed or contained in filings made
by them with the Securities and Exchange Commission by information provided by
such persons directly to the Company. Except as indicated below, the
stockholders listed possess sole voting and investment power with respect to
their shares.

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

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

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

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

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

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

(4) Andy Chu, through his majority ownership of Soyo Taiwan, is the
beneficial holder of 1,000,000 shares of Series A Convertible Preferred Stock,
which has a floating rate conversion ratio which, if the Preferred Stock were
converted at the closing bid price of $0.17 per share on April 11, 2003, Soyo
Taiwan would have received 5,882,353 shares of the Company's common stock.

[Update for Series B]

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Independent Accountant Fees

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

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

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

(a) Exhibits.

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

Exhibit Description
Number

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

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

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

10.1 Commitment Supply Agreement dated October 15, 2002*

10.2 Accounts Payable Deferral Agreement dated October 24,2002*

10.3 Exclusive Distribution Agreement dated October 24, 2002*

21.1 Subsidiaries of the Company*

99.1 Sarbanes-Oxley Act Section 906 Certification*

*Filed herein

(b) Reports on Form 8-K

NONE.

SIGNATURES

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

SOYO GROUP, INC.

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

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

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

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

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

Page
----

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

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

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

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

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

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

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

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

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

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

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

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

Grobstein, Horwath & Company LLP

Sherman Oaks, California
May 12, 2004

F-2

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

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

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

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

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

F-3

Soyo Group, Inc. and Subsidiary
Consolidated Balance Sheets

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

ASSETS

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

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

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

(continued)

Soyo Group, Inc. and Subsidiary
Consolidated Balance Sheets

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

LIABILITIES

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

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

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

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

F-4

Soyo Group, Inc. and Subsidiary
Consolidated Statements of Operations

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

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

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

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

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

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

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

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

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

F-5

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

Common Stock Preferred Stock Additional Total
--------------------------- --------------------------- Paid-in Accumulated Shareholders'
Shares Par Value Shares Par Value Capital Deficit Deficiency
------------ ------------ ------------ ------------ ------------ ------------ ------------

Balance, January 1, 2001 28,182,750 $ 28,183 1,000,000 $ 1,000 $ 470,817 $ (528,333) $ (28,333)

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

Shares of common stock
retained by
shareholders
in October 2002
transaction 11,817,250 11,817 -- -- (11,817) -- --

Net loss for the year
ended December 31, 2002 -- -- -- -- -- (10,733,458) (10,733,458)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2002 40,000,000 40,000 1,000,000 1,000 459,000 (11,652,195) (11,152,195)

Net loss for the year
ended December 31, 2003 -- -- -- -- -- (984,588) (984,588)
------------ ------------ ------------ ------------ ------------ ------------ ------------

Balance, December 31, 2003 40,000,000 $ 40,000 1,000,000 $ 1,000 $ 459,000 $(12,636,783) $(12,136,783)
============ ============ ============ ============ ============ ============ ============

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

F-6

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

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

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

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

(continued)

F-7

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

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

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

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

SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:

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

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

SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:

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

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

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

F-8

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

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

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

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

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

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

b. Business and Outlook

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

F-8

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

During the years ended December 31, 2000 and 2001, the Company's sales
were $62,173,829 and $63,091,190, respectively, with gross margins of 4.8%
and 6.9%, respectively. During the year ended December 31, 2002, the
Company's sales decreased to $49,644,417, with a negative gross margin of
8.1%, due to various factors, including the West Coast dock strike in
September and early October 2002. The impact of the initial supply
interruption, combined with the abrupt release of large amounts of
inventory, caused a rapid drop in wholesale prices for the Company's
products in November and December 2002. The Company incurred a net loss in
2001, 2002 and 2003.

