Edgar Filing: SOYO GROUP INC

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2007

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

For the transition period from _________________ to __________________

Commission File Number 333-42036

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

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

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

(909) 292-2500
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(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 if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

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

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and " in Rule 12b-2 of the. (Check one):

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

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

The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of March
28, 2007 was $48,884,376, based on the closing bid price of $0.94 per share on
March 28, 2007.

As of March 31, 2008, there were 52,004,656 shares Outstanding.

Documents Incorporated by Reference: None

SOYO GROUP, INC.
FORM 10-K
INDEX

PART I
Item 1. Business......................................................4
Item 1A. Risk Factors.................................................14
Item 1B. Unresolved Staff Comments....................................16
Item 2. Properties...................................................16
Item 3. Legal Proceedings............................................16
Item 4. Submission of Matters to a Vote of Security Holders..........18

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities........18
Item 6. Selected Financial Data......................................20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...34
Item 8. Financial Statements and Supplementary Data..................35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................59
Item 9A. Controls and Procedures......................................60
Item 9B. Other Information............................................85

PART III

Item 10. Directors, Executive Officers and Corporate Governance.......60
Item 11. Executive Compensation.......................................62
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters...............65
Item 13. Certain Relationships, Related Transactions and Director
Independence.............................................66
Item 14. Principal Accountant Fees and Services.......................66

PART IV

Item 15. Exhibits and Financial Statement Schedules...................67
Signatures...................................................69

iii

PART I

ITEM 1. BUSINESS.

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

Company History

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

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

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

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

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

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

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

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

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

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

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

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

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

Through October 24, 2002, the Company had only nominal assets and liabilities
and no current business operations. As a result of the Acquisition, the Company
continued the business operations of SOYO Nevada, which are described here.

SOYO Inc. was incorporated in Nevada on October 22, 1998.

Through 2004, the Company was a distributor of computer products, a substantial
portion of which were manufactured in Taiwan and China. The Company offered a
full line of designer motherboards and related peripherals for intensive
multimedia applications, corporate alliances, telecommunications and specialty
market requirements. The product line included basic bare bones PC motherboard
systems, flash memory, small disk drives for corporate and mobile users,
internal multimedia reader/writer and wireless networking solutions products for
the small office and home office (SOHO) market segment.

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

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

PRODUCTS

SOYO, Inc. is the exclusive provider of all SOYO brands of products in the USA,
Canada, and Latin America, and actively promotes the SOYO brands in these
regions. SOYO, Inc.'s brands include Prive, SOYO, Honeywell and Le Vello. Other
electronics products and brands are licensed, such as the Honeywell Brand of
Consumer Electronics Products.

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

Consumer Electronics Products

SOYO distributes products under the following brands:

SOYO:

The SOYO brand has been in use since SOYO's inception. The brand is designed as
SOYO's mid-tier product line, the goal is a quality product at an affordable
price. The SOYO Brand is the largest and most diverse brand the Company sells.
Under this brand name, SOYO carries LCD TV's, LCD monitors, Bluetooth Headsets,
Wall-Mounts and Portable Storage Devices. Products come in various series, as
follows:

LCD TV's
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Onyx Series: 26", 32", 37", 42"
Dymond Series: 32", 42", 47"
Crystal Series: 32", 42", 47"

In 2007 SOYO's flat-panel, HD-Ready LCD TV's ranged in sizes from 20-inch at 640
x 480 resolution to 47-inch at 1920 x 1080 resolution. The products offer a wide
range of inputs for connecting almost any device, and can even act as a display
unit for a PC while incorporating advanced imaging technology. SOYO TV's also
offer features such as three HDMI inputs, SRS audio surround sound, 3:2 pull
down, progressive scan and a digital 3D comb filter that brings larger, clearer
pictures. The Atlas LCD TV features two removable 10-watt speakers that deliver
stereo surround sound.

LCD Monitors
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SOYO: 14.1" Wide, 15", 15.4" Wide
Citrine Series: 17", 17" Wide, 19", 19" Wide, 20.1" Wide, 22" Wide
Emerald Series: 19"
Topaz Series: 24"S, 24"LC
Opal Series: 17"

SOYO Vista Certified Wide Screen LCD Monitors 17"W, 20", 22"W and 24"W

SOYO LCD Monitors incorporate TFT (Thin Film Transistor) display technology in a
compact design that frees up desk space. Designed to provide a display solution
for a wide variety of applications at the office, home or school, the SXGA
(Super Extended Graphics Array) technology delivers text and images to assist in

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

Prive:

The Prive brand is comprised of a 26 inch LCD TV, a 32 inch LCD TV and a 24 inch
LCD monitor and is positioned as SOYO's entry level price point brand. The 26
inch LCD TV's and 32 inch LCD TV's were first introduced in May 2007 and are
available at Wal-Mart Canada stores. The 24 inch LCD monitor was introduced in
October 2007 and is available at Fry's Electronics and Office Depot Canada
stores.

Portable Storage
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SlimEX 1.8" USB 2.0 20GB External Hard Drive (same hard drive as the hard drive
in Apple's iPod) assembled in the USA

SlimEX 1.8" USB 2.0 40GB external Hard Drive (same hard drive as the hard drive
in Apple's iPod) assembled in the USA

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

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

Bluetooth Products
------------------

SOYO's Wireless Bluetooth FreeStyler(TM) HS11 wireless Bluetooth Stereo
Headphones (with up to 6 hours of use before recharging) offer a convenient way
to listen to your favorite music player (iPod, MP3 Player, Radio, TV or similar
device). The SOYO FreeStyler HS 11 comes with a Bluetooth wireless transmitter
which syncs with the FreeStyler HS 11 Stereo Headphones or other Bluetooth
receivers with just a touch of a button. The SOYO FreeStyler HS 11 also will
sync to any Bluetooth equipped mobile phone or PDA. This function will also
allow you to use the FreeStyler HS 11 as a wireless headset for your mobile
phone or PDA at ranges up to 30 feet.

SOYO's FreeStyler(TM) 500 Bluetooth Headset offers up to 6 hours of talk time
and up to 170 hours of standby time. It was SOYO's first mono headset and
offered Bluetooth 1.2 technology. As the technology has matured the technology
has gotten better. Some of the advances in the new Bluetooth 2.0 standard
include clear sound, smaller more lightweight design and longer battery life.

SOYO FreeStyler(TM) 600 Mono Bluetooth Headset offers up to 8 hours of talk
time, and up to 200 hours of standby time. It is the ideal accessory for hands
free operation of your mobile phone or PDA. The FreeStyler 600 offers the latest
Bluetooth 2.0 technology and offers a light weight design with a flexible ear
hook making the FreeStyler 600 easy to adjust for maximum comfort.

The FreeStyler(TM) Bluetooth product line is available in stereo and single ear
versions. Supported by Bluetooth 2.0 Technology, FreeStyler(TM) provides up to
10 meter operation (33 feet) range hands free, and its auto pairing and
authentication function allows users to connect to their cellular phone and PDA
wirelessly. With up to 6-8 hours of talk time and up to 200 hours standby time,
the 120mA 3.7V rechargeable battery requires 1.5~2.0 hours charging time.

Dragon HD Accessories
---------------------

SOYO's UL Approved Dragon Wall Mounts come in Pro Series and Pro Series Slim.
The Pro Series Pro 120 Wall Mounts hold 22"-37" TV and the Pro Series Pro 110
Wall Mounts hold a 37" to 60" TV. Both have a 0 to 15 degree tilt. The Pro
Series Slim Pro 120 holds a 22" to 37" TV and the Pro Series Pro 110 Slim holds
a 37" to 60" TV.

Motherboards/Bare Bones Systems

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

Le Vello

The Le Vello Brand of Designer Home Theatre Furniture was introduced in May
2007, and is a natural extension to SOYO's LCD TV business. Le Vello is a
stylish and affordable complement to today's contemporary lifestyle, and comes
in two series:

The Glasse Series is made with reinforced steel and fingerprint resistant
tempered glass shelving. The Glasse Series comes in the following models: Axion,
Nextor, Vesta and Prelude. The Axion is the top of the line product which offers
striking, architectural lines and the appearance of shelves that "float". The
Nextor offer the ultimate in form and function featuring frosted temper glass
shelving. The Vesta utilizes an "open air" design to maximize air flow. The
Prelude is an introduction to style, elegance, and quality. This unit offers
Frosted glass shelving and a very sturdy steel construction.

The Woodideas Series is made of wood (MDF) and tempered Glass shelving. The
Woodideas Series comes in the following models: Titans, Selene, Urbano and
Costar. The Titans series is available in piano-black finish or a high gloss
dark Mahogany. The Selene series is available in piano black or matte silver.

The Urbano series which holds up to a 50 inch TV offers a two tone finish in
silver and black. The Costar series is available in both black or matte silver.

Honeywell

SOYO introduced the Honeywell Brand of Consumer Electronics in 2007 as SOYO's
Top Tier Brand. The product line was created to compete with Tier One Brands
like Sony, Samsung, and Sharp. The products are feature rich and offered at
competitive prices. Through a licensing agreement with Honeywell International
Inc., SOYO has the ability to produce many types of consumer electronics
products, but have elected to start the product offering with their core
competencies; listed as follows:

Honeywell SecuraDrive(TM) 1.8 inch Hard Drives
----------------------------------------------

Announced in October 2007, the Honeywell SecuraDrive(TM) USB 1.8 inch Hard
Drives are currently available in 80GB and, 120 GB capacities, with a 160 GB
capacity available in early 2008. The SecuraDrives(TM) products are compatible
with all PC computers and utilize the Samsung SpinPoint N2 line of 1.8 inch hard
drives, which feature an 8 MB buffer, 4200 RPM, and up to 1500G of
non-operational linear shock. The SecuraDrive's(TM) metal alloy casing
dissipates heat and adds additional shock resistance. The major feature of this
product line is the security of data via password protection technology allowing
the user to allocate part or all of the hard drive to be protected by the user's
own private password, which secures data in the event that the SecuraDrive(TM)
is lost or stolen. The drive is a perfect solution for storing sensitive or
private data, backing-up your Laptop or desktop, storing MP3 music files, videos
files and photos.

Honeywell Arius(TM) LCD Monitors
--------------------------------

Announced in December 2007, the 19 inch and 22 inch models will be available for
sale at the end of the first quarter of 2008. The Honeywell Arius(TM) LCD
Monitors ultimately will be available in 19, 22 and 24 inches. SOYO created a
unique design for the monitors. The design is full function, meaning that it
features four ranges of motion: tilt, swivel, rotate and height adjustment,
instead of the standard one or two ranges of motion. The monitors can also
swivel left to right 180 degrees and rotate counter-clockwise 90 degrees. This
design is exclusive to the Honeywell LCD Arius(TM) Monitors. These monitors are
designed to compete with Samsung, Dell, and Gateway.

The 24 inch wide LCD Monitor features three USB ports as well as a built-in 1.3
mega pixel webcam and built-in microphone. It also features a 2ms response time,
500 nits brightness, 1,000:1 contrast ratio and a native resolution of 1920 x
1200 at 60 Hz.

The 22 inch wide LCD Monitor features three USB ports as well as a built-in 1.3
mega pixel webcam and built-in microphone. The monitor also features a 2ms
response time, 300 nits brightness, 700:1 contrast ratio and a native resolution
of 1680 x 1050 at 60 Hz.

The 19 inch wide LCD Monitor features four USB ports, a 2ms response time, 300
nits brightness, 500:1 contrast ratio and native resolution of 1440 x 900 at 60
Hz.

Honeywell Airlite(TM) Bluetooth Headsets
----------------------------------------

The Honeywell Airlite(TM) 700 Bluetooth Headset features Bluetooth 2.0+EDR
technology Enhanced Data Rate (EDR) technology, with crystal clear
communications for quality and reliability. Weighing only nine grams (.32 oz),
the Honeywell Airlite(TM) 700 Bluetooth Headset has a lightweight, stylish
design and features up to seven hours of talk time and up to 200 hours of
standby time. The Bluetooth Headset can be worn on either the left ear or right

ear and comes with two ear hooks and three sizes of soft ear caps to ensure the
most comfortable fit. Additionally, the Honeywell Airlite(TM) 700 Bluetooth
Headset features a multi-function button, which allows for easy one-touch
control to answer calls and end calls as well as a flashing LED light to alert
the user when to charge the device's battery.

Honeywell Altura(TM) LCD HDTV's
-------------------------------

In 2008, SOYO will release the line of Honeywell Altura(TM) LCD full 1080P
HDTV's in 57, 65, 70 and 82 inch models. The Altura(TM) Series will have
multiple HDMI inputs, 1080P, and will be designed to compete with Sony, Samsung
and Sharp with similar technology and a better price tag.

The Honeywell line of Altura(TM) LCD HDTV's include the following features:

-High definition native resolution 1920x1080 with response times of 4ms (57 inch
and 65 inch) and 3ms (70 inch) for crystal clear images and crystal clear action
viewing.

-SRS(R) TruBass and TruSurround, Dolby Digital ProLogicII(R) Sound and MTS/SAP,
AV Stereo.

-Connector options including: Three HDMI inputs, One VGA, One S-Video input, Two
Component Inputs, One Composite Input, One Audio Stereo Input, One SPDIF Optical
Input, One Audio Input (RCA), One Audio Output (RCA), and One set of 5.1 Audio
Output.

-Menu available in eight languages: English, Spanish, French, Italian, German,
Greek, Portuguese and Dutch

-Universal Remote compatible with most DVRs, DVD players, BluRay/HD DVD Players
and VCRs

- Dynamic Contrast Ratio of 120,000:1

-V-Chip for Parental Control

-Connector Reference Guide depicting how to choose the best possible connection
of your other components such as DVD Players, Digital Video Recorder, and Home
Theater system with the Honeywell Line of Altura(TM) LCD HDTV's.

-Included with the Honeywell Altura series of TV's will be one Honeywell HDMI
Cable.

