Form 8-K/A Home System Group

[Amend] Events or Changes Between Quarterly Reports

What is Form 8-K/A?
  • Accession No.: 0001204459-07-001411 Act: 34 File No.: 000-49770 Film No.: 071109416
  • CIK: 0001172319
  • Submitted: 2007-09-10
  • Period of Report: 2007-09-10

FORM 8-K/A HTML

homesystem8ka2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):   September 10, 2007 (July 2, 2007)   

HOME SYSTEM GROUP
(Exact name of registrant as specified in its charter)
     
Nevada 000-49770 43-1954776
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification
incorporation or organization)   No.)
 
No. 5A, Zuanshi Ge, Fuqiang Yi Tian Ming Yuan,
Fu Tian Qu, Shenzhen City
People's Republic of China, 518000
(Address of principal executive offices)
   
086-755-83570142
(Registrant's telephone number, including area code)
   
N/A
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

£    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

£    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

£    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

£    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


EXPLANATORY NOTE

This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by Home System Group, a Nevada corporation, on July 2, 2007, to provide, pursuant to Item 9.01 of Form 8-K, the financial statements and pro forma information of a business acquired.

Item 9.01 Financial Statement and Exhibits.

(a)   Financial Statements of Business Acquired.

The financial statements of Juxian Gas Oven Co., Ltd. required by Item 9.01 of Form 8-K are attached hereto as Annex A.

(b)   Pro Forma Financial Information.

The pro forma financial information required pursuant to Item 9.01 of Form 8-K and Article 11 of Regulation S-X are attached hereto as Annex B.

(d)   Exhibits.

Number

Description

 

 

10.1*

Share Exchange Agreement dated as of April 20, 2007, is entered into by and among Home System Group, Holy (HK) Limited, Oceanic Well Profit Inc, Juxian Gas Oven Co., Ltd., and the shareholders of Juxian Gas Oven Co., Ltd. (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed by the Company on April 20, 2007).

 

 

10.2*

Letter Amendment to Share Exchange Agreement, dated June 29, 2007, among Home System Group, Juxian Gas Oven Co., Ltd., and the shareholders of Juxian Gas Oven Co., Ltd. (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed by the Company on July 2, 2007).

 

 

23.1

Consent of Morison Cogen, LLP, independent certified public accountants.

* Incorporated by reference


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 hereunto duly authorized.

    HOME SYSTEM GROUP
       
       
Date: September 10, 2007   By: /s/ Weiqiu Li
      Weiqiu Li
      Chief Executive Officer
       

EXHIBIT INDEX

Number

Description

 

 

10.1*

Share Exchange Agreement dated as of April 20, 2007, is entered into by and among Home System Group, Holy (HK) Limited, Oceanic Well Profit Inc, Juxian Gas Oven Co., Ltd., and the shareholders of Juxian Gas Oven Co., Ltd. (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed by the Company on April 20, 2007).

 

 

10.2*

Letter Amendment to Share Exchange Agreement, dated June 29, 2007, among Home System Group, Juxian Gas Oven Co., Ltd., and the shareholders of Juxian Gas Oven Co., Ltd. (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed by the Company on July 2, 2007).

 

 

23.1

Consent of Morison Cogen, LLP, independent certified public accountants.

ANNEX A

 

ZHONGSHAN JUXIAN GAS OVEN CO., LTD.

FINANCIAL STATEMENTS

JUNE 30, 2007
(UNAUDITED)

 

-1-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.

C O N T E N T S

 

  PAGE
   
   
BALANCE SHEETS 1
   
STATEMENTS OF OPERATIONS 2
   
STATEMENTS OF COMPREHENSIVE INCOME 3
   
STATEMENT OF STOCKHOLDERS' EQUITY 4
   
STATEMENTS OF CASH FLOWS 5
   
NOTES TO FINANCIAL STATEMENTS 6 - 8
   

-1-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
BALANCE SHEETS
JUNE 30, 2007 AND DECEMBER 31, 2006

    June 30, December 31,
    2007   2006
  (Unaudited) (Unaudited)

ASSETS

       
         
CURRENT ASSETS        

Cash

$ 319,849 $ 710,391

Accounts receivable

  2,993,457   1,321,749

Other receivables

  51,020   59,911

Trade deposits

  306,040   727,540

Inventories

  728,539   795,753

Due from directors

  6,575   19,230

Due from stockholders

  13,019   21,153

 

  4,418,499   3,655,727
         
PROPERTY, PLANT AND EQUIPMENT, Net   463,524   469,374
         
TOTAL ASSETS $ 4,882,023 $ 4,125,101
         

LIABILITIES AND STOCKHOLDERS' EQUITY

       
         
CURRENT LIABILITIES        

Accounts payable and accrued expenses

  1,785,732   2,121,238

Tax payable

  218,912   116,690

Dividend payable

  657,500   641,000
         
TOTAL LIABILITIES   2,662,144   2,878,928
         

STOCKHOLDERS' EQUITY

       
         
PAID-IN CAPITAL   60,500   60,500
         
RETAINED EARNINGS - UNAPPROPRIATED   1,582,939   654,129
         
RETAINED EARNINGS - APPROPRIATED        

Statutory Common Reserves Fund

  417,507   417,507

Statutory Public Welfare Fund

  -   -
         
CUMULATIVE TRANSLATION ADJUSTMENT   158,933   114,037
         
TOTAL STOCKHOLDERS' EQUITY   2,219,879   1,246,173
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,882,023 $ 4,125,101

See accompanying notes to financial statements.

