Form 10QSB Home System Group

Quarterly report pursuant to section 13 and 15(d) for small business issuers

What is Form 10QSB?
  • Accession No.: 0001144204-06-049093 Act: 34 File No.: 000-49770 Film No.: 061229301
  • CIK: 0001172319
  • Submitted: 2006-11-20
  • Period of Report: 2006-09-30

10QSB HTML

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
 
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2006
 


o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT  
For the transition period from
 
to
 
       
Commission file number
000-49770


HOME SYSTEM GROUP
(Exact name of small business issuer as specified in its charter)
 
Nevada
(State or other jurisdiction of incorporation or organization)
43-1954776
(IRS Employer Identification No.)
 
No. 5A, Zuanshi Ge, Fuqiang Yi Tian Ming Yuan,
Fu Tian Qu, Shenzhen City, P.R. China 518000
___________________________________________
(Address of principal executive offices)
 
86 755 83570142
(Issuer’s telephone number)
 
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o
 
As of November 17, 2006 the registrant had 19,797,949 shares of common stock outstanding.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

Transitional Small Business Disclosure Format (Check one): Yes oNo x
 



 
HOME SYSTEM GROUP
 
INDEX
 
 
 
 
Page No.
PART 1 - FINANCIAL INFORMATION
 
 
Item 1. Financial Statements
1
     
 
Balance Sheets as of September 30, 2006 (unaudited)
and December 31, 2005
 2
 
3
 
Statements of Operations for the Three and Nine Months
Ended September 30, 2006 and 2005 (unaudited)
 
     
 
Statements of Changes in Shareholders’ Equity for the Nine Months
ended September 30, 2006 (unaudited) 
 4
     
 
Statements of Cash Flows for the Nine Months
ended September 30, 2006 and 2005 (unaudited) 
5
     
 
Notes to Financial Statements 
 
6
 
10
 
Item 3. Controls and Procedures
 
 
PART II - OTHER INFORMATION
14
 
Item 1. Legal Proceedings
14
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
14
 
Item 3. Defaults Upon Senior Securities
14
 
Item 4. Submission of Matters to a Vote of Security Holders
14
 
Item 5. Other Information
14
 
Item 6. Exhibits 
14
   
SIGNATURES
15
 
 
 
The information in this report is for the nine month period ended September 30, 2006, is unaudited but includes all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) which Home System Group (the “Company”) considers necessary for a fair presentation of the financial position, results of operations, changes in stockholders’ equity and cash flows for those periods.
 
The interim financial statements present the balance sheet, statements of operations and cash flows of the Company. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
 
The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of September 30, 2006 and the results of operations and cash flows presented herein have been included in the financial statements. Interim results are not necessarily indicative of results of operations for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.

 

1


HOME SYSTEM GROUP AND SUBSIDIARY
(FORMERLY SUPREME REALTY INVESTMENTS, INC.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2006 AND DECEMBER 31, 2005


   
September 30,
 
December 31,
 
   
2006
 
2005
 
   
(Unaudited)
 
(Audited)
 
ASSETS
         
           
CURRENT ASSETS
         
Cash
 
$
315,154
 
$
103,701
 
Accounts receivable
   
580,780
   
3,962,986
 
Trade deposits
   
2,328,272
   
2,208,079
 
Prepaid expenses
   
3,775
   
-
 
Due from directors
   
7,629
   
-
 
Amount due from related party
   
2,344,416
   
-
 
     
5,580,026
   
6,274,766
 
               
PROPERTY AND EQUIPMENT
   
1,052
   
-
 
               
TOTAL ASSETS
 
$
5,581,078
 
$
6,274,766
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
             
               
CURRENT LIABILITIES
             
Bank loans
 
$
501,696
 
$
3,030,836
 
Accounts payable and accrued expenses
   
1,879,001
   
1,578,677
 
Due to directors
   
26,366
   
54,917
 
               
TOTAL LIABILITIES
   
2,407,063
   
4,664,430
 
               
STOCKHOLDERS' EQUITY
             
               
COMMON STOCK - $0.001 par value; 200,000,000 shares
             
authorized, 14,753,987 and 8,000,000 shares issued
             
and outstanding
   
14,754
   
8,000
 
               
ADDITIONAL PAID-IN CAPITAL
   
985,248
   
(7,998
)
               
