Form 10-Q Home System Group

Quarterly report pursuant to section 13 and 15(d)

What is Form 10-Q?
  • Accession No.: 0001193805-10-002824 Act: 34 File No.: 000-49770 Film No.: 101192458
  • CIK: 0001172319
  • Submitted: 2010-11-15
  • Period of Report: 2010-09-30

10-Q HTML

e607727_10q-home.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2010
   
 
OR
   
o
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:  000-49770
 
Home System Group
(Exact name of registrant as specified in its charter)

Nevada
43-1954776
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

Oceanic Industry Park, Sha Gang Highway, Gang Kou Town
 
Zhongshan City, Guangdong
 
People's Republic of China
528447
(Address of principal executive offices)
(Zip Code)

(347)-624-5699
 (Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer       o
Accelerated filer                          o
Non-accelerated filer         o
Smaller reporting company       x

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding at November 15, 2010
Common Stock, $0.001 par value per share
 
67,490,166 shares
 
 
 

 
 
HOME SYSTEM GROUP
FORM 10-Q
 
TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
 
1
1
2
3
4
5
22
30
30
   
PART II - OTHER INFORMATION
 
31
31
31
31
31
31
31
32

Except as otherwise required by the context, all references in this report to “we”, “us”, “our”, or “Company” refer to the consolidated operations of Home System Group, a Nevada corporation, and its wholly owned subsidiaries.
 
 
 

 
 
Item 1 Financial Statements
HOME SYSTEM GROUP AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

   
September 30, 2010
   
December 31, 2009
 
   
(unaudited)
   
(audited)
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 657,127     $ 3,985,782  
Accounts receivable – trade, net of allowances
    39,527,768       23,909,114  
Notes receivable - short term
    8,126,205       3,704,137  
Deposits and advances
    1,947,901       1,344,070  
Inventories
    14,239,186       18,304,015  
Other assets
    1,722,845       1,161,057  
TOTAL CURRENT ASSETS
    66,221,032       52,408,175  
Notes receivable - long-term
    1,302,802       236,334  
Acquisition deposit
    7,856,919       -  
Property, plant and equipment – net
    8,552,156       9,027,828  
Intangible assets
    1,497,033       1,751,567  
Goodwill
    25,025,292       25,025,292  
TOTAL ASSETS
  $ 110,455,234     $ 88,449,196  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable - trade
  $ 16,854,036     $ 18,870,277  
Bills payable
    5,564,111       3,478,223  
Accrued expenses and other payables
    7,481,164       7,109,157  
Short term bank loans
    17,341,340       12,548,441  
Income taxes and other taxes payable
    2,788,787       1,028,403  
Notes payable - current portion
    2,779,109       6,575.000  
Due to stockholder & related parties - current portion
    3,203,702       4,040,896  
TOTAL CURRENT LIABILITIES
    56,012,249       53,650,390  
                 
NON-CURRENT LIABILITIES
               
Due to stockholder – long term portion
    1,605,414       1,308,433  
Long term bank loan
    1,641,522       1,464,515  
Notes payable - long term portion
    -       9,868,421  
TOTAL LIABILITIES
    59,259,185       66,291,759  
                 
STOCKHOLDERS' EQUITY
               
COMMON STOCK - $0.001 par value; 200,000,000 shares
               
authorized, 67,490,166 and  62,477,949 shares issued and outstanding
               
at September 30, 2010 and December 31, 2009, respectively
    67,490       62,478  
Additional paid-in capital
    25,942,241       6,581,717  
Statutory reserve
    681,914       681,914  
Retained earnings
    22,321,807       12,891,560  
Other comprehensive income
    2,182,597       1,939,768  
TOTAL STOCKHOLDERS' EQUITY
    51,196,049       22,157,437  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 110,455,234     $ 88,449,196  
 
The accompanying notes are an integral part of these financial statements.
 
 
1

 
 
HOME SYSTEM GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE & NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net Sales
  $ 29,286,567     $ 10,269,180     $ 86,607,478     $ 46,235,463  
Cost of Sales
    (22,826,989 )     (6,975,137 )     (66,877,268 )     (35,131,556 )
GROSS PROFIT
    6,459,578       3,294,043       19,730,210       11,103,907  
                                 
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES
    (1,855,298 )     (1,320,095 )     (5,314,898 )     (4,283,567 )
                                 
INCOME FROM OPERATIONS
    4,604,280       1,973,948       14,415,312       6,820,340  
                                 
OTHER (EXPENSE) INCOME
                               
Loss on debt conversion
    -       -       (1,747,762 )     -  
Other income (expense)
    (21,021 )     2,655,215       815,951       2,889,970  
Interest expense, net
    (245,266 )     (421,035 )     (1,007,428 )     (1,494,537 )
      (266,287 )     2,234,180       (1,939,239 )     1,395,433  
                                 
INCOME BEFORE INCOME TAXES
    4,337,993       4,208,128       12,476,073       8,215,773  
                                 
INCOME TAXES
    (906,944 )     (1,056,902 )     (3,045,826 )     (2,092,457 )
                                 
NET  INCOME
  $ 3,431,049     $ 3,151,226     $ 9,430,247     $ 6,123,316  
                                 
Basic & Diluted Weighted Average Shares
    67,490,166       62,477,949       65,837,787       62,477,949  
Basic & Diluted Earnings per Share
  $ 0.05     $ 0.05     $ 0.14     $ 0.10  
                                 
COMPREHENSIVE INCOME
                               
Net Income
  $ 3,431,049     $ 3,151,226     $ 9,430,247     $ 6,123,316  
Foreign currency translation adjustment
    168,178       62,475       242,829       90,030  
                                 
COMPREHENSIVE INCOME
  $ 3,599,227     $ 3,213,701     $ 9,673,076     $ 6,213,346  
 
The accompanying notes are an integral part of these financial statements 
 
 
2

 
 
HOME SYSTEM GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR NINE MONTHS ENDED SEPTEMBER 30, 2010 AND YEAR ENDED DECEMBER 31, 2009

   
Number of Shares of
               
Notes
Receivable
         
Other
             
   
Common
Stock
   
Common
Stock
   
Paid-in
Capital
   
For Stock Issuance
   
Statutory Reserve
   
Comprehensive Income
   
Retained Earnings
   
Total
 
BALANCE AT
DECEMBER 31, 2008
    62,477,949     $ 62,478     $ 6,581,717     $ (900,000 )   $ 29,616     $ 1,852,462     $ 4, 217, 826     $ 11,844,099  
                                                                 
Foreign currency translation adjustment
    -       -       -       -       -       87,306       -       87,306  
                                                                 
Net income for 2009
    -       -       -       -               -       9,326,032       9,326,032  
                                                                 
Satisfaction of subscription
    -       -       -       900,000       -       -       -       900,000  
                                                                 
Appropriation to statutory reserve fund
    -       -       -       -       652,298       -       (652,298 )     -  
                                                                 
BALANCE AT
DECEMBER 31, 2009
    62,477,949       62,478       6,581,717       -       681,914       1,939,768       12,891,560       22,157,437  
                                                                 
Foreign currency translation adjustment
    -       -       -       -       -       242,829       -       242,829  
                                                                 
Net income for nine months ended September 30, 2010
    -       -       -       -       -               9,430,247       9,430,247  
                                                                 
Effect of the conversion of Debt to Equity
    5,012,217       5,012       19,360,524       -       -       -       -       19,365,536  
                                                                 
BALANCE AT
SEPTEMBER 30, 2010
    67,490,166     $ 67,490     $ 25,942,241     $ -     681,914     2,182,597     $ 22,321,807     51,196,049  
 
The accompanying notes are an integral part of these financial statements
 
 
3

 
 
HOME SYSTEM GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
Nine Months Ended September 30,
 
   
2010
   
2009
 
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
           
Net income
  $ 9,430,247     $ 6,123,316  
Adjustments to reconcile net income
               
to net cash used in operating activities:
               