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

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

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

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

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

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

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

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

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

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

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

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

F-10

2. Basis of Presentation and Summary of Significant Accounting Policies

a. Presentation

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

b. Use of Estimates

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

c. Cash and Cash Equivalents

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

d. Inventories

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

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

e. Property and Equipment

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

f. Impairment or Disposal of Long-Lived Assets

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

F-11

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 creditors, but does not require
collateral. The Company maintains credit insurance for a portion of this
credit risk.

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

k. Advertising

Advertising costs are charged to expense as incurred. The Company has
not incurred direct advertising costs. However, the Company may participate
in cooperative advertising programs with certain of its customers by paying
a stipulated percentage of the sales invoice price. Cooperative advertising
costs paid for the years ended December 31, 2003, 2002 and 2001 were
$728,488, $907,505 and $445,729, respectively, and are presented under
sales and marketing costs in the accompanying consolidated statements of
operations.

F-12

l. Income Taxes

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

m. Loss Per Common Share

Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", requires presentation of basic earnings per share ("Basic EPS") and
diluted earnings per share ("Diluted EPS"). Basic income (loss) per share
is computed by dividing net income (loss) available to common shareholders
by the weighted average number of common shares outstanding during the
period. Diluted income per share gives effect to all dilutive potential
common shares outstanding during the period. Potentially dilutive
securities consist of the outstanding shares of preferred stock. These
potentially dilutive securities were not included in the calculation of
loss per share for the years ended December 31, 2001, 2002 and 2003 because
the Company incurred a loss during such periods and their effect would have
been anti-dilutive. Accordingly, basic and diluted loss per share is the
same for the years ended December 31, 2003, 2002 and 2001.

The loss per common share calculation for the years ended December 31,
2001 and 2002 reflects the retroactive restatement of shareholders'
deficiency to reflect the effect of the October 2002 recapitalization. As
of December 31, 2003, potentially dilutive securities consisted of
1,000,000 shares of convertible preferred stock with a stated liquidation
value of $1.00 per share that are convertible into common stock at the fair
market value of the underlying common stock. For the year ended December
31, 2003, 9,090,909 shares of common stock were issuable upon conversion of
the convertible preferred stock, based on the trading price of the common
stock on December 31, 2003 of $0.11 per share.

n. Comprehensive Income

The Company displays comprehensive income or loss, its components and
accumulated balances in its consolidated financial statements.
Comprehensive income or loss includes all changes in equity except those
resulting from investments by owners and distributions to owners. The
Company did not have any items of comprehensive income or loss for the
years ended December 31, 2003, 2002 and 2001.

o. Fair Value of Financial Instruments

The Company believes that the carrying value of its cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities
as of December 31, 2003 approximate their respective fair values due to the
short-term nature of those instruments.

p. Stock-Based Compensation

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

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

F-13

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

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

q. Significant Risks and Uncertainties

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

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

r. Recent Accounting Pronouncements

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

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

F-14

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

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

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

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends
and clarifies under what circumstances a contract with initial investments
meets the characteristics of a derivative and when a derivative contains a
financing component. SFAS No. 149 is effective for contracts entered into
or modified after June 30, 2003. The adoption of SFAS No. 149 did not have
a significant effect on the Company's financial statement presentation or
disclosures.

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

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

F-15

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

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

3. Accounts Receivable

The Company's accounts receivable at December 31, 2003 and 2002 are summarized
as follows:

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

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

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

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

Balance, beginning of year $ 620,605 $ 653,259 $ 364,199
Add: Amounts provided during the year 390,555 2,009,218 472,881
Less: Amounts written off during the year (154,774) (2,041,872) (183,821)
----------- ----------- -----------
Balance, end of year $ 856,386 $ 620,605 $ 653,259
=========== =========== ===========

F-16

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

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

4. Property and Equipment

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

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

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

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

5. Goodwill

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

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

6. Revolving Note Payable

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

F-17

7. Advances from Officer, Director and Major Shareholder

During March 2003, Nancy Chu, the Company's Chief Financial Officer,
director and major shareholder, made short-term advances to the Company of
$360,000 for working capital purposes, of which $120,000 was repaid during
September 2003. The Company expects to repay the remainder during 2004.