-Five Year Limited Warranty

PRODUCTION

SOYO Group does not produce the components that it distributes. Approximately
95% of SOYO Group, Inc.'s products are supplied by companies located in Taiwan
and China. As of December 31, 2007, the Company purchased 63% of the products it
sells from its top 3 suppliers. No one supplier produced more than 31% of the
products distributed and sold by the Company.

TRANSPORTATION AND DISTRIBUTION

The Company is involved with the design and function of the products it sells.
SOYO uses contract manufacturers to produce it's products in Taiwan, China and
Mexico. The majority of SOYO products originate in the Far East (Taiwan and
China) SOYO sell it products thru an authorized network of distributors and
retailers primarily across North and Latin America. Products are bulk shipped
via sea cargo carriers to US ports, cleared through customs and are freighted in
to SOYO distribution centers to be ultimately sent on to SOYO's Authorized
network of distributors and retailers.

The process usually takes 6 to 8 weeks. Any deviation from this planned routine
will typically increase product costs. Deviations from the normal course of
transit such as dock worker strikes, increases in fuel costs, expedited delivery
times, customs delays, shipment damage, lost cargo and other unforeseen issues
can result in unsatisfied customers.

As all product transportation and movement activities are dependent on fuel,
this commodity has significantly affected the costs of SOYO's goods from
origination through to final destination and continuing with shipping on
returned goods. It is unlikely that any further short run increase in fuel
prices can be passed along to consumers. The continued long term increases in
fuel costs have begun to be passed along to SOYO's customers in the form of
increased prices effective December 1, 2007.

MARKETING

In 2007 SOYO increased the marketing staff by adding an internal web master, one
additional part time Graphic Designer, and a full time Investor relations and PR
specialist to the team. The marketing team achieved several goal in 2007 by
improving product packaging, creating new product packages, launching of SOYO's
new web site, the creation of mini sites, the design and launch of the Honeywel
lCE web site, the creation and launch of the Prive brand, the creation and
launch of the Le Vello Brand, and the creation and launch of the Honeywell
Brand. Additionally the Company increased communication with share holders via
share holder letters, relevant Press Releases, and quarterly share holder
conference calls.

In terms of pure marketing SOYO took a more viral approach, by partnering with
LG Sports Marketing to sponsor a team of Mixed Martial Artists (MMA). This sport
has risen to be one of the fast growing sports in the USA. Through that
sponsorship SOYO had 39 fights and received over 350 minutes of exposure on
network television. These networks include ION, HBO, Spike TV and others at a
cost of under $550 per minute or air time. These fights continue to air as
reruns and SOYO sponsored fighters can be seen in several MMA magazines and DVD
related to the sport.

In 2007, SOYO continued in-content advertising by way of Mixed Martial Arts
(MMA) to target the male 18-34 demographic. Mixed Martial Arts has continued its
rapid growth into mainstream sports in North and Latin America as well as
Canada, and had television ratings that outranked the first game of the World
Series, the Lakers playoff game five and the NASCAR Busch Series. The MMA fan
base falls well within one of SOYO's target demographics and responds positively
to brand promotions.

SOYO sponsored a team of up-and-coming fighters and some professional fighters
who participated in a total of 39 fights in 2007, ranging from UFC fights, Bodog
fights, WEC fights, IFL fights and smaller private fights. SOYO fighters wore
SOYO's logo on their shorts, sweatpants, sweatshirts and t-shirts. The SOYO logo
received over 350 minutes of airtime on channels such as Showtime, Spike TV,
Mark Cuban's HDNet and the Versus Channel as well as MMA magazines, DVD's and
websites.

These actions marked a substantial change in SOYO's role with respect to
marketing and brand promotion, yet is in line with the new strategic direction
of building stronger brand recognition and building the quality of the SOYO
product portfolio. SOYO intends to build on these early promotional experiences

in the years to come and create a name and product line that can compete
effectively at a higher level in the competitive hierarchy.

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

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

SALES

In February 2007 Harvey Schneider was promoted to Director of Sales. Under Mr.
Schneider's direction and support from upper management the SOYO sales team
evaluated the current customer base and eliminated those customers which were
not profitable for SOYO. Additionally, SOYO, Inc. has established a network of
sales offices to service its customers' needs, from prompt order processing to
after-sales customer care. SOYO, Inc.'s primary markets are North America and
Latin America.

In 2007 SOYO, Inc.'s principal sales strategy targets three main markets: (1)
end-user consumers; (2) small business users; and (3) small office / home users
or SOHO's. To reach target customers, SOYO sells its products through a wide
range of sales channels including national and regional distributors, such as
DBL and BDI Laguna, along with 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 partners with electronic
chains, retail stores, and ecommerce resellers throughout the continental U.S.A.
and Canada. Our Sales team met many goals and challenges in 2007 including
expansion into Canada and Mexico. In 2007 we added one national retailer (Office
Max) to our customer base, and increased the number of regional retailers by
adding Fry's Electronics, HHGregg and American TV and Appliance as resellers of
the SOYO brands of products.

For the Latin American market, system builders and value-added resellers (VAR)
are the primary targets. To reach these customers, SOYO Inc. uses an extensive
network of international, national and regional distributors. SOYO added service
centers in Latin America in 2007 to add additional support to the reseller base
of customers. SOYO has a sales offices in Sao Paolo, Brazil, to better service
our Latin America customers in both Brazil and Argentina. As of December 31,
2007, approximately 10% of the SOYO sales and revenues were generated from the
Latin American market.

Within the three segments that SOYO distributes product in, namely,
communications, consumer electronics and computer peripherals, both B2B
(business to business) marketing tactics (such as computer motherboards) and B2C
(business to consumer) marketing tactics (such as LCD TV's) are required. In the
past, product promotion was primarily done at the retailer level and not at
SOYO's level. Typically, big box retailers will hold back some of the product
price to cover these marketing costs at their level. This is commonly referred
to as Market Development Funding (MDF) or Marketing Cooperation Fees (COOP).
SOYO decided to eliminate this practice and move to a net, net pricing model. As
a result, there is less ambiguity regarding receivables and amounts to be paid
by customers, resulting in more definitive cash flows.

CUSTOMERS

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

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

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

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

Year end Key Customer Revenues % of Net Revenue
2007 Wal Mart Canada $ 15,752,660 14.2%
2007 Office Max $ 13,560,291 12.3%
2006 Not applicable $ -- --
2005 E23 $ 13,552,324 35%
2004 SYX Distribution, Inc. $ 8,591,711 26%
a.k.a. Tiger Direct
2003 SYX Distribution, Inc. $ 9,943,855 32%
a.k.a. Tiger Direct

SUPPLIERS

SOYO Group does not produce the components that it distributes. Approximately
95% of SOYO Group, Inc.'s products are supplied by companies located in Taiwan
and China. As of December 31, 2007, the Company purchased 63% of the products it
sells from its top 3 suppliers. No one supplier produced more than 31%of the
products distributed and sold by the Company.

In continuing efforts to work with and leverage its supply base, SOYO entered
into an agreement with GE Capital in 2006 whereby GE guarantees payment to GE
approved vendors thereby facilitating larger orders, decreasing risk and
allowing SOYO to seamlessly finance these transactions. That agreement was
discontinued in 2007 when the Company entered into a banking relationship with
UCB of California. As collateral for the loan, the Company agreed to give UCB a
first lien on Company assets. As a result, GE Capital was no longer willing to
guarantee payments to vendors. As of December 31, 2007, all payments to vendors
are made using the Company's cash flow, or borrowed from UCB under the asset
based credit line.

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 expenditure in 2008
with respect to compliance with any such regulations.

COMPETITION

With the wide range of product offerings, SOYO, Inc. competes with a large
number of small and well-established companies that produce and distribute
products in all categories.

SOYO competes with many companies that import, distribute and act as OEM's.
However, there are few companies that follow SOYO's business model and methods.
Overall most of the companies acting as OEM's spend significantly on R&D whereas
SOYO relies upon its industry knowledge and relationships with suppliers for
such services. SOYO's primary competitors by product line are:

Bluetooth Wireless Headsets:
Among those that SOYO competes with directly in the retail market are
competitors such as Motorola, Jabra, Plantronics and some private label products
from the various mobile phone companies. Additionally there are several other
competitor who are lesser know or have less market share such as Nokia, Sony,
LG, Samsung, Blue Ant and jawbone.

USB External Storage:
SOYO has only a few competitors in this category. Retailers who compete in this
space are SmartDisk, La Cie and Apricom with market share and a few additional
competitors with online presence.

LCD Monitors:
Among those that SOYO competes with directly in the retail marketplace in this
category are majors such as HP, Dell, ViewSonic, LG, Samsung, NEC, and Acer most
of these competitors are available at big box retailers. In addition there are
several other competitors who sell trough Distributors and on-line.

LCD HDTV's:
Among those that the SOYO Brands competes with directly in the retail
marketplace in this category are majors such as Samsung, Sharp, Sony, Vizio,
Olevia, Westinghouse, Toshiba, JVC, Mitsubishi, and Panasonic. Additionally
there are a total of 87 brands with some kind of market share in this hot
product category.

Among those that SOYO competes with directly in the marketplace in the consumer
electronics industry the primary product offering common among this group is LCD
TV's which account for a substantial portion of SOYO sales. Most of the
competition in this product line pivots around price point in TV's under $3000
and brand identity at price points above $3000 and to a lesser extent, features.
Secondary product offerings such as furniture, Mounts and Accessories are
substantially less competitive and offer the opportunity for product
differentiation and better margins.

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

EMPLOYEES

As of March 31, 2008, the Company employed forty two (42) people at its
headquarters in Ontario, California. The Company also employs outside
consultants as needed to meet business objectives.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should
carefully consider the following factors which could materially affect our
business, financial condition or future results. The risks described below are
not the only risks facing our Company. Additional risks and uncertainties not

currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating
results.

Our inability to finance future growth could hurt our business.

Our revenues and profit margins are based on our ability to supply substantial
amounts of inventory to our customers at a very rapid pace. If we are unable to
obtain sufficient inventory from our distributors, our customers will be
affected, which could harm our long term ability to sell products through those
sales channels. As the Company sales have increased by 48% in 2006, and then 95%
in 2007, financing our growth has become more challenging. The Company is
currently negotiating a large credit expansion, but has not yet come to an
agreement on terms.

Increased competition could hurt our business.

There are many manufacturers and distributors of many of the products we sell.
Since consumer electronics and communications equipment have traditionally been
high volume/high profit areas, increased competition could enter the market and
adversely affect our sales and profitability.
Segments of our business, particularly the LCD television business, are subject
to rapidly changing prices. As a result, we must often negotiate new pricing,
discounts and price protection issues with customers while inventory is either
in transit or just landed.

SOYO Group does not produce the components that it distributes. Approximately
95% of SOYO Group, Inc.'s products are supplied by companies located in Taiwan
and China. As of December 31, 2007, the Company purchased 63% of the products it
sells from its top 3 suppliers. No one supplier produced more than 31%of the
products distributed and sold by the Company.

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

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

Increases in the cost of energy could affect our profitability.

We were adversely affected in 2007 by the skyrocketing price of fuel, which led
to higher freight costs. If the price of shipping merchandise continues to
climb, it will affect our future profitability.

Litigation or legal proceedings could expose us to significant liabilities and
thus negatively affect our financial results.

From time to time, we have been party to several different legal proceedings,
which are described in Item 2 of this report. We evaluate these litigation
claims and legal proceedings to assess the likelihood of unfavorable outcomes
and to estimate, if possible, the amount of potential losses. Based on these
assessments and estimates, we establish reserves as required. These assessments
and estimates are based on the information available to management at the time
and involve management's best judgment. It is possible that actual outcomes or
losses may differ materially from those envisioned by our current assessments
and estimates. In addition, new or adverse developments in existing litigation
claims or legal proceedings involving our Company could require us to establish
or increase litigation reserves or enter into unfavorable settlements or satisfy
judgments for monetary damages for amounts significantly in excess of current
reserves, which could adversely affect our financial results for future periods.

As of December 31, 2007, there were no proceedings pending against the Company,
except a counter suit where the Company initiated legal proceedings against a
former supplier.

Changes in accounting standards and taxation requirements could affect our
financial results.

New accounting standards or pronouncements that may become applicable to our
Company from time to time, or changes in the interpretation of existing
standards and pronouncements, could have a significant effect on our reported
results for the affected periods.

If we are not able to achieve our overall long term goals, the value of an
investment in our Company could be negatively affected.

We have established and publicly announced certain long-term growth objectives.
These objectives were based on our evaluation of our growth prospects, which are
generally based on volume and sales potential of many product types, and on an
assessment of potential level or mix of product sales. There can be no assurance
that we will achieve the required volume or revenue growth or mix of products
necessary to achieve our growth objectives.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 2. PROPERTIES

The Company's corporate headquarter is located at 1420 S. Vintage Ave. Ontario,
California, 91761. The property is under a lease agreement expiring November 30,
2008 with terms and conditions as stipulated below:

Lease Lease Area
Facility Address Inception Expiration ----
-------- ------- --------- ----------
Office and warehouse 1420 S. Vintage Ave. 09/01/2003 11/30/2008 42,723 sq.
Ontario, CA ft.

Rent Schedule:

Start Date End Date Base Rent (NNN)
---------- -------- ---------------
October 1, 2004 February 28, 2006 $ 16,869.84
March 1, 2006 November 30, 2008 $ 17,724.30

The Company owns an option to extend the term of the leased property for an
additional five ( 5) years that can be exercised by providing written notice to
the lessor at least six (6) months but not more than 12 months prior to the date
that the option period would commence. The Company also maintains a sales
representation office in Brazil, located at Rua Andre Ampere 153 andar 17
sala171/172, Brooklin Novo, Sao Paulo, SP, Brazil.

ITEM 3. LEGAL PROCEEDINGS.