- 1 -


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)

                 
    Three Months Ended June 30,   Six Months Ended June 30,
 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

NET SALES

$

4,594,906

$

6,608,572

$

9,802,899

$

10,619,544

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Cost of net sales

 

3,910,488

 

5,603,849

 

8,263,466

 

9,069,654

General and administrative expenses

 

104,265

 

132,015

 

233,935

 

245,725

 

 

4,014,753

 

5,735,864

 

8,497,401

 

9,315,379

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

580,153

 

872,708

 

1,305,498

 

1,304,165

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Finance costs

 

-

 

(810)

 

-

 

(810)

Others

 

69,452

 

30,925

 

69,477

 

32,213

 

 

69,452

 

30,115

 

69,477

 

31,403

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

649,605

 

902,823

 

1,374,975

 

1,335,568

 

 

 

 

 

 

 

 

 

INCOME TAXES

 

(213,852)

 

(295,167)

 

(446,165)

 

(437,678)
 

 

 

 

 

 

 

 

 

NET INCOME

$

435,753

$

607,656

$

928,810

$

897,890

See accompanying notes to financial statements.

- 2 -


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)

                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2007   2006   2007   2006
                 
                 
NET INCOME $  435,753 $  607,656 $  928,810 $  897,890
                 
OTHER COMPREHENSIVE INCOME                

Foreign currency translation adjustment

  30,387   5,789   44,896   12,652
                 
COMPREHENSIVE INCOME $  466,140 $  613,445 $  973,706 $  910,542

See accompanying notes to financial statements.

- 3 -


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
STATEMENT OF STOCKHOLDERS' EQUITY
 FOR THE SIX MONTHS ENDED JUNE 30, 2007

                         
          Statutory            
    Additional   Retained Common Statutory   Cumulative    
    Paid-in   Earnings - Reserves   Public   Translation    
    Capital   Unappropriated   Fund   Welfare fund   Adjustment   Total
                         
BALANCE AT DECEMBER 31, 2006 (AUDITED)   60,500   654,129   417,507   -   114,037   1,246,173
                         
Net income for the six months ended June 30, 2007   -   928,810   -   -   -   928,810
                         
Cumulative translation adjustment   -   -   -   -   44,896   44,896
                         
BALANCE AT JUNE 30, 2007 (UNAUDITED) $ 60,500 $ 1,582,939 $ 417,507 $ - $ 158,933 $  2,219,879

See accompanying notes to financial statements.

- 4 -


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
 (UNAUDITED)

 

 

2007

 

2006

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income

$

928,810

$

897,890

Adjustments to reconcile net income

 

 

 

 

to net cash used in operating activities

 

 

 

 

Depreciation

 

35,965

 

32,772

(Increase) decrease in assets

 

 

 

 

Accounts receivable

 

(1,615,392)

 

(4,162,649)

Other receivables

 

10,291

 

108,002

Trade deposits

 

434,235

 

126,919

Inventories

 

86,504

 

(1,884,246)

Increase (decrease) in liabilities

 

 

 

 

Accounts payable and accrued expenses

 

(384,798)

 

4,621,862

Tax payable

 

97,868

 

219,029

 

 

 

 

 

Net cash used in operating activities

 

(406,517)

 

(40,421)
 

 

 

 

 

CASH FLOW FROM INVESTING ACTIVITIES

 

 

 

 

Capital expenditures

 

(18,277)

 

(11,988)
 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Decrease in due from a director

 

12,971

 

2,742

Decrease in due from stockholders

 

8,561

 

13,085

 

 

 

 

 

Net cash provided by financing activities

 

21,532

 

15,827

 

 

 

 

 

EFFECTS OF EXCHANGE RATE CHANGE ON CASH

 

12,720

 

5,824

 

 

 

 

 

NET DECREASE IN CASH

 

(390,542)

 

(30,758)
 

 

 

 

 

CASH - BEGINNING OF PERIOD

 

710,391

 

619,457

 

 

 

 

 

CASH - END OF PERIOD

$

319,849

$

588,698

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

 

 

 

 

INFORMATION

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

-

$

810

 

 

 

 

 

Income taxes

$

348,297

$

218,649

See accompanying notes to financial statements.

- 5 -


ZHONGSHAN JUXIAN GAS OVEN CO., LTD. 
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 

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

The accompanying unaudited condensed financial statements have been prepared by Zhongshan Juxian Gas Oven Co., Ltd. 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 2006 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 2006 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three and six months ended June 30, 2007 may not be indicative of operating results expected for the full year.

Nature of Business

Zhongshan City Juxian Gas Oven Co., Ltd. (the "Company") was incorporated in Zhongshan City, Guangdong Province, the People's Republic of China (the "PRC") on March 5, 2002 for the purpose of manufacturing and wholesale of gas ovens.

Reporting Currency

The Company's functional currency is Renminibi ("RMB"); however, the reporting currency is United States dollar ("USD").

Revenue Recognition

In accordance with Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, the Company recognizes revenue when persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, receipt of goods by customer occurs, the price is fixed or determinable, and the sales revenues are considered collectible. Subject to these criteria, the Company generally recognizes revenue at the time product is shipped to the customer.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates based on management's knowledge and experience. Accordingly, actual results could differ from those estimates.

Foreign Currency Translation

Assets and liabilities of the Company have been translated using the exchange rate at the balance sheet date. The average exchange rate for the period has been used to translate revenues and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation adjustment).

Comprehensive Income

The Company follows the Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

Accounts Receivable

The Company considers accounts receivable to be fully collectible; accordingly, the Company has not provided for an allowance for doubtful accounts. As amounts become uncollectible, they will be charged to an allowance or operations in the period when a determination of uncollectibility is made.

-6-


ZHONGSHAN JUXIAN GAS OVEN COMPANY LIMITED
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 six months ended June 30, 2007 and 2006, shipping and handling costs were $3,318 and $6,567. For the three months ended June 30, 2007 and 2006, shipping and handling costs were $2,589 and $5,317.

Product Warranties

The Company does not offer warranty on its products.

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the provisions of FIN 48 will be applied to all tax positions under Statement No. 109 upon initial adoption. The cumulative effect of applying the provisions of this interpretation will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The Company adopted FIN 48 effective January 1, 2007. The adoption of FIN 48 did not have a material impact on the Company's financial statements.

NOTE 2– TRADE DEPOSITS

Amount represents deposits held by suppliers to be used for future purchases.