Gain on transfer of property, before transfer taxes
    -       (2,761,987 )
Loss on debt conversion
    1,747,762       -  
Depreciation
    743,870       777,307  
Amortization of  intangible assets
    254,534       997,989  
Deferred finance costs amortized
    255,231       269,569  
Change in assets and liabilities
               
(Increase) decrease in assets:
               
Restricted cash
    -       1,064,784  
Accounts receivable
    (15,086,489 )     1,596,631  
Deposits and advances
    (921,834 )     1,689,383  
Inventories
    4,327,595       (2,752,630 )
Other assets
    (439,780 )     (292,098 )
Increase (decrease) in liabilities:
               
Accounts payable
    (2,328,752 )     (7,773,423 )
Bills payable
    1,981,273       (9,051,085 )
Accrued expenses and other payables
    221,238       5,384,033  
Income taxes payable and other taxes
    1,707,581       (53,646 )
Net cash provided (used) by Operating Activities
    1,892,476       (4,781,857 )
                 
CASH FLOWS USED IN INVESTING ACTIVITIES
               
Capital expenditures
    (268,198 )     (57,263 )
Acquisition deposit
    (7,856,919 )     -  
Net cash used in Investing Activities
    (8.125,117 )     (57,263 )
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
               
Increase in notes receivable
    (5,324,237 )     (2,877,712 )
Proceeds from bank loans
    44,057,355       33,715,918  
Repayments of bank loans
    (39,087,449 )     (26,887,141 )
Repayments of notes payable
    -       (9,487,555 )
Payment from due from related party
    -       9,543,516  
Proceeds from stockholder & related parties
    3,413,249       1,632,647  
Net cash provided by Financing Activities
    3,058,918       5,639,673  
Exchange rate effect on cash
    (154,932 )     5,881  
Net increase (decrease) in cash
    (3,328,655 )     806,434  
Cash - begin of period
    3,985,782       1,609,540  
Cash - end of period
  $ 657,127     $ 2,415,974  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Cash paid during the period for:
               
Interest
  $ 749,467     $ 1,505,279  
Income taxes
  $ 3,047,450     $ 2,092,457  
                 
Non cash transactions:
               
Debt converted to Equity
  $ 17,542,774     $ -  
Asset transfer value
  $ -     $ 6,087,312  

The accompanying notes are an integral part of these financial statements 
 
 
4

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

Home System Group (“HSG” or the “Company”) (formerly named Supreme Realty Investments, Inc. (“Supreme”)) is incorporated in the State of Nevada.   The Company has three operating subsidiaries as of September 30, 2010.

On August 4, 2006, Supreme was a public shell company and acquired Home System Group, Inc. (“HSGI”).  HSGI was incorporated as a limited liability company in the British Virgin Islands on February 28, 2003.  HSGI was inactive until September 30, 2006 when HSGI acquired all the outstanding stock of Oceanic International (HK) Limited (“Oceanic”).  Oceanic is an operating company, organized under the laws of Hong Kong on June 23, 2004 for the purpose of distributing gas grills, home electronic appliances and bin racks. Since the ownership of HSGI and Oceanic was the same, the merger was accounted for as a transaction between entities under common control, whereby HSGI recognized Oceanic’s assets and liabilities as being transferred at their carrying amounts. Under the terms of the merger agreement with Supreme, the stockholders of HSGI received 8,000,000 shares of Supreme’s common stock 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 HSGI 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 is identical to that resulting from a reverse acquisition, except no goodwill was 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 is considered to be the accounting acquirer, HSGI.  Shares and per share amounts stated have been adjusted to reflect the merger.
 
Holy (HK) Limited (“Holy”) was incorporated in Hong Kong on September 26, 2006 for the purpose of being a holding company.  Oceanic Well Profit, Inc. (“Well Profit”), a wholly-owned subsidiary of Holy, was incorporated in the People’s Republic of China (“PRC”) on April 5, 2006 for the purpose of manufacturing gas grills, home electrical appliances and bin racks.

Holy was inactive until October 26, 2006 when Holy acquired all the issued and outstanding stock of Well Profit for approximately $3,750,000, the net book value of Well Profit. Since the stockholders of Holy and Well Profit were related, and the control of the merged entity remained with the management of Well Profit, the merger was accounted for as a transaction between entities under common control, whereby Holy recognized Well Profit’s assets and liabilities transferred at their carrying amounts.  The consolidated financial statements combine the historical financial statements of Holy and Well Profit as if the merger occurred at the beginning of the periods presented.

On January 31, 2007, HSG acquired Holy and its wholly-owned subsidiary, Well Profit.  Under the terms of the merger agreement, the stockholders of Holy received $3,000,000 and 42,500,000 shares of voting common stock of HSG in exchange for 100% of Holy’s outstanding common stock. For accounting purposes, the acquisition has been treated as an acquisition of Holy by HSG and as a recapitalization of Holy. The historical financial statements prior to January 31, 2007 are those of Holy. Share and per share amounts have been retroactively adjusted to reflect the acquisition.
 
On October 1, 2008, the Company purchased from the shareholders of Asia Forever Investment Limited (“Asia Forever”) all of Asia Forever’s outstanding stock for approximately $39.5 million.  Asia Forever had been incorporated as a limited liability company on April 1, 2008 in the Hong Kong Special Administrative Region, and it has 100% ownership interest of Zhongshan City Weihe Appliances Co., Ltd (“Weihe”). Weihe had been incorporated as a limited liability company on August 3, 1998 in the PRC, and it manufactures ceiling fans and residential lighting to be sold to the international consumer market through various distributors. The operations of Asia Forever are included in the consolidated financial statements since October 1, 2008.
 
NOTE 2 – BASIS OF PREPARATION AND CONSOLIDATION

The accompanying financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements reflect the adjustments considered necessary for a fair presentation of the Company’s results as of September 30, 2010 and September 30, 2009, and for the periods then ended.
 
 
5

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basic and diluted earnings per share

The Company reports earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, “Earnings per share”. The Company’s basic earnings per share is computed using the weighted average number of shares outstanding for the periods presented.  
 
Diluted earnings per share is based on the assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, the Company’s outstanding stock options are assumed to be exercised, and funds thus obtained by were assumed to be used to purchase common stock at the average market price during the period. The options outstanding as of September 30, 2010 and September 30, 2009 were anti-dilutive and thus were not included in the computation of the Company’s earnings per share for the periods the ended.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts and time certificates of deposit with a maturity of three months or less when purchased.

Accounts receivable - trade

Accounts receivable - trade is stated net of allowance for doubtful accounts.  Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  Reserves are recorded primarily on a specific identification basis.  The bad debt allowance was $16,182 and $16,182 as of September 30, 2010 and December 31, 2009, respectively.

Inventory

Inventory is stated at the lower of cost or market value. Raw material cost is determined by the weighted average method.  The cost of work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process. Most of our inventory consists of raw materials such as stainless steel plate, metal plate or plastics.

Property, plant and equipment

The Company accounts for property, plant and equipment in accordance with the FASB ASC Topic 360, “Property, plant and equipment”. Property, plant and equipment is stated at cost including the cost of improvements.  Maintenance and repairs are charged to expense as incurred.  Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Depreciation and amortization are provided on the straight-line method based on the estimated useful lives of the assets

Goodwill

Goodwill represents the cost of a business acquisition over the fair value of the net identified assets acquired.  In accordance with GAAP, indefinite-life identifiable intangible assets and goodwill are not amortized. GAAP requires that an annual impairment test of our goodwill be performed. Goodwill impairment is determined using a two-step process.  The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit, which we define as our business segments, with its net book value or carrying amount including goodwill.  If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary.  If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.  If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.  The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.  The fair value of the reporting unit is allocated to all of the assets and liabilities of that unit including any unrecognized intangible assets as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. As of September 30, 2010 and 2009, no impairment of goodwill was identified.
 
