Form 8-K Home System Group

Events or Changes Between Quarterly Reports

What is Form 8-K?
  • Accession No.: 0001437749-10-001790 Act: 34 File No.: 000-49770 Film No.: 10878661
  • CIK: 0001172319
  • Submitted: 2010-06-04
  • Period of Report: 2010-05-31

8-K HTML

hsg_8k-053110.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of Earliest Event Reported): May 31, 2010
 
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 No.)
incorporation or organization)
   

Oceanic Industry Park
Sha Gang Highway, Gang Kou Town, Zhongshan City
Guangdong Province, P.R. China
(Address of principal executive offices)

347-624-5699
(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):
 
o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
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Item 1.01
Entry into a Material Definitive Agreement.

On May 31, 2010, Home System Group (the “Company”) through its wholly-owned subsidiary, Zhongshan City Weihe Appliances Co., Ltd. (“Weihe”), a company organized under the laws of the People’s Republic of China (“PRC”), 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 has agreed to acquire and Sellers have agreed to sell 90% of the Sellers’ equity interest in Sanfan.

Pursuant to the terms of the Acquisition Agreement, Weihe will acquire for cash consideration of approximately $12,000,000, 90% of all outstanding equity interest in Sanfan.

The total consideration for the acquisition of Sanfan is to be paid to the Sellers in five payments as follows:

 
·
$600,000 within 15 business days of the full execution of the Acquisition Agreement.
 
·
$1,800,000 within 15 business days of the completion of the registration of the transfer of  90% of the outstanding equity interest in Sanfan to Weihe with the applicable regulatory government departments in the People’s Republic of China.
 
·
$2,400,000 within 15 business days of the satisfactory completion of the March 31, 2010 financial audit and the final determination of the consideration for the acquisition of Sanfan.
 
·
$3,600,000 upon the completion of the audit of Sanfan’s financial statements for the fiscal year 2010.
 
·
$3,600,000 by December 31, 2011.

In the event the audit results of the financial statements of Sanfan shows that its actual net income for the twelve months ended March 31, 2010  is less than $2,250,000, the cash consideration for the acquisition of Sanfan to be paid by Weihe shall be adjusted proportionally.

A copy of abstract of Acquisition Agreement is filed as an exhibit to this Current Report on Form 8-K.  The summary of the Acquisition Agreement set forth above is qualified by reference to such exhibit.

Item 8.01
Other Events.

On June 4, 2010, the Company issued a press release announcing the entry into the Acquisition Agreement.  A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information contained herein and in the accompanying exhibits is being furnished pursuant to “Item 8.01 Other Events.”  The information contained herein and in the accompanying exhibits shall not be incorporated by reference into any of our filings, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing.  The information in this report, including the exhibits hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act. 

Item 9.01
Financial Statements and Exhibits.

(d) Exhibits
 
Exhibit No.
 
Description
10.1
 
Form of Equity Ownership Transfer Agreement
99.1
 
Press Release of Home System Group, June 4, 2010

 
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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: June 4, 2010
 
By:
/s/ Yu Lei
     
Yu Lei
Chief Executive Officer
 

 
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EXHIBIT INDEX

Exhibit No.
 
Description
10.1
 
Form of Equity Ownership Transfer Agreement
99.1
 
Press Release of Home System Group, June 4, 2010
 
 
 
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EX-10.1 HTML

ex10-1.htm

EXHIBIT 10.1

Zhongshan City Weihe Appliances Co. Ltd. and Zhongshan Sanfan Electrical Appliance Co., Ltd. Equity Transfer Agreement

Party A: Zhongshan City Weihe Appliances Co., Ltd.
 
Party B: Zhongshan Sanfan Electrical Appliance Co., Ltd.
 
Party C: All Shareholders of Zhongshan Sanfan Electrical Appliance Co., Ltd.
 
Basic Information about All Parties in the Agreement
 
1.  Zhongshan City Weihe Appliances Co. Ltd (in the agreement referred as “Party A”, “acquirer” or “Weihe Electronics Appliances”) is a registered and legitimate existence of the limited liability company in Zhongshan City of Shandong Province. It is mainly engaged in household decorative fans, energy saving lighting and other product development, production and sales. The ultimate shareholder of Zhongshan City Weihe Appliances is a public company “Home System Group”, which is incorporated as a Nevada corporation. Home System Group is currently listed on OTCBB and the ticker is HSYT.
 
2.  Zhongshan Sanfan Electrical Appliance Co., Ltd.(in the agreement referred as “Party B”, “Sanfan Electronics Appliances” or “target company”) is a registered and legitimate existence of the limited liability company in Zhongshan City of Shandong Province. It is mainly engaged in household fans development, production, marketing and sales. It was founded on April 1, 2009. The net sales for 2009 was $ 11,000,000 and the net income was $ 1,600,000. The net sale for twelve months ended March 31, 2010 was $ 15,000,000 and the net income was $ 2,250,000.
 