On January 26, 2007, the Company filed a lawsuit against Astar Electronics USA,
Inc., KXD Technology, Inc. and Does 1 - 25 in the Superior Court of California
for the County of Los Angeles, Central District (Case No. BC365349). The Company
alleges claims for breach of contract, fraud, and tortuous interference with
economic relations and seeks compensatory and punitive damages. Both named
defendants were served on January 26, 2007. On May 17, 2007, the Company filed a

First Amended Complaint against Defendants alleging additional claims for
trademark infringement, trademark dilution, unfair competition and false
advertising. In or about June 2007, Astar Electronics USA, Inc. and KXD
Technology, Inc. answered and KXD Technology, Inc. filed a cross-complaint
against the Company and two of its officers, Nancy Chu and Ming Chok alleging
claims for breach of contract, fraud, tortuous interference with economic
relations and common counts. In or about July 2007, Astar Electronics USA, Inc.
filed a notice of dissolution with the California Secretary of State. On August
15, 2007, KXD Technology, Inc. filed for bankruptcy protection in the United
States Bankruptcy Court, Central District of California. On September 13, 2007,
the Court entered an order sua sponte to stay the entire action pending the
resolution of the bankruptcy proceeding. No trial date has been set.

On March 22, 2007, Semiconductor Energy Laboratory Co., Ltd. instituted an
action against several defendants, including the Company, in the United States
District Court for the Northern District of California (Case No. C071667 MHP)
alleging patent infringement with respect to certain products the Company is
alleged to have imported and sold in the United States. On July 5, 2007,
Plaintiff filed a dismissal without prejudice as to the Company.

On November 11, 2007, the Company filed a lawsuit against MDG Computers Canada,
Inc. in the Ontario Superior Court of Justice in Canada. The Company alleges
claims for trademark infringement, passing off and false designation related to
the sales of televisions by MDG Computers Canada, Inc. bearing the Company's
trademarks. On December 18, 2007, MDG Computers Canada, Inc. filed an answer to
the complaint. The Company shall continue to vigorously pursue its claims
against MDG Computers Canada, Inc. No trial date has been set.

On June 30, 2006, a lawsuit was filed in the United States District Court,
Central District of California, Eastern Division, entitled Robert Lewis, Jr. v.
Soyo Group, Inc., et al., Case No. EDCV 06-699 VAP (JWJx). The case sought class
action status and alleged failures to timely pay rebates to purchasers of Soyo
products allegedly in violation of unfair competition laws, the California
Consumer Legal Remedies Act and contracts with purchasers. The plaintiff sought
disgorgement of all amounts obtained by the Company as a result of the alleged
misconduct, plus actual damages, punitive damages and attorneys' fees and costs.
The Company agreed to settle the matter, the court approved the settlement, and
the Company's final settlement payment is due on April 2, 2008.

On May 22, 2006, the Company received notice of an investigation by the Attorney
General of the State of California (the "AG") regarding the Company's alleged
failures to timely pay rebates to purchasers of Soyo products. The Company
cooperated with the investigation and agreed to the terms of a stipulation for
entry of final judgment and permanent injunction (the "Injunction") relating to
the Company's administration of rebate claims. On March 7, 2007, the Injunction
was filed by the AG and entered by the Superior Court of California, County of
San Diego in the action entitled People of the State of California v. Soyo
Group, Inc., et al., Case No. GIC 8813770.

On February 15, 2006, the Company received notice of an investigation by counsel
for the Federal Trade Commission (the "FTC") regarding the Company's alleged
failures to timely pay rebates to purchasers of Soyo products. The Company
cooperated with the investigation and agreed to the terms of an agreement
containing a consent order (the "Consent Order"), which has been approved and
filed by the FTC, relating to the Company's administration of rebate claims.

All amounts paid by the Company in 2007 and 2006 in regard to legal proceedings
are recorded as general and adminstrative expenses.

There are no other legal proceedings that have been filed against the Company.

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

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

During the fourth quarter of the fiscal year ended December 31, 2007, there were
no matters submitted to the shareholders for approval.

PART II

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

(a) Market Prices of Common Stock

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

Price Range
-----------
High Low
---- ---
Fiscal Year Ended December 31, 2006
First Quarter $ 0.74 $ 0.50
Second Quarter 0.62 0.31
Third Quarter 0.40 0.28
Fourth Quarter 0.40 0.27

Fiscal Year Ended December 31, 2007
First Quarter $0.60 $0.28
Second Quarter 0.62 0.31
Third Quarter 0.98 0.40
Fourth Quarter 1.80 0.90

(b) Shareholders

The Company's common shares are issued in registered form. Securities Transfer
Corporation, Dallas, Texas, is the registrar and transfer agent for the
Company's common stock. As of December 31, 2007 there were 52,004,656 shares of
the Company's common stock outstanding and the Company had over 1100
shareholders of record.

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

During 2007 we declared no dividends on the Class B Preferred Stock outstanding.
The dividends recognized and booked in 2007 were the accreted dividends
resulting from the valuation of the Series B Preferred Stock at issuance. See
"Recent Sales of Unregistered Securities." for more information.

(d) Penny Stock

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

(e) Recent Sales of Unregistered Securities

During the calendar year 2007, the Company issued an aggregate of 2,979,145
shares of its common stock to various entities for various reasons.

During the year, 40,000 unregistered shares were issued to our two new
directors, Henry Song and Jay Schrankler upon their joining the Company's Board
of Directors.

Through the year, an additional 764,645 unregistered shares were issued to
consultants, contractors and vendors for services performed on the Company's
behalf.

During the fourth quarter, 674,500 shares were issued to employees who exercised
stock options granted to them in 2007. All of the options exercised were issued
with a strike price of $.35.

During December 2007, 1,500,000 unregistered shares were issued to the Company's
quality control team located in Asia.

(f) Equity Compensation Plan Information

On March 7, 2005, the Company registered its 2005 Stock Compensation Plan on
Form S-8 with the Securities and Exchange Commission, registering on behalf of
our employees, officers, directors and advisors up to 5,000,000 shares of our
common stock purchasable by them pursuant to common stock options granted under
our 2005 Stock Compensation Plan. The plan was approved by shareholder vote
during a special meeting of shareholders on February 17, 2006.

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

On February 2, 2007, the Company issued 4,805,000 option grants to employees at
a strike price of $0.35. One third of those options were immediately vested and
available for purchase on February 2, 2007, one third will vest on February 2,
2008, and one third on February 2, 2009. The grants will expire if unused on
February 2, 2012. An additional 100,000 options were issued during the 3rd
quarter to new employees. All options were issued to employees on the 91st day
of their employment at the end of their probationary employment period. All
options were issued at market value on the day of the grant.

During 2007, 674,500 of the options granted in 2007 were exercised. None of the
options granted in 2005 have been exercised. As of December 31, 2007, 17
individuals who had been granted options in 2005 had left the Company, resulting
in the forfeiture of 552,000 of the 2005 options. Furthermore, six individuals
who were granted options in 2007 had left the Company. Those six individuals had
exercised 58,000 options, but forfeited 30,000 options granted in 2005, and
262,000 options granted in 2007 upon leaving the Company. As of December 31,
2007, 646,000 options issued in 2005 were vested but not exercised, and
1,320,000 options issued in 2007 were vested but not exercised.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data of the Company is presented
as of and for each of the five years ended December 31, 2007, 2006, 2005, 2004
and 2003. The selected financial data should be read in conjunction with the
Company's audited consolidated financial statements and the notes thereto, and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".

Selected Consolidated Statements of Operations Data:

Year Ended December 31

2007 2006 2005 2004 2003
---- ---- ---- ---- ----

Net revenue 110,922,809 $56,758,688 $38,263,032 $32,426,414 $31,034,239
Income (loss) from 4,477,878 1,519,271 514,290 (3,913,683) (980,347)
operations
Net income (loss)
attributable to common 3,047,353 252,182 (633,443) (4,143,978) (984,588)
shareholders
Net income (loss) per $0.07 $0.01 ($0.01) ($0.10) ($0.02)
common share-basic

Selected Consolidated Balance Sheet Data:

December 31
2007 2006 2005 2004 2003
---- ---- ---- ---- ----

Total assets 51,967,330 $26,592,239 $16,907,390 $7,500,437 $12,729,453
Long-term payable to Soyo
Taiwan - - - - 12,000,000
Shareholders' Equity (Deficit) 8,127,600 2,522,564 1,477,703 (4,057,028) (12,136,783)
Cash dividends declared per
common share N/A N/A N/A N/A N/A

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

The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Background and Overview:

Incorporated in Nevada on October 22, 1998, SOYO Group, Inc. is a distributor of
consumer electronics, communications and computer parts. A substantial portion
of the products are manufactured in Taiwan and China. Through SOYO Group, Inc.
the Company offers a line of LCD televisions and computer monitors, wireless
headset devices, motherboards and related peripherals for intensive multimedia

applications. The product line also includes Bare Bone systems, flash memory as
well as small hard disk drives for corporate and mobile users.

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

The Company sells to distributors, retailers and directly to consumers. Revenues
through such distribution channels for each of the three years ended December
31, 2007, 2006 and 2005 are summarized as follows:

Year Ended December 31
2007 % 2006 % 2005 %
---- - ---- - ---- -

Revenues
Distributors $ 55,609,498 50.1 $35,510,804 62.6 $22,312,488 58.3
Retailers 46,706,227 42.1 15,187,152 26.8 15,742,332 41.2
Others 8,607,085 7.8 6,060,732 10.6 208,212 0.5

Total $ 110,922,809 100.0 $56,758,688 100.0 $38,263,032 100.0

During the year ended December 31, 2007, two customers accounted for more than
10 % of sales. Wal Mart Canada purchased $15,752,660 of goods from the Company,
equal to 14.2% of total revenues, and Office Max purchased $13,560,291 of goods,
equal to 12.3% of total revenues.

During the year ended December 31, 2006, the Company had no customers that
accounted for more than 10% of revenues.

During the year ended December 31, 2005, the Company had one customer (E23) that
accounted for revenues of $13,552,324, equivalent to 35% of net revenues.

Revenues by geographic segment are summarized as follows:
Year Ended December 31
2007 % 2006 % 2005 %
---- - ---- - ---- -
Revenues
United States 79,412,207 71.5 $42,628,547 75.2 $20,686,944 54.1
Other N. America 17,297,999 15.6 2,472,209 4.4 983,606 2.6
Central and South America 10,054,602 9.1 10,253,665 18.0 2,993,532 7.8
Hong Kong 2,862,564 2.6 139,490 0.2 13,598,950 35.4
Other locations 1,295,437 1.2 1,264,777 2.2 N/A N/A
Total 1 10,922,809 100.0 $56,758,688 100.0 $38,263,032 100.0

During the first part of 2005, the Company had made a commitment to its new
product lines, but did not have much inventory to sell. While waiting for the
initial inventory shipments, the Company entered into a short term agreement to
make sales of computer components to a vendor in Hong Kong (E23). The sales had
relatively low margin, and not a business that the Company planned to be in long
term. Nevertheless, the sales of such products in 2005 represented a significant
portion of the Company's business.

Revenues by product line are summarized as follows:

Year Ended December 31
2007 % 2006 % 2005 %
---- - ---- - ---- -

Revenues
Consumer electronics 53,786,883 48.5 $27,543,873 48.5 $18,739,719 49.0
Computer parts and 56,830,322 51.3 29,204,792 51.5 18,906,367 49.4
peripherals
Furniture 249,803 0.2
Voice and communication 55,801 10,023 -- 616,946 1.6
Total 110,922,809 100.0 $56,758,688 100.0 $38,263,032 100.0

On December 31, 2007, all of the assets of the VoIP division were sold to
247MGI, a Florida company.

Financial Outlook:

In 2007, the Company earned $3,315,544 or $.06 per share before dividends on
preferred stock. The large increase in top line revenues and profits was due to
our new sales team opening up sales channels to big box retailers in the United
States, and opening up the Canadian market.

In 2006, the Company earned $468,670 or $0.01 per share before dividends on
preferred stock, The large increases in sales of LCD televisions and LCD
monitors were primarily responsible for the large increase in net revenues.

In 2005, the Company earned $540,310 or $0.01 cents per share, before preferred
dividends, after revamping its core product offerings. The Company no longer
sold products purchased from SOYO Taiwan, and instead focused on consumer
electronics, notably LCD televisions and computer monitors.

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

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

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

In March 2007, the Company announced that it had secured a $12 MM Asset Based
Credit Facility from a California bank to provide funding for future growth. The
agreement stated that UCB would provide SOYO with a revolving financing facility
of up to $12 million to finance working capital, letters of credit or other
capital needs. The maximum amount of the facility to be extended at any point in
time based on the Company's accounts receivable and inventory, which would serve
as collateral for the loan.

unchanged during both increases. For reporting purposes, the loan has been
segregated from other payables and reported as a separate line item. At December
31, 2007, the balance of the loan due to UCB was $16,863,909.

In June 2007, UCB offered to provide the Company with an alternative source of
financing- Purchase Order financing. This line differed from all other forms of
financing in that the bank was offering to advance funds against our customers
specific purchase orders, provided the customer met the bank's stringent credit
requirements. The end result is that the Company can use this credit line only
by obtaining purchase orders from large customers before ordering the
merchandise. The funds would then be advanced to the manufacturer after product
was shipped, and once the product was delivered to the customer, and the status
of the order was changed from a purchase order to a receivable, the loan would
have to be paid back, or the balance transferred to the asset based credit line.
The Company began buying merchandise under the Purchase Order financing line in
June 2007. As of December 30, 2007, the amount SOYO owed to UCB was $10,960,581.

The Company continues to work towards expanding its current credit facilities
and purchasing power. Net revenues have increased by 48% and then 95% in the
last two fiscal years, but the Company has had difficulty in financing its
inventory purchases. If the demand for the Company's products continue to
increase at current levels, the Company will need to expand its credit
facilities or may not be able to fund future growth.

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. In 2007, the Company booked price protection,
co-op marketing fees and sales incentives as expenses under these 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.

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.

Income Taxes:

Through 2006, the Company recorded a valuation allowance to reduce the carrying
amount of its deferred tax assets to zero. In 2007, management reevaluated the
policy of using a valuation allowance to reduce the carrying amount of its
deferred tax assets to zero. Based on a review of FASB 109, the Company's
profitability in 2007, the reduction of the Company's net loss carryforwards and
the Company's internal estimates of revenues and profitability in 2008,
management believes that the benefit contained in carrying deferred tax assets
on the Company's books are more likely than not to be realized in future
periods. As a result, the Company believes that a change in accounting policy is
warranted. For more information, see the footnotes to the financial statements.