 
6

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
Bills payable

As of September 30, 2010 and December 31, 2009, Bills payable to banks was $5,564,111 and $3,478,223, respectively. The Company is periodically requested by certain of its suppliers to settle amounts owed by the issuance of bills through banks for which the banks undertake to guarantee the Company’s settlement of these amounts at maturity. In order to provide such guarantees for the bills, the Company has entered into bank acceptance agreements with certain banks.  Pursuant to a bank’s acceptance agreement, the bank guarantees payment of certain of the Company’s payables.

Revenue recognition

The Company’s revenue recognition policies are in compliance with FASB ASC Topic 605, “Revenue Recognition”.  Revenue from sales of the Company’s products is recognized when the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are shipped to customers, the price is fixed or determinable as stated on the sales contract, and collectability is reasonably assured.  Customers do not have a general right of return on products shipped. Product returns to the Company were insignificant during past years.  There are no post-shipment obligations, price protection or bill and hold arrangements.

Income taxes

The Company accounts for income taxes in accordance with FASB ASC Topic 740, “Income Taxes”, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using the tax rates presently in effect.  Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.  Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes.  Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.  De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability.  This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.  It must be applied to all existing tax positions upon initial adoption and the cumulative effect, if any, is to be reported.  Based on its analysis, the Company has determined that the adoption of this policy did not have a material impact on the Company's financial statements upon adoption. However, the Company's conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.  The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses, if assessed.  No interest expense or penalties have been assessed as of and for the period ended September 30, 2010 and December 31, 2009.

Long-Lived assets

Long-lived assets, other than Goodwill, are reviewed for impairment at least once a year or whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable.
 
 
7

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value.

Long-lived assets are considered held for sale when certain criteria are met, including: management’s commitment to a plan to sell the asset, the asset is available for sale in its immediate condition, and the sale is probable within one year of the reporting date. Assets held for sale are reported at the lower of cost or fair value less costs to sell. There was no impairment of Long-lived assets at September 30, 2010 and December 31, 2009.

Foreign currency translation

The Company operations are based in the PRC with its currency, the Renminbi (“RMB”), as the functional currency. In consolidation, the Company’s accounts are translated from RMB into US dollars in accordance with FASB ASC Topic 830, “Foreign currency matters”.  Accordingly, all assets and liabilities are translated at the exchange rates prevailing at the balance sheet dates and all income and expense items are translated at the average rates for each of the periods.

All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC. Translation of amounts from RMB into US dollars has been made at the following exchange rates:

For the period ended September 30, 2010:
       
Balance sheet
     
RMB 6.70 to US$ 1.00
Statement of operations
     
RMB 6.76 to US$ 1.00
         
For the period ended September 30, 2009:
       
Balance sheet
     
RMB 6.83 to US$ 1.00
Statement of operations
     
RMB 6.83 to US$ 1.00
         
For the period ended December 31, 2009:
       
Balance sheet
     
RMB 6.83  to US$ 1.00

The PBOC administers and regulates the exchange rate of US$ against RMB.

Use of estimates

The preparation of the financial statements, in conformity with GAAP, 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 revenue and expenses during the reporting period. Several areas require management’s estimates relating to uncertainties for which it is reasonably possible that there will be a material change in the near term. The more significant areas requiring the use of management estimates relate to valuation of intangible assets acquired in business acquisitions, accrued liabilities and the useful lives for amortization and depreciation. Actual results could differ from those estimates. 

Reclassifications

Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications were limited to Balance Sheet and Cash Flow Statement presentation and did not impact the Statement of Income. Specially, the Company reclassified trade deposit from “Other assets” to “Deposit and advance”, with prior periods updated to conform to this presentation.  In the Cash Flow, the Company separated the accounts payable from “Accounts payable, other payables and accrued expenses” to “Accounts payable” to conform to the current period’s presentation.
 
 
8

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
Concentration of risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company attempts to control risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts. As a consequence, the Company believes that its accounts receivable credit risk exposure beyond such allowance is limited.
 
NOTE 4 - NOTES RECEIVABLE

The Company has an arrangement with Oceanic International (Zhongshan) Company Limited (“Zhongshan”), a Chinese company that is a supplier of raw material to Home System, whereby both companies have agreed to jointly obtain financing from certain financial institutions. Under this arrangement, the Company enters into a loan agreement with the financial institution, in which Home System, Zhongshan and the financial institutions agree that certain assets of both companies will be used as collateral to secure the loan.  These assets consist of Home System’s receivables and certain property and buildings of Zhongshan. Once the Company receives the funding, it then enters into an agreement with the Zhongshan under which a portion of the funds the Company receives from the financial institution is provided by the Company to Zhongshan, and is evidenced by a note from Zhongshan payable to Home System.  These notes are classified as Notes receivable and include interest and maturity dates that coincide with the underlying financing agreements. As of September 30, 2010 and December 31, 2009, these Notes receivable amounted to $9,429,007 and $3,940,471, respectively, with interest rates on the September 30, 2010 balances that ranged from 4.86% to 7.74%, and include maturities of less than one year, and more than one year. The related bank loans are from China Construction Bank Zhongshan Branch and Industrial and Commercial Bank of China amounted to $15,849,048 and $9,522,471 as of September 30, 2010 and December 31, 2009, respectively, and are discussed in NOTE 8 and NOTE 9.
As the Company’s bank loans are directly related to its agreement with Zhongshan, the Notes receivables from Zhongshan resulting from these loans are treated as a component of the Company's financing activities in the Statements of Cash Flow.

NOTE 5– INVENTORIES

Inventories consisted of the following:

   
September 30,
2010
   
December 31,
2009
 
Raw materials
  $ 10,850,290     $ 14,167,853  
Work in process
    2,986,942       3,548,298  
Finished goods
    401,954       587,864  
Total
  $ 14,239,186     $ 18,304,015  

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consisted of the following:

 
 
Useful Life
 
September 30,
2010
   
December 31,
2009
 
Plant and machinery
5 to 10 years
  $ 10,445,530     $ 10,336,935  
Buildings
        20 years
    312,028       312,028  
Furniture, fixtures and equipment
5 to 10 years
    212,414       200,622  
Motor vehicles
8 to 10 years
    160,216       12,405  
Total
      11,130,188       10,861,990  
Less: accumulated depreciation
      (2,578,032 )     (1,834,162 )
Net book value
    $ 8,552,156     $ 9,027,828  
 
 
9

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
During the three and nine month periods ended September 30, 2010 and 2009, depreciation was recorded as follows,

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Cost of sales
  $ 154,300     $ 130,298     $ 639,862     $ 595,991  
General, selling & administrative expenses
    77,550       90,886       104,008       181,317  
    $ 231,850     $ 221,184     $ 743,870     $ 777,308  
 
NOTE 7 – INTANGIBLE ASSETS, NET

Intangible assets consisted of the following:

   
September 30,
2010
   
December 31,
2009
 
Customer relationships
  $ 2,030,000     $ 2,030,000  
Brand name
    145,792       145,792  
Sub-total
    2,175,792       2,175,792  
Less: accumulated amortization
    (678,759 )     (424,225 )
Total Intangible assets, net
  $ 1,497,073     $ 1,751,567  

During the three month periods ended September 30, 2010 and 2009, amortization expenses of intangible assets amounted to $84,845 and $84,845, respectively.  

During the nine month periods ended September 30, 2010 and 2009, amortization expenses of intangible assets amounted to $254,534 and $997,989, respectively.
 
 
The intangible assets are carried at cost and are amortized over the expected useful lives. Customer relationships are being amortized over its expected useful life of 5.75 years. Brand name is being amortized over its expected useful life of 10 years.