3.  Party C is all shareholders of Zhongshan Sanfan Electrical Appliance Co., Ltd.(in the agreement referred as “Party C”, “Shareholders of Sanfan Electronics Appliances” or “shareholders of Target Company”). Party C holds 100% shares of Zhongshan Sanfan Electronics Appliances Co. Ltd.
 
According to Party A and Party B respective advantages in product manufacture and marketing, in order to lead better cooperation, enhance cooperation and efficiency and improve market competitiveness, all parties reached the agreement on the fact that Party A will acquire 90% shares of Party B.  All parties should follow the agreement in future cooperation.
 
Article 1 Definition
 
1.1 U.S. securities regulation:  U.S. Securities and Exchange Commission (SEC)
 
1.2 Accounting Standards: U.S. Generally Accepted Accounting Principles (US GAAP)
 
1.3 Year: 12 consecutive months, rather than a full calendar year or fiscal year
 
1.4 PCAOB: Public Company Accounting Oversight Board
 
1.5 All financial statement in the agreement is audited financial data given by PCAOB registered accounting firm under US GAAP.
 
 
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Article 2 Acquisition Mode
 
2.1 Party C agrees to transfer 90% of its shares held (in the agreement referred as “target shares”) of Sanfan Electronics Appliances to Party A.
 
2.2 Party A agrees to acquire the target shares by cash payment at the specific price and specific payment method in Article 3.
 
Article 3 Target Share Price and Payment Method
 
3.1 Target Share Price
 
(1) Party B’s revenue and net income were approximately $ 15,000,000 and $ 2,250,000, respectively. Its total valuation is $ 13,500,000, based on the valuation of Target Company of approximately six times of the net income for the twelve-month period ended March 31, 2010. Party A will acquire 90% shares by cash and pay Party C $ 12,000,000.
 
(2) The target price above is based on the net income of $ 2,250,000 for the period from April 1st, 2009 to March 31, 2010 in the audit report under US GAAP by PCAOB registered accounting firm which is hired by Party A. If the audit results show that Party B's actual profits less than $2,250,000, Party A’s final acquisition price should be adjusted by the percentage of the difference. (If the audit results show that Party B's actual net income is more than $2,250,000, the acquisition price will be maintained unchanged.)
 
3.2 Payment Method
 
(1) First Installment: 600,000 U.S. dollars will be paid to Party C by Party A within 15 business days upon agreement effective date.
 
(2) Second Installment:  1,800,000 U.S. dollars will be paid to Party C by Party A within 15 business days after completion of transfer of business registration process of target shares.
 
(3) Third Installment:  2,400,000 U.S. dollars will be paid to Party C by Party A within 15 business days upon the completion of March 31, 2010 financial audit and final acquisition price is determined based on audit result.
 
(4)  Fourth Installment:  3,600,000 U.S. dollar will be paid to Party C by Party A upon the completion of audit on financials of fiscal year 2010 of Sanfan.
 
(5)  Final Installment: 3,600,000 U.S. dollar will be paid to Party C by Party A by December 31, 2011.
 
(6) If the purchase price of the stock acquisition is reduced according to the relevant agreement, the differences will be adjusted proportionally from payment procedure mentioned above.
 
 
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Article 4 The Transfer of Shareholder’s Right
 
4.1 After the agreement is signed and Party A completes the payment of USD$600,000, Party C must cooperate with Party A to transfer the targets shares and business title to Party A.
 
4.2 After Party A completes the third payment of USD$2.4 million, Party C is no longer obligated or responsible for any shareholder obligation. This includes but is not limited to debts or any further possible debts and liabilities. After completion of USD$2.4 million, Party A is fully responsible for the shareholder obligation. Company would not have an obligation to pay any amounts that might be due to Party C.
 
Article 5 Covenants
 
Party C Covenants
 
1.  
Party C promises that the revenue and net income for twelve months ended March 31, 2010 were at least $15 million and $2.25 million, respectively.
 
2.  
 Party C guarantee that all documents are signed voluntarily and therefore acquire by legal authorization.   Each of the parties hereto agrees to cooperate with the other parties in taking, or causing to be taken.
 
3.  
Upon the agreement, Party C will transfer its 90% shares held (in the agreement referred as “target shares”) of Sanfan Electronics Appliances to Party A.
 
4.  
The Company shall not, and (as applicable) shall not permit any of its Subsidiaries to:
 
(1) Incur, assume or pre-pay any indebtedness for borrowed money or enter into any agreement to incur, assume or pre-pay any indebtedness for borrowed money.
 
(2) Establish any property mortgage; encumber guarantees or any of third-party interests or provide security for others.
 
(3) Make or forgive any loans, advances or capital contributions to, guarantees for the benefit of, or investments in, any party, other than loans between or among the Company and any of its Subsidiaries.
 
(4) Change any of the material policies, practices or procedures in the contract is not allow unless agreement has been made between parties.
 
(5) Make any substantive changes within the management team and employees that may cause significant impact on the company.
 
(6) Conduct any abnormal business purposes or enter into any substantive contract or capital commitments.
 
(7) Declare, set aside or pay any dividends on (whether in cash, stock or property), or make any other distributions in respect of any of its capital stock. 