NOTE RECEIVABLE FOR STOCK ISSUANCE
   
(900,000
)
 
-
 
               
RETAINED EARNINGS
   
3,074,013
   
1,610,334
 
               
TOTAL STOCKHOLDERS' EQUITY
   
3,174,015
   
1,610,336
 
               
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
5,581,078
 
$
6,274,766
 
               
 

See accompanying notes to financial statements.
 
2



HOME SYSTEM GROUP AND SUBSIDIARY
(FORMERLY SUPREME REALTY INVESTMENTS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)


   
Three Months Ended
 
Nine Months Ended
 
   
September 30,
 
September 30,
 
   
2006
 
2005
 
2006
 
2005
 
                   
NET SALES
 
$
1,060,208
 
$
350,058
 
$
22,729,583
 
$
6,722,567
 
                           
OPERATING EXPENSES
                         
Cost of net sales
   
943,628
   
320,322
   
20,070,507
   
5,515,516
 
General and administrative expenses
   
273,441
   
7,462
   
912,257
   
124,715
 
     
1,217,069
   
327,784
   
20,982,764
   
5,640,231
 
                           
INCOME (LOSS) FROM OPERATIONS
   
(156,861
)
 
22,274
   
1,746,819
   
1,082,336
 
                           
OTHER INCOME (EXPENSE)
                         
Interest income
   
-
   
234
   
1,998
   
234
 
Finance costs
   
(63,423
)
 
(22,027
)
 
(285,138
)
 
(183,623
)
     
(63,423
)
 
(21,793
)
 
(283,140
)
 
(183,389
)
                           
NET INCOME (LOSS)
 
$
(220,284
)
$
481
 
$
1,463,679
 
$
898,947
 
                           
                           
BASIC AND DILUTED EARNINGS
                         
(LOSS) PER SHARE
 
$
(0.02
)
$
-
 
$
0.10
 
$
0.11
 
                           
BASIC AND DILUTED WEIGHTED
                         
AVERAGE PER SHARE
   
14,753,987
   
8,000,000
   
14,753,987
   
8,000,000
 
                           
 

See accompanying notes to financial statements.
 
3



HOME SYSTEM GROUP AND SUBSIDIARY
(FORMERLY SUPREME REALTY INVESTMENTS, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2006



   
 
 
Additional
 
Note Receviable
 
 
     
   
Common
 
Paid-in
 
for Stock
 
Retained
     
   
Stock
 
Capital
 
Issuance
 
Earnings
 
Total
 
                       
BALANCE AT DECEMBER 31, 2005 (AUDITED)
 
$
2
 
$
-
 
$
-
 
$
1,610,334
 
$
1,610,336
 
                                 
Retroactive recapitalization
   
7,998
   
(7,998
)
 
-
   
-
   
-
 
                                 
BALANCE AT DECEMBER 31, 2005
   
8,000
   
(7,998
)
 
-
   
1,610,334
   
1,610,336
 
                                 
Issuance of common stock at merger
   
6,754
   
993,246
   
(900,000
)
 
-
   
100,000
 
                                 
Net income for the nine months ended September 30, 2006
   
-
   
-
   
-
   
1,463,679
   
1,463,679
 
                                 
BALANCE AT SEPTEMBER 30, 2006 (UNAUDITED)
 
$
14,754
 
$
985,248
 
$
(900,000
)
$
3,074,013
 
$
3,174,015
 
                                 

 
See accompanying notes to financial statements.
 