The estimated aggregate amortization expenses for the brand name and customer relationships for the five succeeding years are as follows:

Year
     
2010
  $ 339,380  
2011
  $ 339,380  
2012
  $ 339,380  
2013
  $ 339,380  
2014 and thereafter
  $ 139,512  
 
 
10

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
NOTE 8– SHORT TERM BANK LOANS

The short term bank loans, denominated in Chinese Renminbi, are as follows:

   
September 30,
2010
   
December 31,
2009
 
Loan from Standard Chartered Bank, interest rate at 7.74% (LIBOR+2%), due within 120 days, secured by accounts receivable held by a major customer
 
$
-
   
$
96,942
 
                 
Loan from China Construction Bank Zhongshan Branch, interest rate at 7.74% ( LIBOR+2%), due within 120 days, secured by accounts receivable held by a major customer
   
1,061,874
     
1,966,759
 
                 
Loans from China Construction Bank Zhongshan Branch, interest rate at 2.49%, due on July 2, 2010, secured by accounts receivable held by a major customer
   
-
     
2,896,517
 
                 
Loans from China Construction Bank Zhongshan Branch, interest rate at 5.31%, due through July 1, 2011, secured by accounts receivable held by a major customer
   
2,984,585
     
-
 
                 
Loans from Industrial and Commercial Bank of China, interest rate at 7.74% (LIBOR+2%), due within 120 days, secured by the Company’s accounts receivables
   
5,684,190
     
3,194,680
 
                 
Loans from Industrial and Commercial Bank of China, interest rate at 4.86%, due through December 16, 2010, secured by the Company’s  accounts receivables
   
1,193,834
     
-
 
                 
Loans from Industrial and Commercial Bank of China, interest rate at 4.86%, due through December 23, 2010, secured by the Company’s  accounts receivables
   
1,492,292
     
-
 
                 
Loans from Industrial and Commercial Bank of China, interest rate at 4.86%, due through December 30, 2010, secured by the Company’s  accounts receivables
   
1,790,751
     
-
 
                 
Loan from CITIC Bank, interest rate at 5.84%, payments due through September 10, 2010, guaranteed by Li Weiqiu, a related party
   
-
     
2,929,030
 
                 
Loan from CITIC Bank, interest rate at 5.84%, payments due through August 25, 2011, guaranteed by Li Weiqiu, a related party
   
2,686,126
     
-
 
                 
Loan from CITIC Bank, interest rate at 5.84%, payments due through June 9, 2010, guaranteed by Li Weiqiu, a related party
   
-
     
1,464,513
 
                 
Loan from CITIC Bank, interest rate at 6.37%, payments due through June 9, 2011, guaranteed by Li Weiqiu, a related party
   
447,688
     
-
 
                 
Total Short term bank loans
 
$
17,341,340
   
$
12,548,441
 
 
Loans are from China Construction Bank Zhongshan Branch and Industrial and Commercial Bank of China are also collateralized by certain assets of Oceanic International (Zhongshan) Company Limited as discussed in NOTE 4.
 
 
11

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
NOTE 9– LONG TERM BANK LOANS

The Long term bank loans, denominated in Chinese Renminbi, are as follows:

   
September 30,
2010
   
December 31,
2009
 
Loan from Industrial and Commercial Bank of China, interest rate at 5.40%, due on March 9, 2012, secured by the Company’s assets
  $ 298,458     $ 1,464,515  
Loan from Industrial and Commercial Back of China, interest rate at 5.40%, due on January 3, 2013, secured by the Company’s  accounts receivables
    1,343,064       -  
Total Long term bank loans
  $ 1,641,522     $ 1,464,515  

These long term loans are also collateralized by certain assets of Oceanic International (Zhongshan) Company Limited as discussed in NOTE 4.
 
 
12

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
NOTE 10 – NOTES PAYABLE

On May 23, 2007, the Company entered into a Fixed Price Standby Equity Distribution Agreement (the “Agreement”) with four investors (the “Investors”) who were related parties.  Pursuant to the Agreement, the Company could, at its discretion, periodically sell to the Investors up to 10 million shares of the Company’s common stock for a total purchase price of up to $40 million (a per share purchase price of $4.00 per share). The Investors paid 16.5% of the purchase price to the Company. Also, the Investors were to deliver to the Company an executed promissory note for the payment of the remaining 83.5% of the remaining commitment under this Agreement.
 
On February 7, 2008, the Company cancelled the Agreement with the Investors, and the amount of $6,500,000 that had been received by the Company was then reflected as a non-interest bearing Notes payable recorded under current liabilities and non-current liabilities at the end of December 31, 2009 and December 31, 2008, respectively. On April 1, 2010, the Investors and the Company entered into Note Conversion Agreements, in which the Investor agreed to convert the amount of $6,500,000 into 1,857,141 shares Company’s common stock at a conversion rate of $3.50 per share as set forth in detail below:

Note Holder
 
Principal Amount
   
Number of Shares Issued
 
Total Shine Group Limited
  $ 1,600,000       457,142  
Victory High Investments Limited
    2,000,000       571,428  
Think Big Trading Limited
    2,900,000       828,571  

Upon this conversion, the non-interesting bearing Notes payable has been canceled, resulting a $600,375 extinguishment loss recorded in nine months ended September 30, 2010 as the conversion rate of $3.50 per share is lower than $3.86, which was the average price of the common stock  over the 30 trading days prior to the time of the conversion.

On October 1, 2008, the Company issued promissory notes (“Notes”) in the amount equivalent to the purchase price of approximately $39.4 million to the former shareholders of Asia Forever for the Company’s acquisition of Asia Forever. The net present value of these Notes payable at October 1, 2008, after a payment of $8 million, was $29,900,000 and the deferred finance cost of $1,505,147 was recorded based on the Company’s 5.3% borrowing rate, to be amortized using the effective interest rate method. The Notes bear no interest, and principal was to be repaid as follows: 25% of the purchase price (approximately $9.87 million) was payable on or before December 31, 2008, with the remaining principal amount to be repaid in three equal semi-annual installments beginning on September 30, 2009.

On September 30, 2009, the Company entered into a Supplement Agreement to the Notes (“Supplement Agreement”) with the former shareholders of Asia Forever which amended the payment terms as set forth in the original promissory notes. Pursuant to the Supplement Agreement, the cash payments of  $1.8 million, which was past due from December 31, 2008, and $9.87 million which was due on September 30, 2009 were to be satisfied in total by: (i) $4.4 million in cash which was paid by the Company as of September 30, 2009; (ii) $1,464,000 in cash to be paid by the Company in two equal installments of $732,000 by July 31, 2009 and December 31, 2009; (iii) the transfer of buildings held by the Company including offices and production facilities totaling 41,067 square meters and the related land use rights, together valued at $6.1 million (the “Fixed Assets”). Such revised payment terms when fully completed would satisfy all payments due under the Notes for the December 31, 2008 and September 30, 2009 installments. The cash payments were made and on September 18, 2009, the Company completed the transfer of the Fixed Assets to former shareholders of Asia Forever.

On December 18, 2009, the Company executed an amendment to the Notes (the “Amended Note”), the Shareholders agreed that the Company could defer the payment $9.87 million payment originally due on September 30, 2010 to September 30, 2011.  On April 1, 2010, the former shareholders of Asia Forever agreed to convert $7,089,312 of this final installment into the Company’s common stock at the conversion rate of $3.50 per share. After this conversion, the Company owes $2,779,109 to the former shareholders of Asia Forever which is due on September 30, 2011 and this transaction resulted in an extinguishment loss of $736,607 in six months ended September 30, 2010 as the conversion rate was lower than $3.86, the average price of the common stock over the 30 trading days prior to the time of the conversion.
 