NOTE 3 – INVENTORIES

Inventory as of June 30, 2007 and December 31, 2006 consists of the following:

 

2007

 

2006

Raw material

$ 356,697   $ 328,015

Work in progress

177,095   77,684

Finished goods

194,747   336,054

 

     

 

$ 728,539   $ 795,753

NOTE 4 – DUE FROM A DIRECTOR

Amount represents money advanced to a director of the Company. The amount due is unsecured with no stated interest or repayment terms.

-7-


ZHONGSHAN JUXIAN GAS OVEN COMPANY LIMITED
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007

NOTE 5 – DUE FROM STOCKHOLDERS

Amount represents money advanced to two stockholders of the Company. The amounts due are unsecured with no stated interest or repayment terms.

NOTE 6 – INCOME TAXES

The Company utilizes the asset and liability method of accounting for income taxes in accordance with SFAS No. 109. The Company's effective tax rate of 33% is equivalent to the People's Republic China statutory tax rate. No provision for deferred taxes has been made as there were no material temporary differences at June 30, 2007 and 2006.

NOTE 7 – CUSTOMER CONCENTRATION

The Company sells a substantial portion of its product to a limited number of customers. During the six months ended June 30, 2007 and 2006, sales to the Company's three largest customers, based on net sales made to such customers, aggregated $9,786,084 and $10,077,100, or approximately 99.8% and 94.9% of total net sales, and sales to the Company's largest customer represented approximately 48% and 47% of total net sales. At June 30, 2007, amounts due from these customers were $2,990,886. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.

NOTE 8 – MAJOR SUPPLIER

During the six months ended June 30, 2007 and 2006, the Company purchased 50% and 66% of its raw material from four major suppliers. At June 30, 2007, amounts due to those suppliers included in accounts payable were $703,690. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.

NOTE 9 – SUBSEQUENT EVENT

On April 20, 2007, the Company entered into a Share Exchange Agreement (the "Agreement") pursuant to which Oceanic Well Profit, Inc. (a manufacturer of gas grills), a wholly-owned subsidiary of Home System Group ("HSG"), will acquire 100% of the Company in a stock and cash transaction valued at approximately $14,000,000. Under the Agreement, in exchange of surrendering their shares in the Company, the stockholders of the Company will receive both stock consideration and cash consideration from HSG. The stock consideration consists of 1,000,000 newly issued shares of the HSG common stock, which will be divided proportionally among the Company stockholders in accordance with their respective ownership interests in the Company immediately before the closing of the transaction. The cash consideration consists of $10,000,000 in cash, again divided proportionally among the Company's stockholders in accordance with their respective ownership interests in the Company immediately before the closing of the transaction and payable as follows: $5,000,000 due on the first anniversary of the closing of the transaction, and $5,000,000 due on the second anniversary of closing of the transaction. The obligation to pay the cash consideration is evidenced by interest-free promissory notes between HSG and each of the Company's stockholders.

On July 2, 2007 the acquisition of the Company by HSG was completed.

-8-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.

FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

 


   

ZHONGSHAN JUXIAN GAS OVEN CO., LTD.

   

C O N T E N T S

   
  PAGE
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
   
BALANCE SHEETS 2
   
STATEMENTS OF OPERATIONS 3
   
STATEMENTS OF COMPREHENSIVE INCOME 4
   
STATEMENT OF STOCKHOLDERS' EQUITY 5
   
STATEMENTS OF CASH FLOWS 6
   
NOTES TO FINANCIAL STATEMENTS 7 - 12
   

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Director
Zhongshan Juxian Gas Oven Co., Ltd.
Guangdong Province, China

We have audited the accompanying balance sheets Zhongshan Juxian Gas Oven Co., Ltd. as of December 31, 2006 and 2005, and the related statements of operations, comprehensive income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Zhongshan Juxian Gas Oven Co., Ltd. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

/s/ MORISON COGEN LLP

Bala Cynwyd, PA
August 30, 2007

-1-


 
ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
         
    2006   2005
         

ASSETS

       
         
CURRENT ASSETS        

Cash

$ 710,391 $ 619,457

Accounts receivable

  1,321,749   1,116,893

Other receivables

  59,911   139,000

Trade deposits

  727,540   426,030

Inventories

  795,753   996,475

Due from directors

  19,230   16,120

Due from stockholders

  21,153   28,520
    3,655,727   3,342,495
         
PROPERTY, PLANT AND EQUIPMENT, Net   469,374   478,959
         
TOTAL ASSETS $ 4,125,101 $ 3,821,454
         

LIABILITIES AND STOCKHOLDERS' EQUITY

       
         
CURRENT LIABILITIES        

Accounts payable and accrued expenses

  2,121,238   1,875,208

Tax payable

  116,690   78,565

Dividend payable

  641,000   992,000
         
TOTAL LIABILITIES   2,878,928   2,945,773
         
STOCKHOLDERS' EQUITY        
         
PAID-IN CAPITAL   60,500   60,500
         
RETAINED EARNINGS - UNAPPROPRIATED   654,129   473,033
         
RETAINED EARNINGS - APPROPRIATED        

Statutory Common Reserve Fund

  417,507   260,810

Statutory Public Welfare Fund

  -   30,253
         
CUMULATIVE TRANSLATION ADJUSTMENT   114,037   51,085
         
TOTAL STOCKHOLDERS' EQUITY   1,246,173   875,681
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,125,101 $ 3,821,454

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

-2-


 
ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 

 

 

 

 

 

 

2006

 

2005

 

 

 

 

 

NET SALES

$

18,286,648

$

16,439,953

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

Cost of net sales

 

15,480,842

 

13,838,550

General and administrative expenses

 

476,169

 

451,378

 

 

15,957,011

 

14,289,928

 

 

 

 

 

INCOME FROM OPERATIONS

 

2,329,637

 

2,150,025

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

Finance costs

 

(597)

 

-

Interest income

 

32,293

 

83,810

 

 

31,696

 