4


HOME SYSTEM GROUP AND SUBSIDIARY
(FORMERLY SUPREME REALTY INVESTMENTS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)


   
2006
 
2005
 
           
CASH FLOWS FROM OPERATING ACTIVITIES
         
Net income
 
$
1,463,679
 
$
898,947
 
Adjustments to reconcile net income
             
to net cash used in operating activities
             
Depreciation
   
75
   
-
 
(Increase) decrease in assets
             
Trade deposits
   
(2,464,609
)
 
(873,405
)
Accounts receivable
   
3,382,206
   
1,168,066
 
Prepaid expense
   
(3,775
)
 
-
 
Increase in liabilities
             
Accounts payable and accrued expenses
   
300,324
   
1,047,990
 
               
Net cash provided by operating activities
   
2,677,900
   
2,241,598
 
               
CASH FLOWS FROM INVESTING ACTIVITIES
             
Capital expenditures
   
(1,127
)
 
-
 
Cash acquired in merger
   
100,000
   
-
 
               
Net cash provided by investing activities
   
98,873
   
-
 
               
CASH FLOWS FROM FINANCING ACTIVITIES
             
Net increase in due to/from directors
   
(36,180
)
 
(149,472
)
Proceeds from bank loans
   
501,696
   
570,528
 
Repayment of bank loans
   
(3,030,836
)
 
(2,651,698
)
               
Net cash used in financing activities
   
(2,565,320
)
 
(2,230,642
)
               
NET INCREASE IN CASH
   
211,453
   
10,956
 
               
CASH - BEGINNING OF PERIOD
   
103,701
   
624
 
               
CASH - END OF PERIOD
 
$
315,154
 
$
11,580
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
             
INFORMATION
             
Cash paid during the period for:
             
Interest
 
$
183,623
 
$
-
 
               
Income taxes
 
$
-
 
$
-
 
               
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
             
AND FINANCING ACTIVITIES:
             
Trade deposits of $2,344,416 were transferred to a
             
related party.
             
               
 

See accompanying notes to financial statements.
 
5


HOME SYSTEM GROUP AND SUBSIDIARY
(FORMERLY SUPREME REALTY INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(UNAUDITED)

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed financial statements have been prepared by Home System Group (“HSG”) and Subsidiary (collectively, the “Company”). These statements include all adjustments (consisting only of its normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the Summary of Accounting Policies included in the 2005 Annual Report. Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company firmly believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2005 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three and nine months ended September 30, 2006 may not be indicative of operating results expected for the full year.

Basis of Preparation

Home System Group, Inc. (“HSGI”) was incorporated with limited liability in The British Virgin Islands on February 28, 2003. HSGI, with a minimum capitalization of $2, was inactive until June 30, 2006 when HSGI acquired all the issued and outstanding stock of Oceanic International (HK) Limited (“Oceanic”). Oceanic is an operating company organized under the laws of Hong Kong. Since the ownership of HSGI and Oceanic were the same, the merger was accounted for as a transaction between entities under common control, whereby HSGI recognized the assets and liabilities transferred at their carrying amounts. On August 4, 2006, Supreme Realty Investments, Inc. (“Supreme”) acquired HSGI. Under the terms of the merger agreement, the stockholders of HSG received 8,000,000 shares of common stock of Supreme for 100% of HSGI’s outstanding common stock. Following the merger, Supreme changed its name to Home System Group. Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by HSG for the net monetary assets of Supreme, accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will be recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Supreme, are those of the legal acquiree which are considered to be the accounting acquirer, HSGI.


6


HOME SYSTEM GROUP AND SUBSIDIARY
(FORMERLY SUPREME REALTY INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(UNAUDITED)

NOTE 2 - REVERSE MERGER

Effective August 4, 2006, the Company completed its merger. The merger was accounted for as a reverse acquisition by the Company. The following pro forma condensed consolidated statement of operations assumes the merger was effective January 1, 2006.
 