 
13

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
Notes payable consisted of the following:
 
   
September 30,
2010
   
December 31,
2009
 
Notes payable related to the fixed price standby equity distribution agreement
 
$
-
   
$
6,575,000
 
Notes payable related to the Asia Forever acquisition
   
2,779,109
     
9,868,421
 
Total  Notes payable
   
 2,779,109
     
 16,443,421
 
Less: Current portion
   
(2,779,109)
     
(6,575,000)
 
Notes payable – long term portion
 
$
-
   
$
9,868,421
 
 
Deferred interest expenses consist of the following:

   
September 30,
2010
   
December 31,
2009
 
Deferred interest expenses, classified as Other Assets
 
$
-
   
$
255,230
 
 
NOTE 11 – DUE TO STOCKHOLDER & RELATED PARTIES

This Company owed $1,575,891 and $3,979,971 to a stockholder as of September 30, 2010 and December 31, 2009, respectively.  This was unsecured and did not bear interest. On April 1, the Company entered into Note Conversion Agreement with the stockholder. The Note Conversion Agreement provides that $3,953,462 of the total amount be converted into Company’s common stock at the conversion rate of $3.50 per share. This transaction resulted in a loss on conversion of $410,780 in the nine months ended September 30, 2010 as the conversion rate was lower than $3.86, the average price of the common stock over the 30 trading days prior to the time of the conversion.

In May, 2010, the Company received loans $666,667 and $666,667 from related parties, Li Weiqiu and Cheung Kinwa, respectively. These were unsecured and did not bear interest.

As discussion in NOTE 8, various Bank loans made to the Company have been secured or guaranteed by the related party, Li Weiqiu, the founder of Well Profit, the chairman of Board of Directors of the Company, and a current shareholder of the Company.

On May 14, 2009, the Company received a loan from a related party, Cheung Kinwai, a director and shareholder of the Company, with the interest rate 7.844% due on May 14, 2014. The Company pays the principal amount and interest of approximately $29,280 (RMB 200,000) per month. As of September 30, 2010, the amount due to Cheung Kinwai was $1,138,027, with the current portion $278,759 due within twelve months.

On June 9, 2010, the Company received a loan from Li Weiqiu, with floating interest rate 120% of the benchmark lending rate set by The People’s Bank of China. The Company pays the interest of approximately $4,124 per month and the principal will be paid off on the loan maturity date, ie June 9, 2015.  As of September 30, 2010, the amount due to Li Weiqiu was $746,146.
 
 
14

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
   
September 30,
2010
   
December 31,
 2009
 
Due to stockholders, unsecured and no interest
  $ 1,575,891     $ 3,979,971  
Due to a related party - Cheung Kinwan
    682,385       -  
Due to a related party – Li Weiqiu
    666,667       -  
Due to a related party (Cheung Kinwai) with interest of 7.844%
    1,138,027       1,369,358  
Due to a related party (Li Weiqiu) with floating interest rate
    746,146       -  
      4,809,116       5,349,329  
                 
Less: Current portion
    (3,203,702 )     (4,040,896 )
                 
 Due to stockholder & related parties under non-current liabilities
  $ 1,605,414     $ 1,308,433  
 
The principal amounts due over the five succeeding years maturities are as follows:
 
Year
     
2010
  $ 3,203,702  
2011
    368,029  
2012
    390,021  
2013
    413,606  
2014 and thereafter
    433,758  
    $ 4,809,116  
 
NOTE 12 – 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 Selling expenses, and these were $527,287 and $181,823 for the three month periods ended September 30, 2010 and 2009, respectively, and $1,655,494 and $875,923 for the nine month periods ended September 30, 2010 and 2009, respectively.

NOTE 13 – WARRANTY

The Company evaluates its exposure to warranty claims based on both current and historical product sales data and warranty costs incurred.  The Company assesses its warranty liability annually and adjusts the amount as necessary.  As of September 30, 2010 the Company believed that it had no material warranty claims. The warranty liability would be included in accrued expenses in the accompanying balance sheet.  
  
NOTE 14– INCOME TAXES

The Company is incorporated in the U.S. and is subject to U.S. tax law. No provisions for U.S. income taxes have been made as the Company has no taxable income for reporting periods. HSGI is incorporated in the British Virgin Islands (“BVI”) and, under the current laws of the BVI, is not subject to income taxes.
 
 
15

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
The Company’s operations in China are subject to the income tax laws of PRC. All of the tax provisions for the three and nine month periods ended September 30, 2010 and 2009 pertain to PRC taxes. Effective on January 1, 2008, the PRC Enterprise Income Tax (“EIT”) Law, and Implementing Rules impose a unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign investment enterprises in China, unless they qualify under certain limited exception. Most of the Company’s operations units are subject to this tax.

The Company’s subsidiary, Well Profit, has been classified as a foreign venture enterprise within the PRC and thus is entitled to, starting from the first profitable year, a two-year exemption from the EIT followed by a three-year 50% reduction in its EIT tax rate (“Tax Holiday”). As such, after the application by Well Profit and approval by the relevant tax authority in 2007, Well Profit was fully exempted from EIT for the fiscal years 2007 and 2008.  For the following three fiscal years from 2009 to 2011, Well Profit will be subject to enterprise income tax at rate of 12.5%.

During three month periods ended September 30, 2010 and September 30, 2009, the benefit that the Company received from this Tax Holiday was $217,237 and $71,934, respectively. During nine month periods ended September 30, 2010 and September 30, 2009, the benefit that the Company received from this Tax Holiday was $648,358 and $728,097, respectively.

The reconciliations of the PRC statutory tax rate to the Company’s effective tax rate for the nine month periods ended September 30, of 2010 and 2009 are as follows:

 
Nine months ended September 30,
 
2010
 
2009
PRC Statutory tax rate
25%
 
25%
Tax Holiday
(5.2)%
 
(3.5)%
Tax Benefit in lower tax rate region (Hong Kong)
(1.2)%
 
n/m
Inability to record tax benefit on U.S. losses
1.6%
 
1.0%
Inability to record tax benefit on Debt conversion loss
3.5%
 
-
Other
0.7%
 
3%
Effective Tax Rate
24.4%
 
25.5%
 
Due to the uncertainty surrounding the realization of the U.S. net operating losses (“NOL’s”) in future tax returns, the Company continued to record a full valuation allowance against our otherwise recognizable U.S. net deferred tax assets as of September 30, 2010 and December 31, 2009. These net operating losses expire from 2027 to 2030.

Deferred tax assets consist of the following:

   
As of September 30,
2010
   
As of December 31,
2009
 
Deferred tax asset – U.S. NOL’s
  $ 865,038     $ 583,931  
Less: Valuation allowance
    (865,038 )     (583,931 )
Total deferred taxes
  $ 0     $ 0  

The accumulated net operating losses incurred in U.S. are as follows:

   
As of
September 30, 2010
   
As of
December 31, 2009
 
Accumulated operating losses
  $ 2,471,536     $ 1,668,375  
 
 
16

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
NOTE 15 – SEGMENT REPORTING

Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting”, requires use of the “management approach” model for segment reporting. Under this model, segment reporting is consistent with how the Company’s management organizes segments within the Company for making operating decisions and assessing performance. Reportable segments can be based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Reportable segments are components of an enterprise about which separate financial information is available, that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company’s chief executive officer and chief financial officer have been identified as the chief decision makers. The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes.

During the first quarter of 2010, management conducted the annual review of the Company’s segment reporting and decided to revise the segments in order to be consistent with the Company’s updated business operation. The Company now has four reportable segments:  (1) Barbeque grills and Skateboards (2) Fans and Lightings, (3) Other trading, (4) Corporate.
 