83,810

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

2,361,333

 

2,233,835

 

 

 

 

 

INCOME TAXES

 

(771,792)

 

(730,395)
 

 

 

 

 

NET INCOME

$

1,589,541

$

1,503,440

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

-3-


         
ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2006 AND 2005
         
    2006   2005
         
NET INCOME $ 1,589,541 $ 1,503,440
         
OTHER COMPREHENSIVE INCOME        

Foreign currency translation adjustment

  62,952   51,085
         
COMPREHENSIVE INCOME $ 1,652,493 $ 1,554,525

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

-4-


 
ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2006 AND 2005
                         
         

Retained Earnings-Appropriated

       
            Statutory            
 

 

Additional

 

Retained

 

Common

 

Statutory

 

Cumulative

 

 

 

 

Paid-in

 

Earnings -

Reserves

 

Public

 

Translation

 

 

 

 

Capital

Unappropriated

 

Fund

Welfare fund

 

Adjustment

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JANUARY 1, 2005

$

 60,500

$

977,885

$

112,518

$

30,253

$

-

$

1,181,156

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend distribution

 

-

 

(1,860,000)

 

-

 

-

 

-

 

(1,860,000)
 

 

 

 

 

 

 

 

 

 

 

 

 

Transfer to reserve funds

 

-

 

(148,292)

 

148,292

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

-

 

-

 

-

 

-

 

51,085

 

51,085

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended December 31, 2005

 

-

 

1,503,440

 

-

 

-

 

-

 

1,503,440

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2005

 

60,500

 

473,033

 

260,810

 

30,253

 

51,085

 

875,681

 

 

 

 

 

 

 

 

 

 

 

 

 

Reallocation of Statutory Public Welfare Fund

 

-

 

30,253

 

-

 

(30,253)

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend distribution

 

-

 

(1,282,000)

 

-

 

-

 

-

 

(1,282,000)
 

 

 

 

 

 

 

 

 

 

 

 

 

Transfer to reserve funds

 

-

 

(156,697)

 

156,697

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

-

 

 

 

-

 

-

 

62,952

 

62,952

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended December 31, 2006

 

-

 

1,589,541

 

-

 

-

 

-

 

1,589,541

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2006

$

 60,500

$

654,129

$

417,507

$

-

$

114,037

$

1,246,173

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

-5-


 
ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 

 

 

 

 

 

 

2006

 

2005

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net income

$

1,589,541

$

1,503,440

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

Depreciation and amortization

 

63,615

 

54,618

(Increase) decrease in assets

 

 

 

 

Accounts receivable

 

(163,603)

 

(264,164)

Other receivable

 

82,082

 

(56,117)

Trade deposits

 

(273,690)

 

(163,369)

Inventories

 

229,663

 

(112,622)

Increase (decrease) in liabilities

 

 

 

 

Accounts payable and accrued expenses

 

178,770

 

(59,932)

Tax payable

 

34,736

 

(3,628)

 

 

 

 

 

Net cash provided by operating activities

 

1,741,115

 

898,227

 

 

 

 

 

CASH FLOW FROM INVESTING ACTIVITIES

 

 

 

 

Capital expenditures

 

(38,336)

 

(116,356)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Increase in due from director

 

(2,511)

 

(7,333)

Decrease (increase) in due from stockholder

 

8,162

 

(3,667)

Dividend distribution

 

(1,632,410)

 

(847,000)

 

 

 

 

-

Net cash used in financing activities

 

(1,626,759)

 

(858,000)

 

 

 

 

 

EFFECTS OF EXCHANGE RATE CHANGE ON CASH

 

14,915

 

2,018

 

 

 

 

 

NET INCREASE IN CASH

 

90,934

 

454,217

 

 

 

 

 

CASH - BEGINNING OF YEAR

 

619,457

 

165,241

 

 

 

 

 

CASH - END OF YEAR

$

710,391

$

619,457

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

Cash paid during the year for:

 

 

 

 

Interest

$

597

$

-

 

 

 

 

 

Income taxes

$

771,792

$

730,395

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

-6-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006

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

Nature of Business

Zhongshan Juxian Gas Oven Co., Ltd. (the "Company") was incorporated in Zhongshan City, Guangdong Province, the People's Republic of China (the "PRC") on March 5, 2002 for the purpose of manufacturing and wholesale of gas ovens.

Reporting Currency

The Company's functional currency is Renminibi ("RMB"); however, the reporting currency is United States dollar ("USD").

Revenue Recognition

In accordance with Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, the Company recognizes revenue when persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, receipt of goods by customer occurs, the price is fixed or determinable, and the sales revenues are considered collectible. Subject to these criteria, the Company generally recognizes revenue at the time product is shipped to the customer.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates based on management's knowledge and experience. Accordingly, actual results could differ from those estimates.

Foreign Currency Translation

Assets and liabilities of the Company have been translated using the exchange rate at the balance sheet date. The average exchange rate for the period has been used to translate revenues and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation adjustment).

Comprehensive Income

The Company follows the Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash and accounts receivable. The Company places its temporary cash investments with high credit quality financial institutions to limit its credit exposure. Concentrations of credit risk with respect to accounts receivable are limited since the Company performs ongoing credit evaluations of its customers' financial condition and due to the generally short payment terms.

Accounts Receivable

The Company considers accounts receivable to be fully collectible; accordingly, the Company has not provided for an allowance for doubtful accounts. As amounts become uncollectible, they will be charged to an allowance or operations in the period when a determination of uncollectibility is made.

-7-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives using the straight line method over the following years:

Buildings and leasehold improvements 8-35 years
Plant and machinery 8-11 years
Office furniture and equipment 5-18 years
Motor vehicles 8 years

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the income statement.

Income Taxes

The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Under the liability method, deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Advertising Costs

Advertising costs are expensed as incurred.

Shipping and Handling Fees and Costs

The Company follows 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 years ended December 31, 2006 and 2005, shipping and handling costs were $16,866 and $205,303.