   
For the Nine
 
   
Months Ended
 
   
September 30,
 
   
2006
 
       
Net sales
 
$
22,729,583
 
Net income
 
$
1,455,750
 
Basic and diluted earnings per share
 
$
0.10
 
         
 

NOTE 3 - SHIPPING AND HANDLING FEES AND COSTS

The Company follows Emerging Issues Task Force (“EITF”) No. 00-10, “Accounting for Shipping and Handling Fees and Costs.” The Company does not charge its customers for shipping and handling. The Company classifies shipping and handling costs as part of the cost of goods sold. For the three months ended September 30, 2006 and 2005, shipping and handling costs were $8,245 and $3,624, and for the nine months ended September 30, 2006 and 2005 were $256,849 and $52,906.


NOTE 4 - TRADE DEPOSITS

Amounts represent deposits held by suppliers to be applied against future purchases by the Company. During the three months ended September 30, 2006, the Company decided not to conduct future business with four suppliers and instructed the suppliers to transfer the funds held in deposits to a company that is controlled by a director of HSG. The deposits that were transferred are reflected as due from related party.


NOTE 5 - DUE FROM RELATED PARTY

Amount represents trade deposits that were transferred to a company that is controlled by a director of HSG. The amount due is unsecured with no stated interest or repayment terms.


NOTE 6 - DUE TO/FROM DIRECTOR

Amount represents advances to/from two directors with no stated interest or repayment terms.


7


HOME SYSTEM GROUP AND SUBSIDIARY
(FORMERLY SUPREME REALTY INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(UNAUDITED)

NOTE 7 - BANK LOANS

In November 2005, the Company entered into a new agreement with its existing bank under which the bank maintained the Export Packing Loan credit line at $4,000,000 and maintained the Short Term Revolving Loan of Accounts Receivable Financing (“Short Term Revolving Loan”) of up to $1,600,000. The Short Term Revolving Loan is collateralized by accounts receivable of customers approved by the bank. The loans bear interest at the Singapore Inter-Bank Offered Rate (“SIBOR”) plus 4%. The credit facilities are subject to recourse and are personally guaranteed by the two stockholders of the Company.

The bank debt consists of the following as of September 30, 2006:
 

         
Short Term Revolving Loans collateralized by $501,696 of accounts receivable, with recourse, interest rate of 9.32% at September 30, 2006.
 
$
501,696
 


There were no Short Term Export Packing Loans as of September 30, 2006.


NOTE 8 - EQUITY

On July 24, 2006, the Board of Directors of the Company declared a 1:10 reverse split. The number of shares has been retroactively adjusted to reflect the reverse split.

On September 29, 2006, the Board of Directors of the Company authorized the establishment of the Home System Group 2006 Equity Incentive Plan (the “Plan”). The Company reserved 5,000,000 shares of its common stock for issuance under the Plan.


NOTE 9 - NOTE RECEIVABLE FOR STOCK ISSUANCE

The amount represents a promissory note received on May 4, 2006 for the issuance of 5,500,000 shares (post reverse stock split) of the Company’s common stock. The note receivable is reflected as a contra equity account since the proceeds have not been received as of the issuance of the financial statement. The payment of the promissory note is required when the registration statement covering the 5,500,000 shares is declared effective by the Securities and Exchange Commission.

8


HOME SYSTEM GROUP AND SUBSIDIARY
(FORMERLY SUPREME REALTY INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(UNAUDITED)

 
NOTE 10 - INCOME TAXES

The Company utilizes the asset and liability method of accounting for income taxes in accordance with SFAS No. 109. No Hong Kong Profits Tax has been provided in the financial statements as the business of the Company is carried outside Hong Kong and there was no income derived from or arising in Hong Kong during the periods. No provision for deferred taxes has been made as there were no material timing differences at September 30, 2006 and 2005.


NOTE 11 - SUBSEQUENT EVENT

On October 5, 2006, the Company issued 5,000,000 shares of its common stock under the Home System Group 2006 Equity Incentive Plan to eight consultants in lieu of payments due to the consultants of $700,000 for services rendered from January 2, 2006 through September 30, 2006, which is reflected in accrued expenses as of September 30, 2006.
 