Sales Incentives

The Company offers sales incentives to our customers in the form of co-op
advertising, price protection and sales discounts. All costs associated with
sales incentives are classified as a reduction to net revenues. The following is
a summary of the different types of sales incentives: Co-operative advertising
allowances are offered to customers as a reimbursement towards their costs for
advertising in which our product is featured on its own or in conjunction with
other companies' products. The amount offered is either a fixed amount or is
based upon a fixed percentage of sales revenue during a specified time period.

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

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

Allowance for Doubtful Accounts

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

Stock Based Compensation

Effective January 1, 2006 the Company adopted SFAS 123(R) using the modified
prospective approach and accordingly prior periods have not been restated to
reflect the impact of SFAS 123(R). Under SFAS 123(R), stock-based awards granted
prior to its adoption will be expensed over the remaining portion of their
vesting period. These awards will be expensed under the straight-line method
using the same fair value measurements which were used in calculating pro forma
stock-based compensation expense under SFAS 123. For stock-based awards granted
on or after January 1, 2007, the Company will amortize stock-based compensation
expense on a straight-line basis over the requisite service period, which is
three years.

SFAS 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
initial estimates. Stock-based compensation expense has been recorded net of
estimated forfeitures for the year's ended December 31, 2007 and 2006 such that
expense was recorded only for those stock-based awards that are expected to
vest. Previously under APB 25 to the extent awards were forfeited prior to
vesting, the corresponding previously recognized expense was reversed in the
period of forfeiture.

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

Results of Operations:

Years Ended December 31, 2007 and 2006-

Net Revenues. Net revenues increased by $54,164,121 or 95.4% to $110,922,809 in
2007 as compared to $56,758,688 in 2006. The large increase in net revenues was
primarily attributable to the strong sales of LCD TVs and LCD monitors, as well
as the success of our sales force in opening new markets and developing new
business opportunities New customers that purchased products from the Company in
2007 that had never before purchased products from the Company included Office
Max, HH Gregg, Rex Radio and Appliance, and Fry's Electronics. Additionally, the

Company launched the Prive brand of consumer electronics in Canada in 2007, sold
exclusively through Wal Mart Canada. Sales of the Prive brand totaled $9,679,647
in 2007.

During the years ended December 31, 2007 and 2006, the Company offered price
protection to certain customers under specific programs aggregating $245,150 and
$70,119 respectively, which reduced net revenues and accounts receivable
accordingly.

Gross Margin. Gross margin was $14,421,335 or 13.0% in 2007, as compared to
$9,224,439 or 16.3% in 2006. Gross margin increased in dollar terms, but
decreased as a percentage of sales in 2007, as the Company's sold more of lower
margin products than anticipated. The Company has a broad product mix including
LCD televisions and monitors, Bluetooth devices, furniture and other computer
parts. The lowest margin products are the LCD televisions and monitors. Although
the Company expects to always sell more of these products than any other
products, the Company expects the blended margin of all products sold to be 15%
at the end of the year. During 2007, the Company met its sales goals for the
ancillary products, but oversold its forecasts for the televisions and monitors
by approximately 40%. This was due to high demand for products from Office Max
and Wal Mart Canada. As a result, the Company's margin narrowed on the increased
volume above forecasted levels.

Sales and Marketing Expenses. Sales and marketing expenses increased by $400,567
or 35.0 %, to $1,544,042 in 2007, as compared to $1,143,475 in 2006. There was
essentially one reason for the increase. The Company hired and paid outside
sales reps during the year to assist the sales department in opening new
accounts. The program was successful, as the outside reps were primarily
responsible for the Company obtaining several different new customers and
growing sales 95% year over year.

General and Administrative Expenses. General and administrative expenses
increased by $2,311,400 or 41.2 %, to $7,922,210 in 2007, as compared to
$5,610,810 in 2006. There were several reasons for the increase.

The Company adopted SFAS No. 123(R) effective January 1, 2006 using the modified
prospective method. As a result, the Company recognized stock-based compensation
of $506,222 for the issuance of employee stock options in 2006. The Company
issued additional stock options to employees in February 2007. As a result, the
charge against earnings for employee stock options was $1,106,757, and increase
of over $600,000 from the prior year. Additionally, the Company recognized over
$1,100,000 of expenses from share based compensation to directors and
consultants.

During 2007, the Company incurred a non cash expense of $421,555 related to
stock options issued to consultants. There was no such expense in 2006.

During the year, the Company paid $383,000 to Honeywell International Inc. as
prepayments for royalties to be paid on sales of Honeywell branded products.
There were no payments to Honeywell International Inc. in 2006.

During 2007, the Company paid over $200,000 for sponsorship and marketing
relating to its MMA advertising. There were no payments made for that type of
marketing in 2006.

Provision for Doubtful Accounts. The provision for doubtful accounts was
decreased to $385,387 in 2007, as compared to $907,065 in 2006. When the Company
was prepared to sign the agreement for the $12 million finance line in 2006, it
reexamined all receivables and wrote off all balances over 90 days, and wrote
down to present value all balances over 90 days that were making monthly
payments. This resulted in a large write off taken in the fourth quarter of
2006. As a result, any balances with even a small question about collectivity

were written off. Because of this aggressive stance in 2006, the Company entered
2007 with no bad debts or questionable accounts of any kind. Even though sales
were up almost 95% in 2007 over 2006, the quality of the customers the Company
extended credit to was significantly better, resulting in fewer delayed payments
and much smaller write offs.

Depreciation and Amortization. Depreciation and amortization of property and
equipment was $91,818 in 2007 as compared to $43,818 in 2006.

Income (Loss) from Operations. The income from operations was $4,477,878 for the
year ended December 31, 2007, as compared to income from operations of
$1,519,271 for the year ended December 31, 2006.

Interest Expense. Interest expense increased to $1,364,059 in 2007, as compared
to $901,900 in 2006. The increase is due to the Company's increased financing
costs from its asset based credit facility and purchase order facility. As the
Company's revenues increased, the Company was forced to keep more inventory on
hand as well as borrow more to finance larger production runs. Those facts led
to a corresponding increase in interest expense.

Interest Income. Interest income was $85,144 as compared to $10,561 in 2006. The
increase was due to the Company's increased cash flow throughout the year. Any
cash balances are swept daily into an interest bearing overnight account.

Other Income (Expense). Other income/miscellaneous revenue (expense) was a loss
of $247,419 as compared to a loss of $106,262 in 2006. This is primarily due to
a loss of $159,714 on the sale of the VoIP division. The Company did not expect
to recognize a loss on the sale, but after marking the investment in 247MGI down
by 50% (see footnote 4 to the accompanying financial statements), a loss was
recognized.

Income Tax Expense. The Company calculated its current income tax expense at
$839,000, as compared to $53,000 for 2006. The Company has used up all of its
state net operating loss carryforwards and most of its federal net income loss
carryforwards. For more information see note 10 to the accompanying financial
statements.

Deferred Income Tax Benefit: The Company recognized a deferred income tax
benefit of $1,203,000 in 2007 resulting from various temporary timing
differences in book vs. tax accounting. There was no deferred income tax benefit
(loss) in 2006.

Net Income/Loss. The net income before preferred dividends was $3,315,544 in
2007 as compared to $468,670 for the year ended December 31, 2006. The reasons
for the turnaround are discussed in detail in the above paragraphs.

Preferred Stock Dividends. Accreted and deemed preferred stock dividends were
$268,191 in 2007 as compared to $216,488 in 2006.

Years Ended December 31, 2006 and 2005-

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

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

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

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

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

The biggest factor in the increased G&A costs was the Company's mandatory
implementation of SFAS No. 123(R). In December 2004, the FASB issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
("SFAS No. 123(R)") which replaces SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123(R) requires that companies recognize all share-based
payments to employees, including grants of employee stock options, in the
financial statements. The cost will be based on the fair value of the equity or
liability instruments issued and recognized over the respective vesting period
of the stock option. Pro forma disclosure of this cost will no longer be an
alternative under SFAS No. 123(R). SFAS 123(R) was effective for public
companies at the beginning of the first fiscal year that begins after June 15,
2005. The effect of the adoption was a non cash charge against earnings of
approximately $506,222 over the twelve month period.

The next element contributing to the increase in the S,G&A expenses was the
Company's use of consultants during the year. The Company was actively searching
for new financing throughout the year, culminating in the completion of the UCB
$12 million revolving loan commitment (see Form 8-K filed March 1, 2007). The
Company employed several high cost consultants to identify and negotiate with
potential financial partners. All together, the Company spent over $600,000 to
pay consultants during the year. The Company has terminated the consultants'
services in 2007.

The final element contributing to the increased SG&A costs in 2006 were the
legal fees. The Company defended itself against several lawsuits during 2006 and
negotiated settlements with both the California Attorney General and the Federal

Trade Commission in regard to charges that the Company did not process and pay
customer rebate claims properly (see Item 3- Legal Proceedings). The costs
associated with the Company's defense of the lawsuits stemming from the rebate
issues, and the administrative penalty totaled almost $600,000.

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

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

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

Income (Loss) from Operations. The income from operations was $1,519,271 for the
year ended December 31, 2006, as compared to income from operations of $514,290
for the year ended December 31, 2005.

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

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

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

Income Tax Expense. The Company calculated its income tax expense at $53,000 for
2006 after using net operating loss carryforwards to offset most of its taxable
income. The provision for income taxes was $800 in 2005.

Net Income/Loss. The net income before preferred dividends was $468,670 for the
year ended December 31, 2006, as compared to $540,310 for the year ended
December 31, 2005.

Preferred Stock Dividends. Accreted and deemed preferred stock dividends were
$216,488 in 2006, as compared to accreted and declared dividends of $1,173,753
in 2005. The accreted dividends were actually $174,753 during 2005.
Additionally, the Company made a $999,000 adjustment to the carrying value of
the Class A preferred stock during the year. From the Company's inception, the
Class A preferred stock was carried on the books at its basis of $1,000. Prior
to the conditional redemption of the Class A preferred stock to common stock on
October 24, 2005, the carrying value was adjusted to the face value of
$1,000,000. This resulted in an adjustment to the preferred stock account of

$999,000, and the offsetting journal entry to preferred stock dividends raised
the amount recorded during the year to $1,173,753. No such adjustments were
required in 2006.

Liquidity and Capital Resources - December 31, 2007: .
For the year ended December 31, 2007, the Company recorded aggregate dividends
of $268,191, based on the accretion of the discount on the Class B Convertible
Preferred Stock. The Company did not declare or accrue any additional dividends
on the Class B cumulative Preferred Stock.

For the year ended December 31, 2006, the Company recorded aggregate dividends
of $216,488, based on the accretion of the discount on the Class B Convertible
Preferred Stock. The Company did not declare or accrue any additional dividends
on the Class B cumulative Preferred Stock.

For the year ended December 31, 2005, the Company recorded aggregate dividends
of $1,173,753, based on the accretion of the discount on the Class B Convertible
Preferred Stock of $174,753, and the adjustment of $999,000 to the carrying
value of the Class A preferred stock, which is described above. The Company did
not declare or accrue any additional dividends on the Class B cumulative
Preferred Stock.

Through March 31, 2008, none of the Class B cumulative Preferred stock had been
converted to common stock, and the Company had not repurchased any of the shares
of Class B cumulative Preferred stock.

Operating Activities. The Company generated cash of $3977,061 from operating
activities during the year ended December 31, 2007, compared to utilizing cash
of $2,941,820 from operating activities during the year ended December 31, 2006,
and utilizing cash of $178,088 from operating activities during the year ended
December 31, 2005.

At December 31, 2007 the Company's cash and cash equivalents had increased by
$347,209 to $1,848,249, as compared to $1,501,040 at December 31, 2006.

The Company had working capital of $6,894,614 at December 31, 2007, as compared
to working capital of $5,706,047 at December 31, 2006, resulting in current
ratios of 1.16 to 1 and 1.28:1 at December 31, 2007 and 2006, respectively.

Accounts receivable increased to $27,123,985 at December 31, 2007, as compared
to $16,467,135 at December 31, 2006, an increase of $10,656,850, or 64.7%. The
large increase was generally due to the increase in net revenues. Net revenues
increased by $54,164,121 or 95.4% during the year. The Company had two customers
that accounted for greater than 10% of its revenue on 2007. The accounts
receivable balance due from those two customers at December 31, 2007 was
$8,652,953.

Inventories increased to $12,221,265 at December 31, 2007, as compared to
$7,792,621 at December 31, 2006, an increase of $4,428,644 or 56.8%. The
inventory balances included inventory in transit of $3,374,479 and $4,005,265 at
December 31, 2007 and December 31, 2006 respectively. The increased inventory is
now necessary for the Company to carry as its revenues have grown by 56% and
then 95% in the last two years.

Accounts payable decreased by $1,737,421 to $14,336,196 at December 31, 2007 as
compared to $16,073,617 at December 31, 2006. The decrease is meaningless as the

2007 figures do not include the $27,824,490 due to banks, and do include a
portion of the long term debt which was not included in the 2006 figure. A more
meaningful comparison would be to compare total liabilities between 2007 and
2006, which have risen by $19,655,840. This corresponds to the increases in
accounts receivable and inventory, and is a natural event considering the
increases in net revenues and profits.

Accrued liabilities increased to $789,526 at December 31, 2007, as compared to
$519,457 at December 31, 2006, an increase of $270,069 or 52%.

Investing Activities

The Company expended $50,272, $48,894 and $621,970 in 2007, 2006 and 2005
respectively for the purchase of property and equipment. The large expenditure
in 2005 is for the purchase of telephone lines and equipment in China to support
the VoIP division. Those asserts were sold along with all other assets from the
VoIP division in December 2007.