Product Warranties

The Company does not offer warranty on its product.

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years beginning after December 15, 2006 and the provisions of FIN 48 will be applied to all tax positions under Statement No. 109 upon initial adoption. The cumulative effect of applying the provisions of this interpretation will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The Company does not believe that the adoption of FIN 48 will have a material impact on its financial statements.

-8-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB No. 108"). SAB No. 108 addresses the process and diversity in practice of quantifying financial statement misstatements resulting in the potential build up of improper amounts on the balance sheet. The Company is required to adopt the provisions of SAB No. 108 in fiscal 2006. The adoption of SAB No. 108 did not have a material impact on the Company's financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007 and will become effective beginning with the first quarter of 2008. The Company has not yet determined the impact the adoption of SFAS No. 157 on its financial statements and footnote disclosures.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for the Company beginning with the first quarter of 2008. The Company has not yet determined the impact of the adoption of SFAS No. 159 on its financial statements and footnote disclosures.

NOTE 2 – OTHER RECEIVABLES

Amount represents short-term advances to employees and other related parties with no stated interest rate or repayment terms.

NOTE 3 – INVENTORIES

Inventories consist of the following:

    2006   2005
         
Raw material $ 382,015 $ 485,100
Work in progress   77,684   419,634
Finished goods   336,054   91,741
         
  $ 795,753 $ 996,475

NOTE 4 – TRADE DEPOSITS

Amounts represent deposits held by suppliers to be applied against future purchases by the Company.

-9-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006

NOTE 5 – DUE FROM DIRECTORS

The amount due is unsecured, interest-free and with no stated repayment terms.

NOTE 6 – DUE FROM STOCKHOLDERS

The amount due is unsecured, interest-free and with no stated repayment terms.

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

    2006   2005
         
Buildings and leasehold improvements $ 77,269 $ 456
Plant and machinery   559,601   515,272
Office furniture and equipment   90,267   75,450
Motor vehicles   25,845   24,998
    752,982   616,175
Less: Accumulated depreciation and amortization   283,608   211,498
    469,374   404,677
Construction in progress   -   74,282
         
  $ 469,374 $ 478,959

Depreciation and amortization expense for the years ended December 31, 2006 and 2005 was $63,615 and $54,618.

NOTE 8 – RETAINED EARNINGS - APPROPRIATED

In accordance with the relevant PRC regulations and the Company's Articles of Association, the Company is required to allocate its profit after tax to the following reserves:

Statutory Common Reserve Funds

The Company is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory common reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any loss incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital.

Statutory Public Welfare Funds

Prior to January 1, 2006, the Company was required each year to transfer 5% of the profit after tax as reported under the PRC statutory financial statements to the statutory public welfare funds. This reserve is restricted to capital expenditure for employees' collective welfare facilities that are owned by the Company. The statutory public welfare funds are not available for distribution to the stockholders (except on liquidation). Once capital expenditure for staff welfare facilities has been made, an equivalent amount must be transferred from the statutory public welfare funds to the discretionary common reserve funds. Due to a change in the PRC Company Law, appropriation of profit to the statutory welfare fund is no longer required. Therefore, the Company transferred the balance in the statutory welfare fund to retained earnings on January 1, 2006.

-10-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006

NOTE 9 – INCOME TAXES

As discussed in Note 1, the Company utilizes the asset and liability method of accounting for income taxes in accordance with SFAS No. 109. The statutory PRC tax rate of 33% is equivalent to the Company's effective tax rate. No provision for deferred taxes has been made as there were no material temporary differences at December 31, 2006 and 2005.

NOTE 10 – LEASE COMMITMENT

The Company leases a factory and a piece of land under operating leases expiring on December 31, 2007 and September 19, 2017. Future minimum lease payments required under the above operating leases are as follows:

Years Ending    
December 31,   Amount
     
2007   $ 140,874
2008   17,802
2009   17,802
2010   17,802
2011   17,802
Thereafter   101,827
     
    $ 313,909

The rental expense for years ended December 31, 2006 and 2005 was $137,984 and $134,281.

NOTE 11 – CUSTOMER CONCENTRATION

The Company sells a substantial portion of its product to a limited number of customers. During the year ended December 31, 2006, sales to the Company's three largest customers, based on net sales made to such customers, aggregated $16,904,986, or approximately 92% of total net sales, and sales to the Company's largest customer represented approximately 38% of total net sales. At December 31, 2006, amounts due from these customers were $522,623. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.

NOTE 12 – MAJOR SUPPLIER

During 2006 and 2005, the Company purchased 64% and 52% of it products from four suppliers. At December 31, 2006 and 2005, amounts due to those suppliers included in accounts payable were $902,710 and $1,136,386. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.

-11-


ZHONGSHAN JUXIAN GAS OVEN CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006

NOTE 13 – SUBSEQUENT EVENT

On April 20, 2007, the Company entered into a Share Exchange Agreement (the "Agreement") pursuant to which Oceanic Well Profit, Inc. (a manufacturer of gas grills), a wholly-owned subsidiary of Home System Group ("HSG"), will acquire 100% of the Company in a stock and cash transaction valued at approximately $14,000,000. Under the Agreement, in exchange of surrendering their shares in the Company, the stockholders of the Company will receive both stock consideration and cash consideration from HSG. The stock consideration consists of 1,000,000 newly issued shares of the HSG common stock, which will be divided proportionally among the Company stockholders in accordance with their respective ownership interests in the Company immediately before the closing of the transaction. The cash consideration consists of $10,000,000 in cash, again divided proportionally among the Company's stockholders in accordance with their respective ownership interests in the Company immediately before the closing of the transaction and payable as follows: $5,000,000 due on the first anniversary of the closing of the transaction, and $5,000,000 due on the second anniversary of closing of the transaction. The obligation to pay the cash consideration is evidenced by interest-free promissory notes between HSG and each of the Company's stockholders.

On July 2, 2007 the acquisition of the Company by HSG was completed.