9



 
 
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this quarterly report.


The information in this discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements.

Business Overview

Home System Group (the “Company”), formerly known as Supreme Realty Investment, Inc., was incorporated under the laws of the State of Nevada. On August 4, 2006, the Company entered into an Exchange Agreement with Home System Group, Inc., (“HSGI”) and Oceanic International (“HK”) Limited. HSGI owns all of the issued and outstanding shares of Oceanic International (HK) Limited. HSGI was incorporated under the laws of the British Virgin Islands on February 23, 2003. Oceanic International (HK) Limited was incorporated under the laws of Hong Kong, on June 23, 2004. Oceanic International (HK) Limited is an enterprise integrating the selling, circulation and modern logistics of home appliance products. Oceanic International (HK) limited establishes strategic partnerships with some of the world famous enterprises. Oceanic International (HK) limited is the strategic partner of the world well-known home grill manufacture, Nexgrill Industries Inc., in the greater China area. Oceanic International (HK) limited is also one of the strategic partners of global famous retailer, Whalen Storage, in the greater China area. Products distributed by Oceanic International (HK) limited have already entered into the US, Germany, France, and Australia markets, and continuously expands to other neighboring countries.

 

10


RESULTS OF OPERATIONS
 
The following table presents the statement of operations for the nine months ended September 30, 2006 as compared to the comparable period of the nine months ended September 30, 2005. The discussion following the table is based on these results.
 

   
Three months ended
 
Nine months ended
 
   
September 30
 
September 30
 
   
2006
 
2005
 
2006
 
2005
 
                   
Sales, net
 
$
1,060,208
 
$
350,058
 
$
22,729,583
 
$
6,722,567
 
                           
Cost of sales
   
943,628
   
320,322
   
20,070,507
   
5,515,516
 
General and administrative expenses
   
273,441
   
7,462
   
912,257
   
124,715
 
                           
INCOME(LOSS)FROM OPERATIONS
   
(156,861
)
 
22,274
   
1,746,819
   
1,082,336
 
                           
OTHER INCOME(EXPENSE)
                         
Interest income
   
-
   
234
   
1,998
   
234
 
Finance costs
   
(63,423
)
 
(22,027
)
 
(285,138
)
 
(183,623
)
     
(63,423
)
 
(21,793
)
 
(283,140
)
 
(183,389
)
                           
NET INCOME
 
$
(220,284
)
$
481
 
$
1,463,679
 
$
898,947
 
                           
BASIC AND DILUTED EARNINGS(LOSS)
                         
PER SHARE
 
$
(0.02
)
$
-
 
$
0.10
 
$
0.11
 
 
                         
BASIC AND DILUTED WEIGHTED
                         
AVERAGE PER SHARE
   
14,753,987
   
8,000,000
   
14,753,987
   
8,000,000
 
 

 
Net Sales
 
Net Sales for the third quarter ended September 30, 2006, totaled $1,060,208, compared to $350,058 for the third quarter ended September 30, 2005, an increase of $710,150 or approximately 202.87%. The increase was due to the growth in sales and product recognition in the U.S market, even though the third quarter normally is the show quarter in the business.
 
Net sales for the nine months ended September 30, 2006 totaled $22,729,583 compared to $6,722,567 for the nine months ended September 30, 2005, an increase of $16,007,016 or approximately 238.11%. The increase was due to the sales growth in the gas grill products in the U.S market. The Company increased the purchasing orders from China and added more models to its inventory catalog.
 

11


 
Cost of Sales
 
Cost of sales for the quarter ended September 30, 2006 totaled $943,628, 89% of the net sales in the same period, compared to $320,322 for the third quarter ended September 30, 2005, or 91.5% of the net sales in the same period, a $623,306 increase, or approximately 194.59%. The increase was due to the growth in sales, and increase in the products sold. The cost to sales ratio has been reduced by 2.5%. The decrease in the cost to sales ratio was due to growth in the new product sales which brought a higher profit margin.
 