 
17

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
Segment Results for the Three Months Ended September 30, 2010 and 2009
 
 
 
 
Barbeque grills & Skateboards
   
Fans & Lightings
   
Other Trading
   
Corporate
   
Total
 
     
For the three months ended
   
For the three months ended
   
For the three months ended
   
For the three months ended
   
For the three months ended
 
 
 
 
9/30/10
   
9/30/09
   
9/30/10
   
9/30/09
   
9/30/10
   
9/30/09
   
9/30/10
   
9/30/09
   
9/30/10
   
9/30/09
 
Net sales
    $ 4,906,825     $ 2,686,816     $ 24,379,742     $ 7,415,644     $ -     $ 166,720     $ -     $ -     $ 29,286,567     $ 10,269,180  
Depreciation and amortization
    $ 46,236     $ 85,243     $ 279,458     $ 200,833     $       $ 5,202     $ -     $ -     $ 325,694     $ 291,278  
Segment operational income (loss)     $ 585,459     $ 734,339     $ 4,375,099     $ 1,665,108     $ (867 )   $ 44,109     $ (355,411 )   $ (469,608 )   $ 4,604,280     $ 1,973,948  
Total assets
      459,779       (3,160,840 )     3,635,265       2,054,383       50       (168,633 )     (263,569 )     (12,895,871 )     3,831,525       (14,170,961 )
Capital expenditures
    $ 2,890     $ 12,654     $ 28,226     $ 21,766     $ -     $ 751     $ -     $ -     $ 31,116     $ 35,171  
 
 
18

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
Segment Results for the Nine Months Ended September 30, 2010 and 2009
 
 
 
 
Barbeque grills & Skateboards
   
Fans & Lightings
   
Other Trading
   
Corporate
   
Total
 
     
For the nine months ended
   
For the nine months ended
   
For the nine months ended
   
For the nine months ended
   
For the nine months ended
 
 
 
 
9/30/10
   
9/30/09
   
9/30/10
   
9/30/09
   
9/30/10
   
9/30/09
   
9/30/10
   
9/30/09
   
9/30/10
   
9/30/09
 
Net sales
    $ 11,899,019     $ 17,626,239     $ 70,743,233     $ 27,569,281     $ 3,965,226     $ 1,039,943     $ -     $ -     $ 86,607,478     $ 46,235,463  
Depreciation and amortization
    $ 133,948     $ 399,098     $ 864,400     $ 624,231     $ 56     $ 23,547     $ -     $ -     $ 998,404     $ 1,046,876  
Segment operational income (loss)     $ 1,668,090     $ 2,775,156     $ 13,199,879     $ 5,000,243     $ 605,551     $ 188,615     $ (1,058,208 )   $ (1,143,674 )   $ 14,415,312     $ 6,820,340  
Total assets
      14,117,807       29,377,015       80,903,863       45,948,723       5,496,389       1,733,235       9,937,175       11,900,382       110,455,234       88,959,355  
Capital expenditures
    $ 4,327     $ 21,830     $ 263,871     $ 34,145     $ -     $ 1,288     $ -     $ -     $ 268,198     $ 57,263  
 
 
19

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
NOTE 16– CONCENTRATIONS, RISK AND UNCERTAINTIES

The Company has the following concentrations of business with each customer constituting greater than 10% of the Company’s sales:

   
Nine months ended September 30,
   
2010
 
2009
Zhongshan City Heng Bao Trading Co., Ltd.
 
56%
 
61%
WaiYi (HK) Limited
 
31%
 
37%

The Company has the following concentration of accounts receivable constituting greater than 10% of the Company’s accounts receivable:
 
 
As of  September 30,
 
2010
 
2009
Zhongshan City Heng Bao Trading Co., Ltd.
80%
 
81%

This concentration makes the Company vulnerable to a near-term severe impact should the relationships be impaired or terminated.

The Company has the following concentration of business with suppliers constituting greater than 10% of the Company’s purchases:
 
 
Nine months ended September 30,
 
2010
 
2009
Oceanic International (Zhongshan) Company Ltd.
38%
 
56%
 
 
20

 
HOME SYSTEM GROUP AND SUBSIDIARIES,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
 
NOTE 17 – COMMITMENTS AND CONTINGENCIES

Operating Leases

In the normal course of business, the Company leases office and factory space under operating lease agreements. The operating lease agreements generally contain renewal options that may be exercised at the Company’s discretion after the completion of the base rental terms. In addition, many of the lease agreements provide for regular increases to the base lease rate at specified intervals, which usually occur on an annual basis. The Company was obligated under operating leases requiring minimum payments as follows:

Year
     
2010
  $ 336,543  
2011
    933,089  
2012
    520,007  
2013
    520,007  
2014 and thereafter
    1,040,014  
Total
  $ 3,349,660  

Rental expenses were $241,559 and $196,802 for the three months ended September 30, 2010 and 2009, respectively. Rental expenses were $605,063 and $491,839 for the nine months ended September 30, 2010 and 2009, respectively.
 
NOTE 18 – SUBSEQUENT EVENTS

The Company has evaluated events subsequent for potential recognition and disclosure from October 1, 2010 through the date of filing the financial statements with the SEC.

On May 31, 2010, the Company, through its wholly-owned subsidiary, Weihe, entered into an Equity Ownership Transfer Agreement (the “Acquisition Agreement”) with Zhongshan Sanfan Electrical Appliance Co., Ltd. (“Sanfan”) and all the shareholders of Sanfan (the “Sellers”), pursuant to which the Company agreed to acquire and Sellers have agreed to sell 90% of the Sellers’ equity interest in Sanfan for cash consideration of approximately $12,000,000. The Company closed this acquisition on October 1, 2010.  As of November 8, 2010, the Company paid a total of $4,835,027 to the shareholders of Sanfan, with the remaining portion of the purchase price to be paid by the end of 2011.

On July 15, 2010, the Company, through its wholly-owned subsidiaries, Weihe and Asia Forever, entered into an Equity Ownership Transfer Agreement with Jiangmen City Jinxinglong Electrical Appliance Co., Ltd. (“Jinxinglong”) and all the shareholders of Jinxinglong (the “Sellers”), pursuant to which Weihe and Asia Forever have agreed to acquire and Sellers have agreed to sell 100% of the Sellers’ equity interest in Jinxinglong for a cash consideration of approximately $15,000,000. The Company closed the acquisition on October 1, 2010. As of November 8, 2010, the Company paid a total of $3,021,892 to the shareholders of Jinxinglong, with the remaining portion of the purchase price to be paid by the end of 2011.
 
 
21

 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q, and in the Company’s December 31, 2009 Form 10-K.
 
Safe Harbor Regarding Forward-Looking Statements
 
The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this Form 10-Q and in the December 31, 2009 Form 10-K. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

Overview
 
Home System Group is a Nevada holding company which has its operations based exclusively in China.  These operations are primarily engaged in the production of a variety of household appliances, including ceiling and table fans and decorative lightings, skateboards, stainless steel gas grills and ovens, and trading. Our products are primarily sold through distributors to retailers in America, Europe, Australia and Asia. 
 
Results of Operation

All amounts, other than percentages, in U.S. dollars
 
Comparison of Results of Operations for the Three Months Ended September 30, 2010 & 2009:

   
Three months ended
               
   
September 30,
2010
   
September 30,
2009
   
Increase
(Decrease)
   
Percentage Increase
(Decrease)
 
Net sales
 
$
29,286,567
   
$
10,269,180
   
$
19,017,387
     
185%
 
Costs of sales
   
(22,826,989)
     
(6,975,137)
     
15,851,852
     
227%
 
Gross profit
   
   6,459,578
     
3,294,043
     
3,165,535
     
96%
 
General, selling and administrative expenses
   
 (1,855,298)
     
(1,320,095)
     
535,203
     
41%
 
Income from operations
   
   4,604,280
     
1,973,948
     
2,630,332
     
133%
 
Other income (expense)
   
(21,021)
     
2,655,215
     
(2,676,236)
     
n/m
 
Interest expense, net
   
(245,266)
     
(421,035)
     
(175,769)
     
(42)%
 
Income before  taxes
   
4,337,993
     
4,208,128
     
129,865
     
3%
 
Income taxes
   
(906,944)
     
(1,056,902)
     
(149,958)
     
(14)%
 
Net income
 
$
3,431,049
   
$
3,151,226
   
$
279,823
     
9%
 
 
 
22

 
 
Comparison of Results of Operations for the Nine Months Ended September 30, 2010 & 2009:
 
   
Nine months ended
             
   
September 30,
2010
   
September 30,
2009
   
Increase
(Decrease)
   
Percentage Increase
(Decrease)
 
Net sales
  $ 86,607,478     $ 46,235,463     $ 40,372,015       87 %
Costs of sales
    (66,877,268 )     (35,131,556 )     31,745,712       90 %
Gross profit
    19,730,210       11,103,907       8,626,303       78 %
General, selling and administrative expenses
    (5,314,898 )     (4,283,567 )     1,031,331       24 %
Income from operations
    14,415,312       6,820,340       7,594,972       111 %
Loss on debt conversion
    (1,747,762 )     -       1,747,762       n/m  
Other income
    815,951       2,889,970       (2,074,019 )     (72 )%
Interest expense, net
    (1,007,428 )     (1,494,537 )     (487,109 )     (33 )%
Income before  taxes
    12,476,073       8,215,773       4,260,300       52 %
Income taxes
    (3,045,826 )     (2,092,457 )     953,369       46 %
Net income
  $ 9,430,247     $ 6,123,316 $       3,306,931       54 %
 
Net Sales

Total net sales for the three months ended September 30, 2010 were $29,286,567, an increase of $19,017,387 as compared to $10,269,180 for three month period ended September 30, 2009. This increase was primarily driven by increased sales of Fans and Lightings segment of $16,964,098 and an increase of $2,220,009 in sales of Barbeque grills and Skateboards segment.