 

-12-


ANNEX B

 

 

HOME SYSTEM GROUP, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

 

-1-


HOME SYSTEM GROUP, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

The following unaudited pro forma financial statements for Home System Group Inc. ("HSYT" or "the Company") have been prepared to illustrate the acquisition of Holy (H.K.) Limited and Subsidiary ("Holy") in a merger transaction and the acquisition of Zhongshan Juxian Gas Oven Company Limited ("Juxian Gas") and Zhongshan Weihe Electrical Appliances Co., Limited ("Weihe").

The acquisition of Holy (H.K.) Limited and Subsidiary

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 in the acquisition of Holy. That is, the share exchange is equivalent to the issuance of stock by Holy for the net monetary assets of HSYT, 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 Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, HSYT, are those of Holy, which are considered to be the accounting acquirer.

Under the terms of the merger agreement, as of January 31, 2007, the effective date of the merger, all shareholders of Holy (H.K.) Limited received a total amount of $3 million and 42,500,000 shares of voting common stock of HSYT in exchange for all shares of Holy common stock held by all shareholders.

The acquisition of Zhongshan Juxian Gas Oven Company Limited and Zhongshan Weihe Electrical Appliances Co., Limited.

The following pro forma consolidated condensed statements of operations for the six months ended June 30, 2007 and for the year ended December 31, 2006 reflects the financial results of Juxian Gas and Weihe as if the acquisition had occurred retroactively.

On July 2, 2007, the Company completed its acquisition of 100% of Juxian Gas in a stock and cash transaction valued at approximately $14,000,000. Under the terms of the Share Exchange Agreement (the "Agreement"), the consideration consists of 1,000,000 newly issued shares of the Company's common stock, which were divided proportionally among the Juxian Gas stockholders in accordance with their respective ownership interests in Juxian Gas immediately before the closing of the transaction. The cash consideration consists of $10,000,000 in cash, again divided proportionally among the Juxian Gas stockholders in accordance with their respective ownership interests in Juxian Gas immediately before the closing of the transaction and payable as follows: $5,000,000 due on the first anniversary of the closing of the transaction, and $5,000,000 due on the second anniversary of closing of the transaction. The obligation to pay the cash consideration is evidenced by interest-free promissory notes between the Company and each of the Juxian Gas stockholders.

On July 5, 2007, the Company completed its acquisition of 100% of Weihe in a stock and cash transaction valued at approximately $45,000,000. Under the terms of the Share Exchange Agreement (the "Agreement"), the consideration consists of 4,500,000 newly issued shares of the Company's common stock, which were divided proportionally among the Weihe stockholders in accordance with their respective ownership interests in Weihe immediately before the closing of the transaction. The cash consideration consists of $27,000,000 in cash, again divided proportionally among the Weihe stockholders in accordance with their respective ownership interests in Juxian Gas immediately before the closing of the transaction and payable as follows: $10,800,000 due on the first anniversary of the closing of the transaction, and $16,200,000 due on the second anniversary of closing of the transaction.

-2-


The obligation to pay the cash consideration is evidenced by interest-free promissory notes between the Company and each of the Weihe stockholders.

The unaudited pro forma financial information

The unaudited pro forma financial information combines the historical financial information of the Company, Holy, Juxian Gas and Weihe as of June 30, 2007 and for the six months ended June 30, 2007 and for the year ended December 31, 2006. The unaudited pro forma balance sheet assumes the acquisitions were completed on June 30, 2007. The unaudited pro forma statements of operations give effect to the merger and acquisitions as if the merger and acquisitions had been completed on January 1, 2006.

These unaudited pro forma financial statements are for information purposes only. They do not purport to indicate the results that would have actually been obtained had the merger and acquisitions been completed on the assumed dates or for the periods presented, or which may be realized in the future. The accounting adjustments reflected in these unaudited pro forma consolidated financial statements included herein are preliminary and are subject to change. The accompanying notes are an integral part of these pro forma consolidated financial statements.

 

 

-3-


HOME SYSTEM GROUP, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007

   

 

   

 

   

 

   

Zhongshan

 

 

 

   

 

   

 

   

 

   

Zhongshan

   

Weihe

 

 

 

   

 

   

Home

   

 

   

Juxian Gas

   

Electrical

 

 

 

   

 

   

System

   

Holy (HK)

   

Oven Co.,

   

Appliances

 

Pro Forma

   

Pro Forma

   

Group

   

Limited

   

Ltd.

   

Co., Ltd.

 

Adjustment

   

Total

   

 

   

 

   

 

   

 

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

   

 

NET SALES $

11,617,397

  $

13,750,432

  $

9,802,899

  $

30,009,267

 

$

-

  $

65,179,995

   

 

   

 

   

 

   

 

 

 

 

   

 

OPERATING EXPENSES  

 

   

 

   

 

   

 

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

   

 

Cost of net sales

 

9,649,994

   

12,278,051

   

8,263,466

   

23,304,325

 

 

-

   

53,495,836

General and

 

 

   

 

   

 

   

 

 

 

 

   

 

administrative expenses

 

257,568

   

1,132,864

   

233,935

   

1,331,960

 

 

-

   

2,956,327

   

 

   

 

   

 

   

 

 

 

 

   

 

   

9,907,562

   

13,410,915

   

8,497,401

   

24,636,285

 

 

-

   

56,452,163

   

 

   

 

   

 

   

 

 

 

 

   

 

INCOME FROM  

 

   

 

   

 

   

 

 

 

 

   

 

OPERATIONS  

1,709,835

   

339,517

   

1,305,498

   

5,372,982

 

 

-

   

8,727,832

   

 

   

 

   

 

   

 

 

 

 

   

 

OTHER INCOME  

 

   

 

   

 

   

 

 

 

 

   

 

(EXPENSE)  

 

   

 

   

 

   

 

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

   

 

Finance costs

 

-

   

(577)

   

-

   

(83,555)

 

 

-

    (84,132)
   

 

   

 

   

 

   

 

 

 

 

   