Cost of sales for the nine months ended September 30, 2006 totaled $20,070,507 compared to $5,515,516 for the nine months ended September 30, 2005, an increase of $14,554,991 or approximately 263.89%. The increase was due to increase in net sales and product sold for the nine months ended September 30, 2006.The cost to sales ratio for the nine months ended September 30, 2006, is 88.3% compared to 82.04% in the nine months ended September 30, 2005, a increase of 6.26%. The increase in gross margin was due to the decrease in material cost and the appreciation of RMB currency.
 
General and Administrative Expenses
 
Selling, general and administrative, and consulting fees for the quarter ended September 30, 2006 totaled $273,441, 25.8% of net sales in the same period, compared to $7,462, 2.1% of net sales for the quarter ended September 30, 2005, an increase of $265,949, or approximately 3,564.04%. The increase was due to marketing and corporate consulting expense.
 
Selling, general and administrative, and consulting fees for the nine months ended September 30, 2006 totaled $912,257, 4.01% of net sales in the same period, compared to $124,715, 1.86% of net sales for the nine months ended September 30, 2005, an increase of $787, 542, or approximately 631.47%. The increase in general and administrative expenses was primarily due to the increase in after market service provided by the company, accounting and, legal, and other professional consultant fees related to the SEC fillings.
 
Income (Loss) from Operations
 
Income (loss) from operations for the quarter ended September 30, 2006 totaled ($156,861), compared to $22,274 for the third quarter ended September 30, 2005, an decrease of $179,135 or approximately 804.23%. The decrease was due to the marketing and corporate consulting expenses occurred.

Income (loss) from operations for the nine months ended September 30, 2006 totaled $1,746,819 compared to $1,082,336 for the nine months ended September 30, 2005, an increase of $664,483 or approximately 61.39%. The increase was due to growth in net sales of gas grills.

Other Income (Expenses)
 
Other income (Expenses) for the quarter ended September 30, 2006 totaled ($63,423), compared to ($21,793) for the third quarter ended September 30, 2005, an increase of ($41,630) or approximately 191.02%. The increase in other expenses was due to the increased bank loan interests.
 
Other income (Expenses) for the nine months ended September 30, 2006 totaled ($283,140) compared to ($183,389) for the nine month ended September 30, 2005, an increase of $99,751, or approximately 54.39% The increase in the other expense was due to the increase of the bank loan interest.
 
12


Net Income
 
Net income (loss) for the quarter ended September 30, 2006, totaled ($220,284), compare to $481 for the quarter ended September 30, 2005, a decrease of ($220,765), or 45,897.09%. The decrease in net income was due to the marketing and corporate consulting fees occurred.

Net income (loss) for the nine months ended September 30, 2006 totaled $1,463,679 compared to $898,947 for the nine months ended September 30, 2005, an increase of $564,732 or approximately 62.82%. The increase in net income was primarily due to the increase in net sales.

Liquidity and Capital Resources
 
As of September 30, 2006, we had cash and cash equivalents of $315,154 as compared to $11,580 as of September 30, 2005. Cash flows from operating activities was $2,677,900 for the nine-month period ended September 30, 2006 as compared to $2,241,598 for the period ended September 30, 2005. Cash flows from financing activities was ($2,565,320) for the nine-month period ended September 30, 2006 as compared to ($2,230,642) for the period ended September 30, 2005. We expect that our cash and cash equivalents will be sufficient to satisfy our cash requirements for the next twelve months. On a long-term basis, our liquidity is dependent on successfully executing our business plan, receipt of revenues, and additional infusions of capital through equity and debt financing. Any funds raised from an offering of our equity or debt will be used to continue to develop and execute our business plan. However, there can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us.