Total net sales for nine month period ended September 30, 2010 were $86,607,478, an increase of $40,372,015 from the corresponding 2009 level, largely resulted from the higher sales of Fans and Lightings segment of $43,173,952 and higher trading sales of $2,925,283, partially offset by a decrease of $5,727,220 in sales of Barbeque grills and Skateboards segment.

Revenue Breakout by Segment:

   
Three months ended
September 30, 2010
   
Three months ended
September 30, 2009
       
Segment
       
Percent of total
         
Percent of total
   
Increase
(Decrease)
 
Fans & Lightings
  $ 24,379,742       83.2 %   $ 7,415,644       72.2 %   $ 16,964,098  
Barbeque Grills & Skateboards
    4,906,825       16.8 %     2,686,816       26.2 %     2,220,009  
Other Trading
    -       -       166,720       1.6 %     (166,720 )
Total
  $ 29,286,567       100 %   $ 10,269,180       100 %   $ 19,017,387  
 
   
Nine months ended
September 30, 2010
   
Nine months ended
September 30, 2009
       
Segment
       
Percent of total
         
Percent of total
   
Increase
(Decrease)
 
Fans & Lightings
  $ 70,743,233       81.7 %   $ 27,569,281       59.6 %   $ 43,173,952  
Barbeque Grills & Skateboards
    11,899,019       13.7 %     17,626,239       38.1 %     (5,727,220 )
Other Trading
    3,965,226       4.6 %     1,039,943       2.3 %     2,925,283  
Total
  $ 86,607,478       100 %   $ 46,235,463       100 %   $ 40,372,015  
 
 
23

 
 
Net Revenue by Segment

   
Percent increase of net revenue
 
2010 vs. 2009
Segment
 
Three months ended September 30,
 
Nine months ended September 30,
Fans & Lightings
 
229%
 
157%
Barbeque Grills & Skateboards
 
  83%
 
(32)%
Other trading
 
n/m
 
 281%
 
The reasons for the revenue variance for each segment are as follows:

Fans & Lightings – Fans and Lightings became our major segment after the Weihe acquisition in late 2008. Due to its higher gross profit margins, the Company has redistributed resources and facilities to the Fans and Lightings segment. As a result of Weihe’s strong sales network, the revenue of Fans and Lightings increased by $16,964,098 or 229% to $24,379,742 for the three months ended September 30, 2010. Net revenue was $70,743,233 for nine months ended September 30, 2010, an increase of $43,173,952 or approximately 157 % as compared to the corresponding period of 2009 due to the reasons discussed above.

Barbeque Grills & Skateboards – The Company recorded revenue of $4,906,825 in Barbeque grills and Skateboards segment for the three months ended September 30, 2010, increased by $2,220,009 over the comparable periods of 2009 due to an increase of approximately $2.5 million in the sales of skateboards.

Revenue was $11,899,019 for the nine months ended September 30, 2010, a decrease of $5,727,220 or 32% as compared to the corresponding 2009 level. The significant decrease was driven by lower sales of barbeque grills, which decreased by approximately $13 million for the nine months ended September 30, 2010 as compared to the sales for the nine months ended September 30, 2009, partially offset by the an increase of approximately $6 million sales of skateboards and $1 million sales of tool storage and other accessories. The dramatic decreases in barbeque grills were the result of the general weakness of gas grills market and the Company’s decision to allocate more production resources to the Fans and Lightings in part due to the financial issues at one of our major gas grills’ clients, and order levels decreased below levels felt necessary to provide adequate profit margins. As a result, management restructured our product composition and provided more resources to Fans and Lightings, and other small consumer goods. Also, within the segment, the revenues of skateboards for three and nine months ended September 30, 2010 were strong, with increases of $2,477,468 and $6,104,673 over the three and nine months ended September 30, 2009, respectively, but were more than offset by the significant decline in the revenue of barbeque grills.

Other Trading – This segment consists of the Company’s purchasing small home appliances from local manufacturers in China, and then exporting those goods to international buyers. The Company enters into these purchase agreements as an opportunistic basis, depending on market conditions and purchase terms made available. In the third quarter of 2010, the Company did not have any trading sales. The revenue for nine months ended September 30, 2010 was $3,965,226, an increase of 281% as compared to the same period in 2009 due to some large transactions in the first quarter of 2010.
 
 
24

 
 
Costs of Sales and Gross Profit
 
   
Three months ended September 30,
 
   
2010
   
2009
 
         
% of Sales
Revenue
         
% of Sales
Revenue
 
Cost of Sales
  $ 22,826,989       77.9 %   $ 6,975,137       67.9 %
Gross Profit
  $ 6,459,578       22.1 %   $ 3,294,043       32.1 %
 
   
Nine months ended September 30,
 
   
2010
   
2009
 
         
% of Sales
Revenue
         
% of Sales
Revenue
 
Cost of Sales
  $ 66,877,268       77.2 %   $ 35,131,556       76.0 %
Gross Profit
  $ 19,730,210       22.8 %   $ 11,103,907       24.0 %

The Company reported cost of sales of $22,826,989 for the three months ended September 30, 2010, an increase of $15,851,852 from the corresponding 2009 level.  This increase was primarily the result of the higher volume and mix of Fans and Lightings segment sales and higher sales of Barbeque grills and Skateboards segment, which resulted in increased cost of sales of $13,594,555 and $2,364,481, respectively, over the comparable period of 2009. Cost of sales as a percentage of revenue for the three months ended September 30, 2009 increased 10% compared to the prior year’s comparable three month period. This was due to approximately $1.5 million revenue in 2009came from product processing and assembly, which had higher profit margin of approximately 40%, shorter production runs of a wide variety of products, which resulted in higher fixed costs as well as the higher cost of raw material – stainless steel plate.

The cost of sales for the nine months ended September 30, 2010 was $66,877,268, as compared to a cost of sales of $35,131,556 for the corresponding period in 2009.  The $31,745,712 increase was driven by the higher cost of sales of $33,159,888 from Fans and Lightings segment and $2,563,852 from Other Trading segment in 2010 compared to corresponding prior year period, partially offset by lower cost of sales of $4,014,028 in Barbeque grills and Skateboards segment. Moreover, the cost of sales as a percentage of revenue in the nine months ended September 30, 2010 was 77.2%, as compared to 76.0% for the corresponding period in 2009, resulting in a slight decline in the Company’s gross profit and gross profit margin in 2010 due to the reasons discussed above.

General, Selling and Administrative Expenses

The Company’s general, selling and administrative expenses increased by $535,203 and $1,031,331 for the three and nine month periods ended September 30, 2010, respectively, as compared to the corresponding 2009 periods. These increases were higher primarily due to the higher freight expenses, customs clearance fee and payroll expense resulted from increased sales volume as discussed above.
 