Financing Activities

On March 28, 2005 Ever-Green Technology (Hong Kong) Co., Ltd., purchased 500,000
unregistered shares of our common stock, $0.001 par value per share (the
"Shares") and common stock purchase warrants to purchase 100,000 shares of our
common stock exercisable at $1.50 per share at any time until March 22, 2008
(the "Warrants"). The total offering price was $500,000, which was paid in cash.

In October 2005, the Company borrowed $165,000 from an individual for working
capital purposes. The Company repaid $65,000 of the loan during the year. The
balance at the end of 2006 was $100,000. The balance was paid off in 2007.

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

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

In 2006, the Company entered into a Trade Finance Flow facility with GE Capital
to fund "Star" transactions. The agreement provided for GE Capital to guarantee
payment, on the Company's behalf, for merchandise ordered from GE Capital
approved manufacturers in Asia. GE Capital guarantees the payment subject to a
purchase order from one of our customers. The Company accepts delivery of the
goods in the US, then has the option to either pay for the goods or sell the
receivable (from the customer) to our factor, who paid GE Capital. The agreement
was discontinued in 2007 when the Company entered into a banking relationship
with UCB of California. As collateral for the loan, the Company agreed to give
UCB a first lien on Company assets. As a result, GE Capital was no longer
willing to guarantee payments to vendors. As of December 31, 2007, all payments
to vendors are made using the Company's cash flow, or borrowed from UCB under
the asset based credit line.

In April 2007, by mutual agreement of the parties, the maximum loan balance was
increased from $12 million to $14 million. The maximum loan balance was
increased in December 2007 to $17 million. All other terms of the agreement,
including the interest rate, maturity date and method of evaluating the
Company's inventory and receivables to determine eligible collateral were left
unchanged during both increases. At December 31, 2007, the balance of the asset
based loan due to UCB was $16,661,807.

Principal Commitments:

A summary of the Company's contractual cash obligations as of December 31, 2007,
is as follows:

Less than 1
Contractual Cash Obligations year 2-3 years 4-5 years Over 5 years
---------------- ---------------- ------------------- ----------------

Operating Leases $ 194,970 N/A N/A N/A
Advances from Directors N/A N/A N/A N/A
Notes Payable/ Short Term Loan N/A N/A N/A N/A
Purchase Commitments $3,374,479 N/A

Royalty Payments Due $ 424,000 $1,178,000 $1,605,000 $448,000
Long Term Debt -- -- -- --
---------------- ---------------- ------------------- ----------------
Total $3,993,449 $1,178,000 $1,605,000 $448,000
================ ================ =================== ================

At December 31, 2007, the Company did not have any long term purchase commitment
contracts to honor. The only purchase commitments were for inventory already
purchased and in transit of $3,374,479.

At December 31, 2006, the Company had trade payables to Corion and Eastech. By
prior agreement of the companies, the payment of those balances was stretched so
that the balances were to be paid in equal installments through October 2008. As
a result, balances totaling $3,735,198 were to be paid by the Company during the
time period from January 2008 through October 2008, and were been classified as

long term debt as of December 31, 2006. As all further amounts related to these
claims are scheduled to be paid in 2008, there is no long term debt as of
December 31, 2007.

At December 31, 2007, the Company did not have any material commitments for
capital expenditures or have any transactions, obligations or relationships that
could be considered off-balance sheet arrangements.

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

The agreement is for a minimum period of 6.5 (six point five) years and calls
for the payment of MINIMUM royalties by SOYO to Honeywell International Inc.
totaling $3,840,000. Sales levels in excess of minimum agreed targets will
result in associated increases in the royalty payments due. Minimum royalty
payments due under the agreement are $424,000 in 2008. Although the Company
signed the agreement in 2007 and no sales of Honeywell branded products were
made in 2007, $383,000 in royalties were paid to Honeywell International Inc. in
2007.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Through December 31, 2007, Company did 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. On December 31, 2007, the Company sold
all of the assets related to the VoIP business to 247MGI of Fort Lauderdale,
Florida for 40,000,000 shares of 247MGI's common stock. The stock is traded on
the OTC pink sheets. The Company has no plans to dispose of the 247MGO stock,
and intends to hold it long term as an investment.

The Company's debt obligations at December 31, 2007 and 2006 were primarily
short-term in nature. As of December 31, 2007, The Company does not have any
long term debt. However, the Company does have $27,824,490 of debt at a variable
interest rate. As a result, the Company does have some financial risk from an
increase in interest rates. 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.

Through 2006, The Company had absolutely no foreign currency risk, as its
revenues and expenses, as well as its debt obligations, are denominated and
settled in United States dollars. In 2007, the Company began selling product to
a Canadian vendor who paid in Canadian dollars. The Company believes that risk
is immaterial to its overall business, and has no plans to hedge that risk in
2008. If the risk grows, or the Company begins to sell product to other
customers in non US dollar related transactions, the Company may reevaluate that
position.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a) Financial Statements

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

1. Report of Independent Registered Public Accounting Firm

2. Consolidated Balance Sheets as of December 31, 2007 and 2006

3. Consolidated Statements of Operations for the years ended December 31,
2007, 2006 and 2005

4. Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 2007, 2006 and 2005

5. Consolidated Statements of Cash Flows for the years ended December 31,
2007, 2006 and 2005

6. Notes to Consolidated Financial Statements.

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

Page
----
Report of Independent Registered Public Accounting Firm -
Vasquez & Company LLP F-2
Consolidated Balance Sheets - December 31, 2007 and 2006 F-3 - F-4
Consolidated Statements of Operations -
Years Ended December 31, 2007, 2006 and 2005 F-5
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 2007, 2006 and 2005 F-6
Consolidated Statements of Cash Flows -
Years Ended December 31, 2007, 2006 and 2005 F-7 - F-8
Notes to Consolidated Financial Statements -
Years Ended December 31, 2007, 2006 and 2005 F-9

F-1

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying consolidated balance sheets of Soyo Group, Inc.
and Subsidiary as of December 31, 2007 and 2006, and the related statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2007. Soyo Group, Inc. and Subsidiary's
management is responsible for these financial statements. Our responsibility is
to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Soyo Group, Inc. and
Subsidiary as of December 31, 2007 and 2006, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 2007 in conformity with accounting principles generally accepted in the
United States of America.

/s/ Vasquez & Company, LLP
Los Angeles, California
March 31, 2008

F-2

SOYO Group, Inc. and Subsidiary
Consolidated Balance Sheets

December 31,
----------------------------
2007 2006
------------ ------------
restated

ASSETS
Current Assets
Cash and cash equivalents $ 1,848,249 $ 1,501,040
Accounts receivable, net of allowance for doubtful accounts of
$783,573 and $388,958 at December 31, 2007 and 2006, respectively 27,123,985 16,467,135
Inventories, net of allowance for inventory obsolescence of $168,600 and
$88,114 as of December 31, 2007 and 2006, respectively 12,221,265 7,792,621

Prepaid expenses 187,749 36,633

Deferred income tax assets - current 544,688 --
Deposits 8,808,408 243,095
------------ ------------
Total current assets 50,734,344 26,040,524

Investment in 247MGI 400,000 --

Property and equipment 316,287 711,015
Less: accumulated depreciation and amortization (141,613) (159,300)
------------ ------------
174,674 551,715
------------ ------------

Deferred income tax - noncurrent 658,312 --
============ ============
Total Assets $ 51,967,330 $ 26,592,239
============ ============

LIABILITIES
Current Liabilities
Accounts payable $ 14,336,196 $ 16,073,617

Accrued liabilities 789,526 519,457
Advances from officers, directors and major stockholders -- 100,000
Receivables sold with recourse -- 3,588,403
Commercial loans due to UCB 27,824,490 --
Income tax payable 889,518 53,000
------------ ------------
Total current liabilities 43,839,730 20,334,477
------------ ------------

Long term payable -- 3,735,198
------------ ------------
Total liabilities 43,839,730 24,069,675
------------ ------------

EQUITY
Class B cumulative convertible Preferred stock, $0.001 par value,
authorized -10,000,000 shares, issued
and outstanding - 2,614,195 shares
2,187,165 1,918,974
Preferred stock backup withholding (230,402) (149,945)

F-3

Common stock, $0.001 par value.
Authorized - 75,000,000 shares, issued and
outstanding - 52,004,656 shares (49,025,511 shares - 2006) 52,005 49,026
Additional paid-in capital 20,233,500 17,866,531
Accumulated deficit (14,114,668) (17,162,022)
------------ ------------
Total shareholders' equity 8,127,600 2,522,564
------------ ------------
Total Liabilities and Shareholders' Equity $ 51,967,330 $ 26,592,239
============ ============

See accompanying notes to consolidated financial statements

F-4

SOYO Group, Inc. and Subsidiary
Consolidated Statements of Operations

Year Ended December 31
----------------------------------------------
2007 2006 2005
restated
------------- ------------- -------------

Net revenues $ 110,922,809 $ 56,758,688 $ 38,263,032
------------- ------------- -------------
Cost of sales 96,501,474 47,534,249 34,905,874
Prior years' purchase discounts and allowances settled
in 2005 -- -- (1,335,812)
------------- ------------- -------------
Cost of revenues - net 96,501,474 47,534,249 33,570,062
------------- ------------- -------------
Gross margin 14,421,335 9,224,439 4,692,970
------------- ------------- -------------

Costs and expenses:
Sales and marketing 1,544,042 1,143,475 911,039
General and administrative 7,922,210 5,610,810 3,659,338
Bad debts 385,387 907,065 34,513
Adjustment of allowance -- -- (462,234)
Depreciation and amortization 91,818 43,818 35,394
------------- ------------- -------------
Total cost and expenses 9,943,457 7,705,168 4,178,050
------------- ------------- -------------
Income (loss) from operations 4,477,878 1,519,271 514,290
------------- ------------- -------------
Other income (expenses):
Interest income 85,144 10,561 5,301
Interest expense (1,364,059) (901,900) (129,567)
Other income (expenses) (87,705) (106,262) 150,456
Loss on sale of VOIP division (159,714) -- --
------------- ------------- -------------
Other income (expenses) - net (1,526,334) (997,601) 26,190
------------- ------------- -------------
Income before provision (benefit)
for income taxes 2,951,544 521,670 541,110
Provision (benefit) for income taxes
Current income tax (839,000) (53,000) (800)
Deferred income tax 1,203,000 -- --
------------- ------------- -------------
Net income (loss) 3,315,544 468,670 540,310
Less: Dividends on Convertible Preferred Stock (268,191) (216,488) (1,173,753)
------------- ------------- -------------
Net income (loss) attributable to
common shareholders $ 3,047,353 $ 252,182 $ (633,443)
============= ============= =============

Net income (loss) per common share -
basic and diluted $0.06/$0.06 $0.01/$0.01 ($0.01)/$0.01)
------------- ------------- -------------
Weighted average number of shares of 49,354,963/ 49,025,511/ 48,511,681/
common stock outstanding - basic and diluted 53,594,176 59,786,042 52,868,673
------------- ------------- -------------

See accompanying notes to consolidated financial statements

F-5

SOYO Group, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended December 31, 2007, 2006 and 2005

Preferred pref stock Additional Total
Common Stock Stock backup Paid In Accumulated
Shares Par Value Shares Par Value whldng Capital Deficit
----------- --------- ---------- --------- ----------- ----------- -----------
Balance, December 31, 2001 28,182,750 28,183 1,000,000 1,000 470,817 (918,737)
======================================== =========== ========= ========== ========= =========== =========== ===========

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)
---------------------------------------- ----------- --------- ---------- --------- ----------- ----------- -----------
Balance, December 31, 2002 40,000,000 40,000 1,000,000 1,000 459,000 (11,652,195)
======================================== =========== ========= ========== ========= =========== =========== ===========
Net loss for the year
ended December 31, 2003 -- -- -- -- (984,588)
---------------------------------------- ----------- --------- ---------- --------- ----------- ----------- -----------
Balance, December 31, 2003 40,000,000 40,000 1,000,000 1,000 459,000 (12,636,783)
======================================== =========== ========= ========== ========= =========== =========== ===========
Issuance of Preferred
Stock for Long Term Debt 2,500,000 1,304,000 10,696,000
Dividends 114,195 114,195
Accretion of Discount 109,538
Net loss for the year
ended December 31, 2004 -- -- (4,143,978)
---------------------------------------- ----------- --------- ---------- --------- ----------- ----------- -----------
Balance, December 31, 2004 40,000,000 40,000 3,614,195 1,528,733 11,155,000 (16,780,761)
======================================== =========== ========= ========== ========= =========== =========== ===========
Issuance of Common
Stock for Private Placement 500,000 500 499,500
Issuance of Common
Stock for Payment of Services 30,000 30
Issuance of Common
Stock for Payment of Accounts Payable 5,645,330 5,645 3,608,744
Issuance of Common
Stock for Payment of Loan 1,286,669 1,287 963,714
Issuance of Common
Stock for Conversion of Preferred Stock 1,219,512 1,220 (1,000,000) (1,000) 998,780
Accretion of Discount 174,753
Preferred Stock Backup Withholding (84,999)
Net Income 540,310
Preferred Stock Dividends (1,173,753)
---------------------------------------- ----------- --------- ---------- --------- ----------- ----------- -----------
Balance, December 31, 2005 48,681,511 48,682 2,614,195 1,702,486 17,225,738 (17,414,204)
======================================== =========== ========= ========== ========= =========== =========== ===========
Issuance of Common Stock-BOD 39,000 39 24,531
Issuance of Common Stock--interest pymt 267,000 267 80,100
Issuance of Common Stock-Paul Risberg 38,000 38 12,502
Accretion of Discount 216,488
Preferred Stock Backup Withholding (64,946)
To book FAS 123 adjustment 506,221
Misc. Adjustment 17,439 35,694
Net Income 216,488
---------------------------------------- ----------- --------- ---------- --------- ----------- ----------- -----------
Balance 12/31/2006 49,025,511 49,026 2,614,195 1,918,974 (149,945) 17,866,531 (17,162,022)
======================================== =========== ========= ========== ========= =========== =========== ===========