We do not currently own any plant or significant equipment, and during 2006, we do not anticipate purchasing any plant or significant equipment, except as may be required if we cannot or choose not to register as an investment company under the 1940 Act. For more information, see “About the Investment Company Act of 1940." We do not anticipate incurring significant changes in the number of our employees.
 
13

 
 
PART II - OTHER INFORMATION
 
 
To the Company’s knowledge, no lawsuits were commenced against the Company during the three months ended September 30, 2006, nor did the Company commence any lawsuits during the same period. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
 
Item 3. Defaults Upon Senior Securities
 
Not applicable.
 
 
Not applicable.
 
 
Not Applicable
 
 
Exhibit
Number
 
Exhibit Title
31.1
Certificate of CEO/CFO as Required by Rule 13a-14(a)/15d-14
31.2
Certificate of CEO/CFO as Required by Rule Rule 13a-14(b) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code
32.1
Certificate of CEO as Required by Rule Rule 13a-14(b) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code
 

14

 
 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
HOME SYSTEM GROUP
Date: November 18, 2006
 
 
By:
 
 
 
/s/ Wei Qui Li
 
Wei Qui Li, Executive Officer
   
 
/s/ Kin Wai Cheung
 
Kin Wai Cheung, Chief Financial Officer

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CERTIFICATION
 
I, Kin Wai Cheung, certify that:
 
1.  
I have reviewed this quarterly report on Form 10-QSB of Home System Group;
2.  
Based on my knowledge, 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, in light of the circumstances under which such statements were made, not misleading with respect to the fiscal quarter ending September 30, 2006;
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the fiscal quarter ended June 30, 2006;
4.  
The company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the company and have:
 
a.  
Designed such disclosure controls and procedures to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the fiscal quarter ended September 30, 2006;
b.  
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the fiscal quarter ended September 30, 2006, based on such evaluation; and
c.  
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
 
5.  
The company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the company’s auditors and the audit committee of company’s board of directors (or persons performing the equivalent functions):
 
a.  
All significant deficiencies in the design or operation of internal controls which could adversely affect the company’s ability to record, process, summarize and report financial data and have identified for the company’s auditors any material weaknesses in internal controls; and
b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controls.
 
 
Date: November 18, 2006
/s/ Kin Wai Cheung
 
Kin Wai Cheung, Chief Financial Officer



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CERTIFICATION
 
I, Li Wei Qiu, certify that:
 
1.  
I have reviewed this Quarterly report on Form 10-QSB of Home System Group;
2.  
Based on my knowledge, 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, in light of the circumstances under which such statements were made, not misleading with respect to the fiscal quarter ending September 30, 2006;
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the fiscal quarter ended September 30, 2006;
4.  
The company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the company and have:
 
a.  
Designed such disclosure controls and procedures to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the fiscal quarter ended September 30, 2006;
b.  
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the fiscal quarter ended September 30, 2006, based on such evaluation; and
c.  
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
 
5.  
The company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the company’s auditors and the audit committee of company’s board of directors (or persons performing the equivalent functions):
 
a.  
All significant deficiencies in the design or operation of internal controls which could adversely affect the company’s ability to record, process, summarize and report financial data and have identified for the company’s auditors any material weaknesses in internal controls; and
b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controls.
 
 
Date: November 18, 2006
/s/ Li Wei Qiu
 
Li Wei Qiu, Chief Executive Officer





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CERTIFICATION PURSUANT TO
 
18 U.S.C. 1350,
 
AS ADOPTED PURSUANT TO
 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Quarterly Report of Home System Group (the “Company”) on Form 10-QSB for the nine months ended September , 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Li Wei Qiu, in my capacity as Chief Executive Officer, and I, Kin Wai Cheung, in my capacity as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
1.  
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
Date: November 18, 2006
/s/ Li Wei Qiu
 
Li Wei Qiu
Chief Executive Officer
 
 
 
/s/ Kin Wai Cheung
 
Kin Wai Cheung
Chief Financial Officer