 

Interest income

 

6,439

   

1,573

   

69,477

   

2,990

 

 

-

   

80,479

   

 

   

 

   

 

   

 

 

 

 

   

 

   

6,439

   

996

   

69,477

   

(80,565)

 

 

-

    (3,653)
INCOME BEFORE  

 

   

 

   

 

   

 

 

 

 

   

 

INCOME TAXES  

1,716,274

   

340,513

   

1,374,975

   

5,292,417

 

 

-

   

8,724,179

   

 

   

 

   

 

   

 

 

 

 

   

 

INCOME TAXES -  

 

   

 

   

 

   

 

 

 

 

   

 

CURRENT  

-

    (72,483)     (446,165)     (1,742,395)  

 

-

    (2,261,043)
   

 

   

 

   

 

   

 

 

 

 

   

 

NET INCOME $

1,716,274

  $

268,030

  $

928,810

  $

3,550,022

 

$

-

  $

6,463,136

   

 

   

 

   

 

   

 

 

 

 

   

 

BASIC AND DILUTED  

 

   

 

   

 

   

 

 

 

 

   

 

EARNINGS PER SHARE  

 

   

 

   

 

   

 

 

 

 

  $

 0.095

   

 

   

 

   

 

   

 

 

 

 

   

 

BASIC AND DILUTED  

 

   

 

   

 

   

 

 

 

 

   

 

WEIGHTED AVERAGE  

 

   

 

   

 

   

 

 

 

 

   

 

PER SHARE  

 

   

 

   

 

   

 

 

 

 

 
 

67,888,280

-4-


HOME SYSTEM GROUP, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2007

   

 

   

 

   

 

   

 

     
   

Home

   

 

  Zhongshan    

Pro Forma

     
   

System Group

   

 

   

Weihe

   

Adjustment

     
   

and

 

Zhongshan

   

Electrical

   

 

     
   

Holy (HK)

 

Juxian Gas

  Appliances    

 

    Pro Forma
   

Limited

 

Oven Co., Ltd.

   

Co., Ltd.

   

 

    Total
ASSETS  

 

   

 

   

 

   

 

     
   

 

   

 

   

 

   

 

     
CURRENT ASSETS  

 

   

 

   

 

   

 

     
Cash $

1,851,061

  $

319,849

  $

2,007,705

  $

-

  $ $ 4,178,615
Restricted cash  

-

   

-

   

1,643,594

   

-

    1,643,594
Accounts receivable  

1,964,779

   

2,993,457

   

3,682,112

   

-

    8,640,348
Prepaid expense and  

 

   

 

   

 

   

 

     
other receivable  

1,153,440

   

51,020

   

3,157,240

   

-

    4,361,700
Inventory  

629,566

   

728,539

   

3,047,905

   

-

    4,406,010
Trade deposits  

824,226

   

306,040

   

-

   

-

    1,130,266
Acquisition deposits  

6,575,000

   

 

   

 

(2)   (6,575,000)     -
Due from stockholder  

-

   

13,019

   

-

   

-

    13,019
Prepaid land lease-current  

-

   

-

   

26,826

   

-

    26,826
Loans receivable  

-

   

-

   

816,985

   

-

    816,985
Due from related party  

1,676,735

   

6,575

   

7,968,335

   

-

    9,651,645
Goodwill  

-

   

-

   

-

(1)  

40,825,979

    40,825,979
   

14,674,807

   

4,418,499

   

22,350,702

   

34,250,979

    75,694,987
   

 

   

 

   

 

   

 

     
PROPERTY AND  

 

   

 

   

 

   

 

     
EQUIPMENT - Net  

5,421,843

   

463,524

   

3,902,755

   

-

    9,788,122
   

 

   

 

   

 

   

 

     
PREPAID LAND  

 

   

 

   

 

   

 

     
LEASE-Non-current  

-

   

-

   

1,171,318

   

-

    1,171,318
   

 

   

 

   

 

   

 

     
TOTAL ASSETS $

 20,096,650

  $

4,882,023

  $

 27,424,775

  $

34,250,979

  $ 86,654,427
   

 

   

 

   

 

   

 

     
LIABILITIES AND  

 

   

 

   

 

   

 

     
STOCKHOLDERS' EQUITY  

 

   

 

   

 

   

 

     
   

 

   

 

   

 

   

 

     
CURRENT LIABILITIES  

 

   

 

   

 

   

 

     
Accounts payable and  

 

   

 

   

 

   

 

     
accrued expenses $

4,694,924

  $

1,785,732

  $

3,754,869

  $

-

  $ 10,235,525
Bank advances  

-

   

-

   

4,473,288

   

-

    4,473,288
Bank loans  

-

   

-

   

749,550

   

-

    749,550
Other payables and  

 

   

 

   

 

   

 

     
accruals  

637,836

   

-

   

1,815,454

   

-

    2,453,290
Taxes payable  

579,076

   

218,912

   

343,396

   

-

    1,141,384
Due to directors  

1,280

   

-

   

-

   

-

    1,280
Due to related party  

4,000

   

-

   

136,694

   

-

    140,694
Due to stockholder  

155,980

   

-

   

-

   

-

    155,980
Due to a director  

-

   

-

   

103,941

   

-

    103,941
Deposits  

-

   

-

   

93,441

   

-

    93,441
Dividend payable  

-

   

657,500

   

-

   

-

    657,500
   

 

   

 

   

 

(1) &  

 

     
Acquisition payable  

-

   

-

   

-

(2)  

30,425,000

    30,425,000
   

 

   

 

   

 

   

 

     
TOTAL LIABILITIES  

6,073,096

   

2,662,144

   

11,470,633

   

30,425,000

    50,630,873
   

 

   

 

   

 

   

 

     
STOCKHOLDERS' EQUITY  

 

   

 

   

 

   

 

     
   

 

   

 

   

 

   

 

     
COMMON STOCK - $0.001  

 

   

 

   

 

   

 

     
par value; 200,000,000  

 

   