Per books 12/31/2006
preferred stock dividend 1st Q 61,763 (18,529)
preferred stock dividend 2nd Q 65,160 (19,548)
preferred stock dividend 3rd Q 68,744 (20,623)
preferred stock dividend 4th Q 72,525 (21,757)
Stock option on orig issue -1st Q 176,794
Stock option on orig issue -2nd Qtr orig 104,094
Stock option on orig issue -2nd Qtr new 109,049
Stock option on orig issue -2nd Qtr adjst 436,197
Stock option on orig issue -2nd Qtr non emp 133,096
Stock option on orig issue -3rd Q adjust (210,433)
Stock option on orig issue -3rd Qtr non emp -aje#2 175,058
Stock option on orig issue -3rd Nancy & ming aje#4 346,462
Stock option on orig issue -3rd aje#16 (100,880)
Stock option employees - for the 4th quarter 144,594
Stock option non-employees - for the 4th quarter 113,401
1st Q Stock issued for
services - consultant 13,645 13.00 6,812
----------- --------- ---------- --------- ----------- ----------- -----------
Oct 07 employee stock exercise 03099 94,320 94.32 94,231
188,180 188.68 (189.00)
7,000 7.00 6,993
----------- --------- ---------- --------- ----------- ----------- -----------
Nov 07 employee stock exercise 03142 97,000 97.00 96,853
180,000 180.00 (180.00)
----------- --------- ---------- --------- ----------- ----------- -----------
Dec 07 employee stock exercise 3161 2,800 2.8 2,797
5,200 5.2 (5.00)
100,000 100 34,900.00
----------- --------- ---------- --------- ----------- ----------- -----------
Stocks issued to consultants (Oct-Dec) 751,000 751 134,764.00
Stocks issued to Directors (oct-) 40,000 40 21,960.00
Stocks issued to Asean team (12/14/2007) 1,500,000 1,500 283,500.00
Stock options issued to consultant 239,701.00
Unvested stock exercised in advance 17,400
Net income for 2007 (as of 3.24.2008) 3,047,353
---------------------------------------- ----------- --------- ---------- --------- ----------- ----------- -----------
Per books 12/31/2007 52,004,656 52,004.51 2,614,195 2,187,165 (230,402) 20,233,500 (14,114,668)
======================================== =========== ========= ========== ========= =========== =========== ===========

F-6

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

-------------------------------------------
Years Ended December 31,
-------------------------------------------
2006
2007 restated 2005
------------ ------------ ------------

OPERATING ACTIVITIES

Net Income (loss) $ 3,315,544 468,670 $ 540,310
Adjustments to reconcile net
income(loss) to net cash provided
by (used in) operating activities:
Depreciation 91,818 43,818 35,394
Provision for doubtful accounts and recovery of AR written off 394,615 907,065 34,513
Provision for inventory obsolescence 80,486 --
Conversion of accounts payable to long-term debt -- 3,735,198 --
Stock compensation for employees 1,124,157 506,222
Stock compensation paid for professional services 803,596 134,915
Stock issued as compensation for directors and others 307,000 --
Forfeitures of non-qualified stock options (100,880) --
Loss on sale of VOIP equipment and inventories 159,714 --
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (11,051,465) (10,095,680) (5,236,151)
Inventories - net (4,733,348) 198,409 (4,128,119)
Prepaid expenses (151,116) (15,649) 51,432
Deferred income tax assets - current & non-current (1,203,000) --
Deposits (8,565,313) (206,175) (2,109)
Increase (decrease) in:

Accounts payable trade & others (1,737,421) 2,096,038 8,017,326
Accrued liabilities 270,069 (767,651) 509,316
Advances from Officers, Directors and Major Stockholders (100,000) --
Receivables sold with recourse (3,588,403) --
Commercial loans due to UCB 27,824,490 --
Income tax payable 836,518 53,000
Net cash provided by (used in) operating activities 3,977,061 (2,941,820) (178,088)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment (50,272) (48,891) (621,970)
Disposal of Fixed Assets -- 205,000
------------ ------------ ------------

Net cash Supplied (used) in investing activities (50,272) 156,109 (621,970)
------------ ------------ ------------

FINANCING ACTIVITIES
Advances from officer, directors and major shareholder -- 165,000

Proceeds from accounts receivable discounting -- 15,611,928

Repayments of accounts receivable discounting -- (12,023,525)

F-7

Repayment of advances from officer, director
and major shareholder -- (65,000) (240,000)

Repayment of long-term debt (3,735,198) -- 500,000
Proceeds from employees' exercise of stock options 236,075 --
Payment of backup withholding -- --

taxes on accreted dividends on preferred stock (80,457) (64,946) (84,999)
------------ ------------ ------------

Net cash provided by financing activities (3,579,580) 3,458,457 340,001
------------ ------------ ------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) 347,209 672,746 (460,057)

At beginning of year 1,501,040 828,294 1,288,351
------------ ------------ ------------

At end of year $ 1,848,249 $ 1,501,040 $ 828,294
============ ============ ============

SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:

Cash paid for interest $ 1,364,059 901,900 97,783
------------ ------------ ------------

Cash paid for income taxes 26,696 20,310 800
------------ ------------ ------------
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Disposal of VOIP equipment and inventory assets in exchange

For investment in common stock of 247 MGI 400,000
Settlement of business loan of ------------
$913,750 and accrued interest of
$51,251 through issuance of common stock 965,001
------------
Settlement of accounts payable
through issuance of common stock 3,614,419
Conversion of Class A preferred ------------
stock to common stock 1,000
------------

Accretion of discount on Class B 268,191 216,488 174,753
preferred stock ------------ ------------ ------------

Deemed dividend on Class A 999,000
preferred stock ------------

Noncash dividend on Class B
preferred stock

See accompanying notes to consolidated financial statements

F-8

SOYO Group, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 2007, 2006 and 2005

1. Organization and Business

a. Organization

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

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

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

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

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

b. Nature of Business

SOYO Group, Inc. is a distributor of consumer electronics, computer products and
communications services and products. The Company radically changed its core
offerings for sale in 2004. Through the consumer electronics division, SOYO
offers a full line of LCD display televisions and monitors, as well as Bluetooth
wireless devices. Through the communications division, SOYO offers discount
telephone service through VoIP protocol. The services can be purchased through
different types of plans and rates, making the service very flexible for the
user. The hardware to create and run VoIP services is also available for sale.
Lastly, the Company offers a full line of designer motherboards and related
peripherals for intensive multimedia applications, corporate alliances,
telecommunications and specialty market requirements. The breadth of the product
line also includes Bare Bone systems, flash memory as well as small hard disk
drives for corporate and mobile users, internal multimedia reader/writer and
wireless networking solutions products for any home and office (SOHO) users.

F-9

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

During the years that the Company operated through October 24, 2002, SOYO Nevada
was a wholly-owned subsidiary of SOYO Taiwan.

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

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

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

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.

During the years ended December 31, 2007, 2006 and 2005, the Company wrote down
the value of its inventory for obsolesence by $168,800, $88,114 and $0
respectively.

e. Property and Equipment

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

Leasehold improvements are amortized over the shorter of the useful life of the
improvement or the life of the related lease.

f. Impairment or Disposal of Long-Lived Assets

Effective January 1, 2002, the Company 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, in accordance with the
provisions of Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". 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

F-11

long-lived assets were recognized during the years ended December 31, 2007 and
2006.

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

i. Warranties

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

j. Concentration of Cash and Credit Risk

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

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

F-12

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, 2007, 2006, and 2005 were $647,741,
$834,616 and $849,897, respectively, and are presented under sales and marketing
costs in the accompanying consolidated statements of operations.

l. Income Taxes

The Company accounts for income taxes using the asset and liability method
whereby deferred income taxes are recognized for the tax consequences of
temporary differences by applying statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of certain assets and liabilities. Changes in deferred tax assets and
liabilities include the impact of any tax rate changes enacted during the year.
Through 2006, a valuation allowance was provided for the amount of deferred tax
assets that, based on available evidence, were not expected to be realized.
Beginning in 2007, the Company discontinued the use of the valuation allowance.
Based on its current financial condition, current business and profitability
forecasts, the Company believes that the benefits accrued as deferred tax assets
were more likely than not to be realized in future periods.

m. Income (Loss) Per Common Share

Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
requires presentation of basic earnings per share ("Basic EPS") and diluted
earnings per share ("Diluted EPS").

Basic income (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period less undeclared cumulative preferred dividends for
the years.
2007 2006 2005
---- ---- ----

Net income attributable to common stock $ 3,047,353 $ 252,182 $ (633,433)
Deduct: 6% cumulative preferred dividends 150,000 150,000 150,000
--------------------------------------------------
Net income for Basic EPS calculation 2,897,353 102,182 (783,433)
--------------------------------------------------
Weighted average common shares
outstanding 49,354,963 49,025,511 48,511,681

Earnings per share - Basic $ 0.06 $ 0.00 $ (0.02)

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, and stock options granted to employees in
2005 and 2007. The stock options were not included in the calculation of fully
diluted EPS for the year ended December 31, 2006, since the strike price of the
outstanding options was below the market price of the Company's common stock.
None of the potentially dilutive securities were included in the calculation of
loss per share for the year ended December 31, 2005, because the Company
incurred a loss attributable to common shareholders during such periods and
their effect would have been anti-dilutive. Based on the above, the fully
diluted shares can be calculated as follows:

Weighted average Shares outstanding at 12/31/2007 49,354,963
Add: Conversion of Preferred Stock
(2,614,195 divide by $1.15 per share) 2,273,213
Vested in the out of the money options
Stock warrants issued to Evergreen 1,966,000
--
----------
Total fully diluted shares at 12/31/2007 53,594,176
==========

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, 2007,
2006 and 2005.

F-13

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,
2007 and 2006 approximate their respective fair values due to the short-term
nature of those instruments.

p. Stock Based Compensation

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

SFAS 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
initial estimates. Stock-based compensation expense has been recorded net of
estimated forfeitures for the year ended December 31, 2007 and 2006 such that
expense was recorded only for those stock-based awards that are expected to
vest. Previously under APB 25 to the extent awards were forfeited prior to
vesting, the corresponding previously recognized expense was reversed in the
period of forfeiture.

q. Significant Risks and Uncertainties

r. Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a

F-14

fair value hierarchy used to classify the source of the information. This
statement is effective for us beginning January 1, 2008. We are currently
assessing the potential impact that adoption of SFAS No. 157 will have on our
consolidated financial statements. In September 2006, the FASB issued Statement
No. 158, "Employer's Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and
132(R) ("FASB 158"). FASB 158 requires the full recognition, as an asset or
liability, of the overfunded or underfunded status of a company-sponsored
postretirement benefit plan. Adoption of FASB 158 is required effective for the
Company's fiscal year ending December 31, 2007. We assessed the potential impact
that adoption of FASB 158 would have on our consolidated financial statements
and have concluded that there is no material impact as of December 31, 2007. In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS 159). Under the provisions of
SFAS 159, companies may choose to account for eligible financial instruments,
warranties and insurance contracts at fair value on a contract-by-contract
basis. Changes in fair value will be recognized in earnings each reporting
period. SFAS 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is required to and plans to adopt the provisions of SFAS 159
beginning in the first quarter of 2008. The Company is currently assessing the
impact of the adoption of SFAS 159 and its impact, if any, on its consolidated
financial statements.

In December 2007, the FASB issued Statement No. 141 (revised 2007), "Business
Combinations." The new standard requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and
requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. We will adopt this new standard for fiscal years
beginning January 1, 2009.

In December, 2007, the FASB issued Statement No. 160, "Noncontrolling Interests
in Consolidated Financial Statements--an amendment of ARB No. 51." This
statement establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. This
statement is effective prospectively, except for certain retrospective
disclosure requirements, for fiscal years beginning after December 15, 2008. We
are currently analyzing the effects of the new standard and its potential
impact, if any, on our consolidated financial statements.

3. Accounts Receivable

The Company's accounts receivable at December 31, 2007 and 2006 are summarized
as follows:

2007 2006
------------ ------------
Accounts receivable $ 27,907,558 $ 16,856,093
Less: Allowance for doubtful accounts (783,573) (388,958)
------------ ------------
Balance, end of year $ 27,123,985 $ 16,467,135
============ ============

Changes in the allowance for doubtful accounts for the years ended December 31,
2007 and 2006 are summarized as follows:

F-15

2007 2006
--------- ---------
Balance, beginning of year $ 388,958 $ 589,224
Add: Amounts provided during the year 394,615 235,939
Less: Amounts written off during the year 0 (436,205)
Add: Recovery of written off account 25,685
--------- ---------
Balance, end of year $ 783,573 $ 388,958
========= =========

In 2007, $16,458 of receivables were directly written off as uncollectible, not
affecting the provision.

In February 2007, the Company entered into a financing agreement with United
Commercial Bank (UCB) of City of Westminster, CA. The agreement stated that UCB
would provide SOYO with a revolving financing facility of up to $12 million to
finance working capital, letters of credit or other capital needs. The maximum
amount of the facility to be extended at any point in time based on the
Company's accounts receivable and inventory, which would serve as collateral for
the loan. During the year, the facility was increased to $17 million, with the
Company accounts receivable and inventory still serving as collateral for the
loan. At December 31, 2007, the balance of the loan secured by the accounts
receivable and due to UCB was $16,661,807.

At December 31, 2006, $3,407,463 of the Company's receivables had been bought by
Accord Financial Services.

4. Investment in 247MGI

On December 31, 2007, the Company completed the sale of all assets of the VoIP
division to 247MGI, Inc., a Miami, Florida based publicly traded corporation
just beginning operations. The sales price of the assets was $1,000,000, which
was paid by 40,000,000 shares of 247MGI's restricted common stock. As of
December 31, 2007, the shares had not been registered under the Securities Act
of 1933, and any future sale of the shares was restricted completely for one
year, and subject to volume restrictions after that. The Company has no
management participation in 247MGI's business. At December 31, 2007, 247MGI had
only 75,272,814 common shares outstanding, so the Company owned a majority of
the outstanding shares. In February, 2008, 247MGI issued 335,000,000 common
shares, diluting our holding to approximately 10% of the outstanding common
shares. The Company intends to hold the 247MGI shares as a long term investment.