Income from Operations

Income from operations for the Company increased by $2,630,332 and $7,594,972, or up 133% and 111%, respectively, for the three months and nine months ended September 30, 2010, as compared to comparable 2009 periods, largely due to the increased revenue and gross profit resulted from favorable performance in the sales of the Fans and Lightings segment as discussed above.
Operating Income by Segment:
 
 
25

 
 
   
Three months ended
September 30, 2010
 
Three months ended
September 30, 2009
Segment
       
Percent of Income
       
Percent of Income
Fans & Lightings
  $ 4,375,099       95.0 %   $ 1,665,108       84.4 %
Barbeque Grills & Skateboards
    585,459       12.7 %     734,339       37.2 %
Other Trading
    (867 )     -       44,109       2.2 %
Corporate
    (355,411 )     (7.7 )%     (469,608 )     (23.8 )%
Total
  $ 4,604,280       100 %   $ 1,973,948       100 %
 
   
Nine months ended
September 30, 2010
 
Nine months ended
September 30, 2009
Segment
       
Percent of Income
       
Percent of Income
Fans & Lightings
  $ 13,199,879       91.6 %   $ 5,000,243       73.3 %
Barbeque Grills & Skateboards
    1,668,090       11.6 %     2,775,156       40.7 %
Other Trading
    605,551       4.2 %     188,615       27.7 %
Corporate
    (1,058,208 )     (7.4 )%     (1,143,674 )     (41.7 )%
Total
  $ 14,415,312       100 %   $ 6,820,340       100 %

Income from Fans and Lightings increased by $2,709,991 and $8,199,636 during the three and nine month periods ended September 30, 2010, as compared to the three and nine months ended September 30, 2009. These increases resulted from the higher revenue due to the strong sales performance as discussed above.

Income from operations of Barbeque Grills and Skateboards was $1,668,090 during the nine months period ended September 30, 2010, a decrease of $1,107,066 compared to the corresponding period 2009 level. The decrease is primarily due to the lower revenue of $5,727,200 in Barbeque grills and Skateboards segment which was caused by significant decline in the sales of barbeque grills due to the general weakness in barbeque grill industry.

Income from operations of Other Trading decreased by $44,976 for the three months ended September 30, 2010 and increased by $416,936 for nine month period ended September 30, 2010 as compared to the comparable prior year periods.

Other Income
 
Other income decreased by $2,676,236 and $2,074,019 for the three month and nine month periods ended September 30, 2010 as compared the three months ended September 30, 2009, respectively, largely due to the $2,356,327 of gain on transfer of fixed assets recorded in the third quarter of 2009, which did not repeated in the third quarter of 2010.

Interest Expenses, Net
 
The Interest expense, net decreased by $175,769 and $487,109 for the three and nine months periods ended September 30, 2010 as compared to the prior year periods due to the decreased debt level due to the Debt to Equity conversion made on April 1, 2010.

Net Income before Taxes

The Company reported net income before taxes of $4,337,993 for the three months ended September 30, 2010, representing an increase of $129,865 as compared to the pre-tax income of $4,208,128 recorded during third quarter of 2009. This increase was primarily driven by the higher revenue resulting from higher sales of Fans and Lightings, but largely offset by the lower gross margins as discussed above.
 
 
26

 
 
Net income before taxes of $12,476,073 for the nine months ended September 30, 2010 increased $4,260,300 as compared to comparable period of 2009. The increase was primarily driven by the increased sales in the Fans and Lightings segment as discussed above, which more than offset the $1,747,762 loss on debt conversion in the second quarter of 2010.
 
Taxes

The Company recorded Tax provisions of $906,944 and $3,045,826 for the three months ended and nine months ended September 30, 2010, representing 21% and 24.4% of the pre-tax income, respectively.  
 
Net Income

As a result of the increased level of net income before taxes, the Company realized net income of $3,431,049 and $9,430,247 for the three months and nine months ended September 30, 2010, increases of $279,823 and $3,306,931 from the prior year, respectively.
 
Liquidity and Capital Resources
 
As of September 30, 2010, cash and cash equivalents were $657,127 as compared to $3,985,782 as of December 31, 2009. The components of this decrease of $3,328,655 are reflected below.

Cash Flow

   
Nine months ended September 30,
 
   
2010
   
2009
 
Net cash provided by (used in) operating activities
  $ 1,892,476     $ (4,781,857 )
Net cash used in investing activities
    (8,125,117 )     (57,263 )
Net cash provided by financing activities
    3,058,918       5,639,673  
Exchange rate effect on cash
    (154,932 )     5,881  
Net cash inflow (outflow)
  $ (3,328,655 )   $ 806,434  

Net cash provided by (used in) Operating Activities

Cash has historically been generated from operations and short-term borrowings. The cash flow from operating activities was principally attributed to the net income generated during the nine months ended September 30, 2010, which was $9,430,247 and reduced inventories of $4,327,595, being more than offset by an increase of $15,086,489 of account receivables, the result of the higher revenue of $40,372,015 in the first nine months of 2010 over the comparable period in 2009, and reduced levels of accounts payable of $2,328,752.
 
Net cash used in Investing Activities
 
There were no significant needs for plant and facility replacement or expansion for nine months ended on September 30, 2010 and thus only $268,198 was purchased during that period.

On May 31, 2010, the Company entered into an Equity Ownership Transfer Agreement with Zhongshan Sanfan Electrical Appliance Co., Ltd. (“Sanfan”) and all the shareholders of Sanfan, pursuant to which the Company agreed to acquire and Sellers have agreed to sell 90% of the Sellers’ equity interest in Sanfan for cash consideration of approximately $12,000,000. The Company closed this acquisition on October 1, 2010.  As of September 30, 2010, the Company paid a total of $4,835,027 as an acquisition deposit to the shareholders of Sanfan, with the remaining portion of the purchase price to be paid by the end of 2011.

On July 15, 2010, the Company entered into an Equity Ownership Transfer Agreement with Jiangmen City Jinxinglong Electrical Appliance Co., Ltd. (“Jinxinglong”) and all the shareholders of Jinxinglong, pursuant to which the Company has agreed to acquire and Sellers have agreed to sell 100% of the Sellers’ equity interest in Jinxinglong for a cash consideration of approximately $15,000,000. The Company closed the acquisition on October 1, 2010. As of September 30, 2010, the Company paid a total of $3,021,892 as an acquisition deposit to the shareholders of Jinxinglong, with the remaining portion of the purchase price to be paid by the end of 2011.
 
 
27

 
 
Net cash provided by Financing Activities
 
Net cash provided by financing activities was $3,058,918, mainly from obtaining $4,969,906 net increased funding from bank loans and $3,413,249 net funding from stockholder and related parties, partially offset by the increase of $5,324,237 in notes receivables.

The following table reflects the Company’s short-term and long-term bank loans:
 
Name of Institution
 
Interest Rate
 
Term
 
Balance At
September 30, 2010
   
Balance At
December 31, 2009
 
Standard Chartered Bank
    7.74 %  
120 days
  $ -     $ 96,942  
China Construction Bank Zhongshan Branch
    7.74 %  
120 days
    1,061,874       1,966,759  
China Construction Bank Zhongshan Branch
    2.49 %  
July 2, 2010
    -       2,896,517  
China Construction Bank Zhongshan Branch
    5.31 %  
July 1, 2011
    2,984,585       -  
Industrial and Commercial Bank of China
    7.74 %  
120 days
    5,684,190       3,194,680  
Industrial and Commercial Bank of China
    4.86 %  
December 16, 2010
    1,193,834       -  
Industrial and Commercial Bank of China
    4.86 %  
December 23, 2010
    1,492,292       -  
Industrial and Commercial Bank of China
    4.86 %  
December 30, 2010
    1,790,751       -  
CITIC Bank
    5.84 %  
September 10, 2010
    -       2,929,030  
CITIC Bank
    5.84 %  
August 25, 2011
    2,686,126       -  
CITIC Bank
    5.84 %  
June 9, 2010
    -