 

   

 

   

 

     
shares authorized,  

 

   

 

   

 

   

 

     
67,947,949 shares and  

 

   

 

   

 

   

 

     
42,500,000 shares issued  

 

   

 

   

 

   

 

     
and outstanding  

62,448

   

60,500

   

604,000

(1)   (659,000)     67,948

- 5 -


PAID-IN CAPITAL  

6,667,979

   

-

   

-

   

21,994,500

   

28,662,479

NOTE RECEIVABLE FOR  

 

   

 

   

 

   

 

   

 

STOCK ISSUANCE   (900,000)    

-

   

-

   

-

    (900,000)
COMMON STOCK  

 

   

 

   

 

   

 

   

 

SUBSCRIBED  

40,000,000

   

-

   

-

   

-

   

40,000,000

SUBSCRIPTION  

 

   

 

   

 

   

 

   

 

RECEIVABLE   (33,425,000)    

-

   

-

   

-

    (33,425,000)
RETAINED EARNINGS  

1,410,293

   

2,000,446

   

14,482,735

(1)   (16,483,181)    

1,410,293

CUMULATIVE  

 

   

 

   

 

   

 

   

 

TRANSLATION  

 

   

 

   

 

   

 

   

 

ADJUSTMENT  

207,834

   

158,933

   

867,407

    (1,026,340)    

207,834

   

 

   

 

   

 

   

 

   

 

TOTAL STOCKHOLDERS'  

 

   

 

   

 

   

 

   

 

EQUITY  

14,023,554

   

2,219,879

   

15,954,142

   

3,825,979

   

36,023,554

   

 

   

 

   

 

   

 

   

 

TOTAL LIABILITIES AND  

 

   

 

   

 

   

 

   

 

STOCKHOLDERS' EQUITY $

 20,096,650

  $

4,882,023

  $

27,424,775

 

$

34,250,979

  $

86,654,427

-6-


The following adjustments to the unaudited pro financial statements are based on the assumption that the acquisition was consummated as at June 30, 2007:

(1) To record the acquisition of Juxian Gas and Weihe as follows:

(a)    Issuance of 1,000,000 shares of the Company's Common Stock and an acquisition payable of $10,000,000 for 100% of Juxian Gas; (b) Issuance of 4,500,000 shares of the  Company's Common Stock and an acquisition payable of $27,000,000 for 100% of Weihe;

and

(2) To apply the $6,575,000 Weihe acquisition deposit against the acquisition payable.

-7-


HOME SYSTEM GROUP, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006

    Home
System
Group
    Holy (HK)
Limited
    Zhongshan
Juxian Gas
Oven Co.,
Ltd.
    Zhongshan
Weihe
Electrical
Appliances
Co., Ltd.
    Pro Forma
Adjustment
    Pro Forma
Total
   

 

   

 

   

 

   

 

   

 

     
   

 

   

 

   

 

   

 

   

 

     
NET SALES $

26,391,044

  $

3,938,562

  $

18,286,648

  $

39,171,522

  $

-

  $

87,787,776

   

 

   

 

   

 

   

 

   

 

   

 

OPERATING EXPENSES  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Cost of net sales  

23,736,261

   

3,507,759

   

15,480,842

   

31,021,790

   

-

   

73,746,652

General and  

 

   

 

   

 

   

 

   

 

   

 

administrative expenses  

992,379

   

253,458

   

476,169

   

2,009,843

   

-

   

3,731,849

   

 

   

 

   

 

   

 

   

 

   

 

   

24,728,640

   

3,761,217

   

15,957,011

   

33,031,633

   

-

   

77,478,501

   

 

   

 

   

 

   

 

   

 

   

 

INCOME FROM  

 

   

 

   

 

   

 

   

 

   

 

OPERATIONS

1,662,404

 

177,345

 

2,329,637

 

6,139,889

 

-

 

10,309,275

   

 

   

 

   

 

   

 

   

 

   

 

OTHER INCOME  

 

   

 

   

 

   

 

   

 

   

 

(EXPENSE)  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Finance costs   (313,784)    

-

    (597)     (35,705)    

-

    (350,086)
   

 

   

 

   

 

   

 

   

 

   

 

Interest income  

5,183

   

244

   

32,293

   

14,966

   

-

   

52,686

   

 

   

 

   

 

   

 

   

 

   

 

    (308,601)    

244

   

31,696

    (20,739)    

-

    (297,400)
INCOME BEFORE  

 

   

 

   

 

   

 

   

 

   

 

INCOME TAXES  

1,353,803

   

177,589

   

2,361,333

   

6,119,150

   

-

   

10,011,875

   

 

   

 

   

 

   

 

   

 

   

 

INCOME TAXES -  

 

   

 

   

 

   

 

   

 

   

 

CURRENT  

-

    (59,340)     (771,792)     (2,014,475)    

-

    (2,845,607)
   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

NET INCOME  

$1,353,803

   

118,249

   

$1,589,541

   

$4,104,675

   

-

   

$7,166,268

   

 

   

 

   

 

   

 

   

 

   

 

BASIC AND DILUTED  

 

   

 

   

 

   

 

   

 

   

 

EARNINGS PER SHARE $

 

  $

 

  $

 

  $

 

  $

 

  $

0.112

   

 

   

 

   

 

   

 

   

 

   

 

BASIC AND DILUTED  

 

   

 

   

 

   

 

   

 

   

 

WEIGHTED AVERAGE  

 

   

 

   

 

   

 

   

 

   

 

PER SHARE  

 

   

 

   

 

   

 

   

 

   

63,989,730

-8-



EXHIBIT 23.1 HTML

exh231.htm

 


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the inclusion in the Current Report on Form 8-K/A of Home System Group (the "Company"), of our report, dated August 30, 2007, relating to the financial statements of Juxian Gas Oven Co., Ltd. for the years ended December 31, 2006 and 2005.

MORISON COGEN, LLP

Certified Public Accountants
Bala Cynwyd, PA

September 10, 2007