F-16

Since the Company's shares are unregistered and illiquid, the net realizable
value of the Company's investment is difficult to calculate. The Company has
written the investment down to $400,000, after considering a discount for
liquidity.

5. Property and Equipment

At December 31, 2007 and 2006, property and equipment consisted of the
following:

December 31,
---------------------------------------- ------------------- ----------------
2007 2006
---------------------------------------- ------------------- ----------------
Computer and Equipment $145,111 $567,642
---------------------------------------- ------------------- ----------------
Furniture and Fixtures 62,206 40,357
---------------------------------------- ------------------- ----------------
Leasehold Improvements 91,941 91,941
---------------------------------------- ------------------- ----------------
Automobiles 11,075 11,075
---------------------------------------- ------------------- ----------------
Warehouse Equipment 5,954
---------------------------------------- ------------------- ----------------
Less: Accumulated Depreciation (141,613) (159,300)
---------------------------------------- ------------------- ----------------
Total $174,674 $551,715
---------------------------------------- ------------------- ----------------

For the years ended December 31, 2007, 2006 and 2005, depreciation and
amortization expense related to property and equipment was $91,818, $43,818 and
$35,394 respectively.

5. Advances from Officer, Director and Major Shareholder

In October 2005, the Company borrowed $165,000 from an individual for working
capital purposes. During 2006, $65,000 of the loan was repaid. At December 31,
2006, the loan balance was $100,000. The balance was repaid in 2007. There were
no advances from officers, directors or shareholders as of December 31, 2007.

6. Receivables Sold with Recourse

During 2006, the Company utilized the factoring services of Accord Financial
Services to improve its cash flow. All invoices sold by the Company and
purchased by Accord were sold with recourse. As of December 31, 2006, the
balance due to Accord for advances received was $3,588,403. During 2007, all
amounts due to Accord were repaid with interest. As of December 31, 2007, the
amount of Receivables sold with recourse was $0.

7. Commercial Loans Due to UCB

At December 31, 2007, Commercial loans due to UCB consisted of:

Receivable financing $ 16,863,909
Purchasing financing 10,960,581
Total $ 27,824,490
============

F-17

time based on the Company's accounts receivable and inventory, which would serve
as collateral for the loan.

In April 2007, by mutual agreement of the parties, the maximum loan balance was
increased from $12 million to $14 million. The maximum loan balance was
increased in December 2007 to $17 million. All other terms of the agreement,
including the interest rate, maturity date and method of evaluating the
Company's inventory and receivables to determine eligible collateral were left
unchanged during both increases.. For reporting purposes, the loan has been
segregated from other payables and reported as a separate line item. At December
31, 2007, the balance of the loan due to UCB was $16,863,909.

8. Long Term Debt

Soyo has been indebted to Corion for products purchased between January 2006 and
March 2006.

On October 19, 2006, the Parties reached a mutually beneficial settlement
relating to the outstanding balance as of that date amounting to $4,252,682,
whereby Soyo agrees to pay Corion the sum of Fifty Thousand dollars ($50,000)
each week until fully paid. Notwithstanding the foregoing, Soyo shall have the
right, at its sole discretion, to defer four (4) payments during each calendar
quarter. Two (2) of these payments shall be deferred until the calendar quarter
following their deferral on a date selected by Soyo, and the remaining two (2)
payments shall be paid in weekly installments following all regularly scheduled
payments, but in any event not later than October 1, 2008.

No interest shall be charged on the Debt. Soyo shall pay the Debt in full by no
later than October 1, 2008.

Until the Debt is paid in full, Soyo agrees not to give any other supplier a
consensual lien with priority senior than that of Corion, except for purchase
money liens and other similar interests. As the debt is scheduled to be paid in
full during 2007, the amount reported as long term debt is $0 on December 31,
2007. The balance due to Corion at December 31, 2007, was reported as a current
liability under the caption "Accounts Payable".

9. Shareholders' Equity

a. Common Stock

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

Effective October 24, 2002, the Company issued 28,182,750 shares of common stock
to Ming Tung Chok and Nancy Chu, who are members of SOYO Nevada management (see
Note 1). The shares of common stock were valued at par value, since the

F-18

transaction was deemed to be a recapitalization of SOYO Nevada. During October
2002, the management of SOYO Nevada also separately purchased 6,026,798 shares
of the 11,817,250 shares of common stock of VWHC outstanding prior to VWHC's
acquisition of SOYO Nevada, for $300,000 in personal funds. The 6,026,798 shares
represented 51% of the outstanding shares of common stock. When the transaction
was complete, and control of the Company was transferred, SOYO Nevada management
owned 34,209,548 shares of the 40,000,000 outstanding shares of the Company's
common stock. Subsequent to the transaction, management distributed 8,000,000
shares of common stock to various brokers, bankers and other individuals that
assisted with the transaction. In 2007, Mr. Chok gave a gift of 1,000,000 shares
to an individual. No one individual or corporation other than those named in
Item 12 of this report ever owned more than 5% of the common shares outstanding.
SOYO Group management currently owns 25,209,548 of the 52,004,656 shares
outstanding as of December 31, 2007.

b. Preferred Stock

Through the bylaws, the Company has 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.

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

Payment was received by SOYO Taiwan in February and March 2004. An agreement was
reached whereby 2,500,000 shares of Class B cumulative Preferred stock would be
issued by the Company to the unrelated third party in exchange for the long-term
payable.

The Class B cumulative 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 cumulative Preferred stock has no voting rights. The shares
of Class B cumulative Preferred stock are convertible, in increments of 100,000
shares, into shares of common stock at any time through December 31, 2008, based
on the fair market value of the common stock, subject, however, to a minimum
conversion price of $0.25 per share. No more than 500,000 shares of Class B
cumulative Preferred stock may be converted into common stock in any one year.
On December 31, 2008, any unconverted shares of Class B cumulative 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 cumulative 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 cumulative Preferred stock has unlimited piggy-back registration rights,
and is non-transferrable.

For the year ended December 31, 2007, the Company recorded accreted dividends of
$268,191. For the year ended December 31, 2006, the Company recorded accreted
dividends of $216,488.

F-19

c. Stock Options and Warrants

As of December 31, 2007, the Company had both warrants and options outstanding.
The outstanding warrants were those issued to Evergreen Technology as part of
the private placement completed in March 2005.

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

The Company did not grant any stock options to employees, officers or directors
in 2006. On February 2, 2007, the Company issued 4,805,000 option grants to
employees at a strike price of $0.35. One third of those options were
immediately vested and available for purchase on February 2, 2007, one third
will vest on February 2, 2008, and one third on February 2, 2009. The grants
will expire if unused on February 2, 2012.

During the fourth quarter of 2007, 674,500 options granted to employees at a
price of $.35 were exercised.

For the twelve months ended December 2007 and 2006, the Company recorded
$1,220,158 and $959,230 respectively, in compensation costs relating to stock
options granted to employees. In 2007, the Company recognized $135,515 in
expenses for stock options issued to consultants. There was no expense related
to stock options issued to consultants in 2006. The amounts recorded represent
equity-based compensation expense related to options that were issued in 2005
and 2007. The compensation costs are based on the fair value at the grant date.

The fair value of the options issued in July 2005 and February 2007 was
estimated using the Black-Scholes option-pricing model with the following
assumptions: risk free interest rate of 4.04 %, expected life of five (5) years
and expected volatility at 147%.

10. Income Taxes

The components of the provision (benefit) for income taxes for the years ended
December 31, 2007, 2006 and 2005 are as follows:

2007 2006 2005
----------- ----------- -----------
Current:
U.S. federal $ 515,000 $ 1,000 $
State 324,000 52,000 800
----------- ----------- -----------
Total 839,000 53,000 800
----------- ----------- -----------
Deferred:
U.S. federal (1,038,000) --
State (165,000) --
----------- ----------- -----------
Total (1,203,000) --
----------- ----------- -----------
Total $ (364,000) $ 53,000 $ 800
=========== =========== ===========

F-20

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31, 2007, 2006 and 2005 are as
follows:

2007 2006 2005
----------- ----------- -----------
Net operating loss carryforwards $ -- $ 1,310,000 $ 1,576,000
Depreciation 214,000 288,000 344,000
Reserves and allowances 442,000 214,000 304,000
Share-based compensation 444,000 -- --
State income taxes 103,000 69,000 52,000
----------- ----------- -----------

Total deferred tax assets 1,203,000 1,881,000 2,576,000
Valuation allowance -- (1,881,000) (2,576,000)
----------- ----------- -----------

Net deferred tax assets $ 1,203,000 $ -- $ --
=========== =========== ===========

The reconciliation between the income tax rate computed by applying the U.S.
federal statutory rate and the effective rate for the years ended December 31,
2007, 2006 and 2005 is as follows:

2007 2006 2005
----------- ----------- -----------
U.S. federal statutory tax rate 34.0% 34.0% 34.0%
Stock-based compensation 9.5% 33.0% --
State income taxes 3.6% 6.5% 9.0%
Non-deductible expenses 0.6% 2.9% --
Change in valuation allowance (60.0%) (67.2%) --
Other -- 0.8% (43.0%)
----------- ----------- -----------
Effective tax rate (12.3%) 10.0% --
=========== =========== ===========

The Company adopted the provisions of Financial Standards Accounting Board
Interpretation No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an
interpretation of FASB Statement No. 109 ("SFAS 109") on January 1, 2007. As a
result of the implementation of FIN 48, the Company did not record an adjustment
for unrecognized income tax benefits. At the adoption date of FIN 48, January 1,
2007 and also at December 31, 2007, the Company had no unrecognized tax
benefits.
The Company recognizes interest and penalties related to uncertain tax
positions in income tax expense. As of December 31, 2007, it had no accrued
interest or penalties related to uncertain tax positions.

11. Commitments and Contingencies

a. Operating Lease

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

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

2008 194,970

F-21

Rent expense for the years ended December 31, 2007, 2006 and 2005 was $278,760,
$229,540 and $238,836 and respectively. The Company must inform the current
landlord in writing no later than April 2008 whether or not it intends to renew
the lease or relocate.

12. Significant Concentrations

a. Customers

Year Ended December 31
----------------------

2007 % 2006 % 2005 %
---- - ---- - ---- -

Revenues
Distributors 55,609,498 50.1 $35,510,804 62.6 $22,312,488 58.3
Retailers 46,706,227 42.1 15,187,152 26.8 15,742,332 41.2
Others 8,607,085 7.8 6,060,732 10.6 208,212 0.5
Total 110,922,809 100.0 $56,758,688 100.0 $38,263,032 100.0

During the year ended December 31, 2006, the Company had no customers that
accounted for more than 10% of revenues.

During the year ended December 31, 2005, the Company had one customer (E23) that
accounted for revenues of $13,552,324, equivalent to 35% of net revenues.

Revenues by product line are summarized as follows:

Year Ended December 31
----------------------
2007 % 2006 % 2005 %
---- - ---- - ---- -
Revenues
Consumer electronics 53,786,883 48.5 $27,543,873 48.5 $18,739,719 49.0
Computer parts and
peripherals 56,830,322 51.3 29,204,792 51.5 18,906,367 49.4
Furniture 249,803 0.2

Voice and communication 55,801 10,023 -- 616,946 1.6
Total 110,922,809 100.0 $56,758,688 100.0 $38,263,032 100.0

b. Geographic Segments

Revenues by geographic segment are summarized as follows:
Year Ended December 31
----------------------
2007 % 2006 % 2005 %
---- - ---- - ---- -
Revenues
United States 79,412,207 71.5 $42,628,547 75.2 $20,686,944 54.1
Other N. America 17,297,999 15.6 2,472,209 4.4 983,606 2.6

F-22

Central and South America 10,054,602 9.1 10,253,665 18.0 2,993,532 7.8
Hong Kong 2,862,564 2.6 139,490 0.2 13,598,950 35.4
Other locations 1,295,437 1.2 1,264,777 2.2 N/A N/A
Total 110,922,809 100.0 $56,758,688 100.0 $38,263,032 100.0

c. Suppliers

SOYO Group does not produce the components that it distributes. Approximately
95% of SOYO Group, Inc.'s products are supplied by companies located in Taiwan
and China. As of December 31, 2007, the Company purchased 63% of the products it
sells from its top 3 suppliers. No one supplier produced more than 31%of the
products distributed and sold by the Company.

13. Quarterly Results (Unaudited)

Presented below is a summary of the quarterly results of operations for the
years ended December 31, 2007 and 2006.