(8) Chang company’s basic business.

 
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(9) Make any substantive purchases of any type of non-cash assets.
 
(10) Make any substantive changing company’s investment plan, or
 
(11) Make any other possible behaviors or actions might cause above-mentioned items.
 
5. After the effective date of the contract, any type of debt that is found or occurred before the agreement, and has not been notify to Party A prior to the agreement, Party C will be responsible for the debt.
 
6. Party B and its subsidiary (if) do not have any incomplete lawsuit or any other legal action. If any incomplete lawsuit or legal action hasn’t been notified to the Party A before the agreement has been made, Party C is fully responsible for it.
 
5.2 Party A Covenants
 
1. Party A is a legally established and validly existing limited company, with all the necessary capacity to provide civil rights and power and perform all obligations of this agreement and responsibility.
 
2. The signing of this agreement and have been or will be fulfilling All the necessary authorization without violating the constitution of party.
 
Article 6 Liability for Breach of Covenant
 
6.1 Fine for breach of contract will be USD$1 million.
 
6.2 Neither party are allow to contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of the Company,
 
Article 7 Confidentiality
 
7.1 During the implementation of the agreement, all information exchanged among all parties is commercially confidential. All parties under the agreement holding confidential obligation should not disclose or distribute to outsiders.
 
7.2 The confidential obligation period for all parties is two years after the agreement is fulfilled.
 
Article 8 Controversy
 
During the implementation of the agreement, if there is controversy, all parties should settle it by friendly negotiation. If agreement cannot be reached, any party has the right of Litigation.
 
Article 9 Law Applicability
 
The Agreement applies to the laws of People's Republic of China.
 
 
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Article 10 Effect
 
This Agreement will be immediate effect after sealed and signed by all parties.
 

 
(Below of the agreement is blank.)
 

 

 

 
(This page is signing page)
 
Party A:
 

 

 
Party B:
 

 

 
Party C:
 

 

 

 
The agreement signing date: May 31, 2010
 
The agreement signing location: Zhongshan City, Guangdong Province
 
 
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EX-99.1 HTML

ex99-1.htm

EXHIBIT 99.1
 
Home System Announces Agreement to Acquire Zhongshan Sanfan Electrical Appliance Co., Ltd.
 
Acquisition Expands Home System’s Production Capacity of Fans and Lightings Segment
 
NEW YORK & GUANGDONG, China--(BUSINESS WIRE)--Home System Group (OTCBB: HSYT; "Home System" or the "Company"), a Chinese - based manufacturer of a variety of household appliances sold by large retailers, today announced an agreement through Zhongshan City Weihe Appliances Company (“Weihe”), Home System Group’s largest subsidiary, to acquire Zhongshan Sanfan Electrical Appliance Co., Ltd. (“Sanfan”).
 
Under the terms of the agreement, Home System will purchase ninety percent of the ownership interest of Sanfan for an aggregate purchase price of approximately $12 million, based on a valuation of Sanfan of approximately six times of the net income for the twelve-month period ended March 31, 2010.  The transaction will be accounted for in accordance with generally accepted accounting principles, and the acquisition is expected to close during the third quarter of 2010. The acquisition is subject to various standard closing conditions, including the satisfactory completion of the due diligence and financial audit on Sanfan.
 
Sanfan is an export-oriented manufacturer of fans which are largely distributed to Southeast Asia countries such as Malaysia and Singapore. Founded in April 2009, Sanfan manufactures fans ranging from industrial blowers to ceiling units, which typically have a greater cooling capacity than the fans Weihe produces. These fans are in high demand in Southeast Asia. For the twelve months ended March 31, 2010, Sanfan’s revenue and net income were approximately $15 million and $2.25 million, respectively.
 
“We are pleased to enter the acquisition agreement with Sanfan,” said Mr. Yu, Home System’s Chief Executive Officer. “Bringing Sanfan on board will help us quickly expand the Company’s fans and lightings business, diversify its portfolio of our products and rapidly access the Southeast Asia market, thus broadening our customer base. By integrating Sanfan into Weihe, we believe that the manufacturing cost of fans and lightings can be decreased due to the price benefit of combing Sanfan’s purchase with Weihe’s. By providing a broader market for Home System products, Home System will be in better position to serve the growing market for fans and lightings.
 
About Home System Group
 
Home System Group is primarily engaged in the production of a variety of small household appliances, stainless steel gas grills and ovens, ceiling and table fans, and decorative lamps, LEDs and energy-saving lamps. Its products are sold through distributors and direct to retailers located in America, Europe, Australia, Africa, Southeast Asia and China. For more information, please visit: http://www.homesystemgroup.com.
 
FORWARD-LOOKING STATEMENTS:
 
This release contains "forward-looking statements" for purposes of the Securities and Exchange Commission's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934. These forward-looking statements are subject to various risks and uncertainties that could cause Home System Group's actual results to differ materially from those currently anticipated, including the risk factors identified in Home System Group's filings with the Securities and Exchange Commission.
 
Contacts:
 
Home System Group
 
Eva Wang, 347-624-5699