8. Commitments and Contingencies

a. Operating Lease

The Company leases its office and warehouse premises under a five-year
non-cancelable operating lease that expires on November 31, 2008, with a
five year renewal option. The lease provides for monthly payments of base
rent and an unallocated portion of building operating costs. The minimum
future lease payments are as follows:

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

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

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

b. Legal Proceedings

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

9. Income Taxes

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

As of December 31, 2003, the Company had federal and state net operating
loss carryforwards of approximately $12,290,000 and $7,101,000, respectively,
expiring in various years through 2023, which can be used to offset future
taxable income, if any. Due to the restrictions imposed by the Internal Revenue
Code regarding substantial changes in ownership of companies with loss
carryforwards, the utilization of a portion of the Company's federal and state
net operating loss carryforwards may be limited as a result of changes in stock
ownership during October 2002. No deferred tax benefit for these operating
losses has been recognized in the consolidated financial statements due to the
uncertainty as to their realizability in future periods.

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

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

F-18

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

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

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

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

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

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

10. Significant Concentrations

a. Customers

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

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

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

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

During the year ended December 31, 2003, the Company had one customer
that accounted for revenues of $9,943,855, equivalent to 32% of net
revenues.

During the year ended December 31, 2002, the Company had two customers
that accounted for revenues of $12,499,598 and $5,965,324, equivalent to
25.2% and 12.0% of net revenues, respectively.

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

F-19

b. Geographic Segments

Revenues by geographic segment are summarized as follows:

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

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

c. Suppliers

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

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

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

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

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

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

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

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

F-20

11. Shareholders' Deficiency

a. Common Stock

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

Effective October 24, 2002, the Company issued 28,182,750 shares of
common stock to Ming Tung Chok and Nancy Chu, who are members of Soyo
Nevada management (see Note 1). The shares of common stock were valued at
par value, since the transaction was deemed to be a recapitalization of
Soyo Nevada. During October 2002, the management of Soyo Nevada also
separately purchased 6,026,798 shares of the 11,817,250 shares of common
stock of VWHC outstanding prior to VWHC's acquisition of Soyo Nevada, for
$300,000 in personal funds. The 6,026,798 shares represented 51% of the
outstanding shares of common stock. Accordingly, management currently owns
26,209,548 shares of the 40,000,000 shares of common stock outstanding at
December 31, 2003.

b. Preferred Stock

As of December 31, 2003, the Company had authorized 10,000,000 shares
of preferred stock with a par value $0.001 per share.

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

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

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

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

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

F-21

c. Stock Options and Warrants

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

12. Quarterly Results (Unaudited)

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

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

The Company also restated the results of operations for the three months
ended March 31, 2003, June 30, 2003 and September 30, 2003, to reflect various
adjustments, primarily to correct the intra-period allocation of net revenues
and cost of revenues.

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

Net revenues $ 9,497,565 $ 6,901,834 $ 6,759,316 $ 7,875,524 $ 31,034,239
Gross margin
(deficit) 1,170,866 1,410,174 (435,457) 928,279 3,073,862
Income (loss)
from
operations 139,845 166,179 (1,353,758) 67,387 (980,347)
Income (loss)
before
income taxes 130,451 181,372 (1,355,398) 59,787 (983,788)
Income taxes 36,250 28,750 25,680 (89,880) 800
Net income
(loss) $ 94,201 $ 152,622 $ (1,381,078) $ 149,667 $ (984,588)

Net income
(loss) per
common share -
Basic $ -- $ -- $ (0.03) $ -- $ (0.03)
Diluted $ -- $ -- $ (0.03) $ -- $ (0.03)

Weighted
average
number of
common
shares
outstanding -
Basic 40,000,000 40,000,000 40,000,000 40,000,000 40,000,000
Diluted 42,272,727 45,555,556 40,000,000 49,090,909 40,000,000

F-22

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

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

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

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

F-23