Three months ended:
-------------------------------------------------------------------------------------------------------
March 31,2007 June 30, 2007 Sept.30, 2007 Dec. 31, 2007 Total
------------------- ------------- ------------- ------------- ------------- -------------

Net Revenues $ 14,691,110 $ 24,202,395 $ 33,435,184 $ 38,594,120 $ 110,922,809
------------------- ------------- ------------- ------------- ------------- -------------
Gross Margin 2,608,196 3,803,092 3,630,362 4,379,685 14,421,335
------------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) 414,437 362,540 2,021,233 1,679,668 4,477,878
from Operations
------------------- ------------- ------------- ------------- ------------- -------------
Other Income (116,020) (321,633) (177,786) (910,895) (1,526,334)
(Expense) Net
------------------- ------------- ------------- ------------- ------------- -------------
Income (Loss) 298,417 40,907 1,843,447 768,773 2,951,544
before taxes
------------------- ------------- ------------- ------------- ------------- -------------
Income Taxes (63,085) (129,775) (78,379) (567,761) (839,000)
(Current)
------------------- ------------- ------------- ------------- ------------- -------------
Deferred Taxes 286,858 439,802 476,340 1,203,000
------------------- ------------- ------------- ------------- ------------- -------------
Net Income 522,190 350,934 2,509,857 (67,437) 3,315,544
------------------- ------------- ------------- ------------- ------------- -------------
Preferred (61,763) (65,160) (68,744) (72,525) (268,191)
Dividends
------------------- ------------- ------------- ------------- ------------- -------------
Net Income 460,427 285,774 2,441,113 (139,962) 3,047,353
Attributable to
Common
Shareholders
------------------- ------------- ------------- ------------- ------------- -------------
Net Income (Loss)
per share
Basic .01 .01 .05 (.00) .07
Diluted .01 .01 .05 (.00) .06
------------------- ------------- ------------- ------------- ------------- -------------

F-23

Three months ended:
--------------------------------------------------------------------------------------------------
March 31,2006 June 30, 2006 Sept. 30,2006 Dec. 31, 2006 Total
------------------- ------------ ------------ ------------ ------------ ------------
Net Revenues $ 11,548,187 $ 10,787,515 $ 10,005,084 $ 24,417,902 $ 56,758,688
------------------- ------------ ------------ ------------ ------------ ------------
Gross Margin 1,651,088 2,306,753 2,233,361 3,033,237 9,224,439
------------------- ------------ ------------ ------------ ------------ ------------
Income (Loss) (209,526) 635,182 526,909 566,706 1,519,271
from Operations
------------------- ------------ ------------ ------------ ------------ ------------
Other Income (64,609) (73,698) (207,338) (651,686) (997,601)
(Expense) Net
------------------- ------------ ------------ ------------ ------------ ------------
Income (Loss) (274,135) 561,214 319,658 (84,977) 521,670
before taxes
------------------- ------------ ------------ ------------ ------------ ------------
Income Taxes (53,000) (53,000)
------------------- ------------ ------------ ------------ ------------ ------------
Net Income (274,135) 561,214 319,658 (137,977) 468,670
------------------- ------------ ------------ ------------ ------------ ------------
Preferred (49,856) (52,598) (55,491) (58,543) (216,488)
Dividends
------------------- ------------ ------------ ------------ ------------ ------------
Net Income (323,991) 508,616 264,077 (196,520) 252,182
Attributable to
Common
Shareholders
------------------- ------------ ------------ ------------ ------------ ------------
Net Income (Loss)
per share
Basic (.01) .01 .01 0 .01
Diluted (.01) .01 .01 0 .01
------------------- ------------ ------------ ------------ ------------ ------------

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures:

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. Our internal control system was designed to
provide reasonable assurance regarding the reliability of financial reporting

and the preparation of financial statements for external purposes, in accordance
with United States generally accepted accounting principles. Because of inherent
limitations, a system of internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate due to change in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.

An internal control material weakness is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the financial statements will not be
prevented or detected.

Our management, including our principal executive officer and principal
accounting officer, conducted an evaluation of the effectiveness of our internal
controls as of December 31, 2007, and this assessment identified material
weaknesses in our internal control over the financial reporting process. In
particular, our accounting system can not be relied upon to properly value
inventory, or to generate timely and accurate financial information to allow for
the preparation of timely and complete financial statements. In light of this
conclusion, and as part of the preparation of this report, we have applied
compensating procedures and processes as necessary to ensure the reliability of
our financial reporting. Accordingly, management believes, based on its
knowledge, that (1) this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made not misleading with respect to the period covered by this report, and (2)
the financial statements, and other financial information included in this
report, fairly present in all material respects, our financial condition,
results of operations, and cash flows for the years and periods then ended.

In making the assessment of internal control over financial reporting management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. Because of
the material weakness described in the preceding paragraph, our management
concluded that our internal control over financial reporting was not effective
as of December 31, 2007.

We are actively engaged in the implementation of remediation efforts to address
the material weakness in internal control over financial reporting. These
remediation efforts include devising and implementing effective controls to
review and monitor the system output, and to replace our current accounting
software with new software. Management hired experts to assist in the evaluation
and implementation of new accounting software. The evaluation was completed, the
software has been paid for, and significant customization has been performed to
adapt the software to the Company's business. All employees, managers and other
system users have been trained and tested on the use of the new software. The
Company will begin parallel testing in the next few weeks, and the software will
be "live" during the second quarter of fiscal year 2007.

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

This report does not contain an attestation report of our independent registered
certified public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our independent
registered certified public accounting firm pursuant to the temporary rules of
the Securities and Exchange Commission that permit us to provide only
management's report in this report.

Changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules
13a-15 or 15d-15 that occurred during the three months ended December 31, 2007
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting have been described above.

ITEM 9B. OTHER INFORMATION- NONE

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table and text sets forth the names and ages of all the Company's
directors and executive officers and the key management personnel as of March
31, 2007. The Company's Board of Directors is comprised of only one class. All
of the directors serve until the next annual meeting of stockholders and until
their successors are elected and qualified, or until their earlier death,
retirement, resignation or removal. Executive officers serve at the discretion
of the Board of Directors, and are appointed to serve until the first Board of
Directors meeting following the annual meeting of stockholders. Also provided is
a brief description of the business experience of each director and executive
officer and the key management personnel during the past five years and an
indication of directorships held by each director in other companies subject to
the reporting requirements under the Federal securities laws.

---------------------- ------- -------------------------------------------------
Name Age Position Held
---------------------- ------- -------------------------------------------------
Ming Tung Chok 47 Chief Executive Officer and Director
---------------------- ------- -------------------------------------------------
Nancy Chu 51 Chief Financial Officer, Secretary and Director
---------------------- ------- -------------------------------------------------
Jay Schrankler 50 Director
---------------------- ------- -------------------------------------------------
Chung Chin Keung 42 Director
---------------------- ------- -------------------------------------------------
Henry Song 49 Director
---------------------- ------- -------------------------------------------------

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

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

Chung Chin Keung was appointed in October 2005 as an independent non-executive
director, audit committee member and compensation committee member. In 2007, Mr.
Chung was named Chairman of the Audit committee. Mr. Chung has more than 14
years commercial experience, including more than 10 years in accounting and
finance for publicly listed companies in various countries. Mr. Chung is
currently the chief finance officer of KPI Co. Ltd. (0605, Hong Kong Stock
Exchange), a listed company in Hong Kong. Mr. Chung holds a Master of Business
Administration from the University of Manchester, England.

Jay Shrankler was appointed in September 2007 as an independent non-executive
director and compensation committee member. Mr. Shrankler was a Vice President
of Licensing and Marketing for Honeywell International Inc.'s Automation and
Control Solutions Group from 2003 to 2007. From 2001 to 2003, he served as the
Vice President of Environmental Controls for Honeywell International Inc.'s

Automation and Control Solutions. He was Vice President and General Manager of
the Honeywell International Inc. Home and Building Control from 1999 to 2001.
Currently, he works at the University of Minnesota as an Executive Director in
the Office for Tech Communications.

Henry Song was appointed in September 2007 as an independent non-executive
director, audit committee member and compensation committee member. Mr. Song has
worked as the Chief Executive Officer and Chairman of the Board for Shenzhen
DiGuang Electronics since 1996. He has also served as the Chief Executive
Officer and Chairman of the Board for Shenzhen DiGuang Electronics Equipment
since 1994. Mr. Song and his companies are known for leading edge LED displays.
SOYO views LED as the future of the flat panel market. With LED technology you
get brighter pictures and more vivid images while using far less electricity.

Each Director received 10,000 unregistered shares of the Company's common stock
in 2005. The two directors who joined the Company in 2007 received 20,000 shares
each upon joining the Board of Directors. The Directors receive no other
compensation for serving on the Board of Directors, but are reimbursed for any
out-of-pocket expenses incurred in attending board meetings, and may be
compensated for other work done on the Company's behalf.

Family Relationships.

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

Involvement in Legal Proceedings.

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

Section 16(a) Beneficial Ownership Compliance.

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

Audit Committee

The Audit Committee of the Board of Directors is comprised of Mr. Chung and Mr.
Song. The first Audit Committee meeting is scheduled to coincide with the
Company's 2007 Annual meeting, the date of which has not yet been set. None of
the directors is an Audit Committee Financial Expert.

Communications with the Board

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

Code of Ethics

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

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

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

Compensation Objectives

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

Elements of Compensation

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

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

Determination of Compensation

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

The following table sets forth the cash and other compensation paid by us in
2007, 2006 and 2005 to the individuals who served as our chief executive officer
and chief financial officer, and all other executive officers who received total
compensation greater than $100,000 in 2007.

Summary Compensation Table
---------------------------------- -------- ----------- -------------------
Name Year Salary Options Granted
--------------------------------- -------- ----------- -------------------
Ming Tung Chok (i) 2007 $144,000 0
President, Chief Executive 2006 $144,000 0
Officer 2005 $144,000 600,000 (a)
and Director
--------------------------------- -------- ----------- -------------------
Nancy Chu (ii) 2007 $120,000 0
Chief Financial Officer and 2006 $120,000 0
Secretary 2005 $120,000 600,000 (a)
--------------------------------- -------- ----------- -------------------
Harvey Schneider 2007 $116,533 250,000
Director of Sales
--------------------------------- -------- ----------- -------------------
(a) Both Mr. Chok and Ms. Chu forfeited and returned the stock options to the
Company in 2007.

(i) Ming Tung Chok has served as the President, Chief Executive Officer and
Director of the Company since October 25, 2002. Prior to serving in this
capacity, Mr. Chok was the Vice President of Engineering of SOYO Group, Inc. for
the past five years. Mr. Chok received his Bachelor Degree in Electrical

Engineering from the California State University, Long Beach. Mr. Chok is
married to Ms. Nancy Chu who is a Director, the Chief Financial Officer and the
Secretary of the Company.

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

Outstanding Stock Options At December 31, 2007
------------------------------------------------------------------------------
Name Number of Option
Exercisable Expiration
Options Exercise Price Vesting Date Date
--------------- ------------ --------------- -------------- ------------------
Ming Tung Chok NONE
--------------- ------------ --------------- -------------- ------------------
Nancy Chu NONE
--------------- ------------ --------------- -------------- ------------------
Harvey Schneider 83,000 .35 February 2, 2007 February 2, 2012
83,000 .35 February 2, 2008 February 2, 2012
84,000 .35 February 2, 2009 February 2, 2012

Pension Benefits

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

Nonqualified Deferred Compensation

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

Compensation of Directors

Each Director received 10,000 unregistered shares of the Company's common stock
in 2005. The two directors who joined the Company in 2007 each received 20,000
shares upon joining the Company's Board of Directors. The Directors receive no
other compensation for serving on the Board of Directors, but are reimbursed for
any out-of-pocket expenses incurred in attending board meetings, and may be
compensated for other work done on the Company's behalf.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

EMPLOYMENT CONTRACTS

During 2007 we entered into employment contracts with our Chief Executive
Officer, our Chief Financial Officer, our Director of Sales and our Director of
Marketing. We do not currently have employment contracts with any other
executive officers, employees or consultants. . We may enter into employment
contracts with our executive officers, employees or consultants at any time if
we deem it to be in the best interests of the company.

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

The following table sets forth the number of shares of common stock beneficially
owned as of March 31, 2008 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, 2007; and, (iv) all
directors and executive officers as a group. The information is determined in
accordance with Rule 13(d)-3 promulgated under the Exchange Act based upon
information furnished by persons listed or contained in filings made by them
with the Securities and Exchange Commission by information provided by such
persons directly to the Company. Except as indicated below, the stockholders
listed possess sole voting and investment power with respect to their shares.

------------------------------- --------------------- --------------------------
Name/Title/Address(1) Total Share Percentage Ownership(2)
------------------------------- --------------------- --------------------------
Ming Tung Chok 11,000,000 21.15%
------------------------------- --------------------- --------------------------
Nancy Chu 14,209,548 27.32%
------------------------------- --------------------- --------------------------
Chung Chin Keung 10,000 .02%
------------------------------- --------------------- --------------------------
Jay Schrankler 20,000 .04%
------------------------------- --------------------- --------------------------
Henry Song 20,000 .04%
------------------------------- --------------------- --------------------------
All officers and 26,248,548 48.55%
directors as a
group (3)
------------------------------- --------------------- --------------------------
Urmston Capital (4) 2,495,881 4.80%
------------------------------- --------------------- --------------------------

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

(2) The percentage ownership is based upon 52,004,656 shares outstanding on
March 30, 2008.

(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 25,209,548
shares and are each considered beneficial owners of 25,209,548 shares.

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

NONE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independent Accountant Fees

The following table sets forth the fees for professional audit services rendered
by Vasquez & Company LLP for the audit of the Company's annual financial
statements for the fiscal years 2007 and 2006.

2007 2006
-------------------------------------------- -------- --------
Audit Fees $199,000 $158,500
--------------------------------------------- -------- --------
Audit-related Fees* 58,500 --
--------------------------------------------- -------- --------
Tax Fees 20,000 20,000
--------------------------------------------- -------- --------
All other Fees -- --
--------------------------------------------- -------- --------
Total Fees $277,500 $178,500
--------------------------------------------- -------- --------
*Assisting client in replying to SEC comments, educational guidance
for SOX 404 implementation, explanation of audit work to internal
auditor of prospective lender.

(1) Includes annual audit fees and fees for preissuance review of quarterly
filings.
In 2006, Grobstein, Horwath & Company, the Company's predecessor auditors,
charged $6,000 for a review and reissuance of the Company's 2003 audit report.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits.

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

Exhibit Description
Number

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

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

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

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

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

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

10.5 SOYO Group Agreement with UCB, dated February 7, 2007

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

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

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

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

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

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

-------------
*Filed herein

SIGNATURES

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

SOYO GROUP, INC.

Dated: March 31, 2008 By /s/ Ming Tung Chok
---------------------------------------------
Name: Ming Tung Chok
Title: President and Chief Executive Officer

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

Dated: March 31, 2008 By /s/ Ming Tung Chok
---------------------------------------------
Name: Ming Tung Chok
Title: President, Chief Executive Officer and
Director

Dated: March 31, 2008 By /s/ Nancy Chu
---------------------------------------------
Name: Nancy Chu
Title: Chief Financial Officer, Secretary and

Dated: March 31, 2008 By /s/ Henry Song
---------------------------------------------
Name: Henry Song
Title: Director

Dated March 31, 2008 By /s/ Chung Chin Keung
---------------------------------------------
Name: Chung Chin Keung
Title: Director

Dated: March 31, 2008 By /s/ Jay Schrankler
---------------------------------------------
Name: Jay Schrankler
Title: Director